March 12, 2008

Capella University Overcharged Student Lenders $588,000, Audit Finds

Washington — Capella University, an online, for-profit institution based in Minneapolis, could be asked by the U.S. Education Department to repay more than a half-million dollars in student-aid money.

The department’s inspector general has issued an audit in which it contends that the university overcharged lenders participating in the federal guaranteed-student-loan program, and the department itself, by a total of $588,000.

The inspector general says Capella made a series of mistakes in how it calculates student eligibility for government-subsidized loans, including failing to return all funds disbursed on behalf of students who dropped out before their first day of class.

The university, in a written response to the audit, says it recognizes some past shortcomings in its methods, and suggests it overcharged lenders by a total of $278,883. Capella also says it has made changes to prevent such problems in the future.

The inspector general disagrees with some of the university’s assertions, suggesting in a report to the department that Capella be asked to make further changes, including conducting eligibility checks on its students before it requests federal funds, not afterward. —Paul Basken

Comments

1. emblematic of for-profit schools because they are in “it” with a responsibility to stockholders to make money not really serve a commonwealth or citizenry of folks in need of education to gain access

   — Good ol' Bubba    Mar 12, 04:41 PM    #

2. It’s about time that for-profit diploma mills like Capella and Phoenix are called on the carpet. Both of these schools are also the subject of a lawsuit against them for patent infringement. As Bubba said, schools of Capella’s ilk only exist to make money for their shareholders. Their administrators are constantly cashing in on their insider stock options. Michael Offerman, Capella’s President just did that again a few days ago. Maybe he knew this report was coming out.

   — Disgusted    Mar 13, 05:23 AM    #

3. Here, here. I recall a few years ago, UPhoenix had to return millions in Federal aid disbursed to students enrolled in ineligible programs, and Capella was previously up to its eyeballs in last year’s student loan scandals. Maybe carelessness, maybe incompetence, maybe just good old corporate America-style disregard for the rules.

   — DS    Mar 13, 08:01 AM    #

4. To Disgusted- Since you think that regionally accredited institutions are “diploma mills,” I would suggest that YOU go to college somewhere, anywhere pal… and improve your critical thinking and writing skills. If you could be identified, you would be subject to a libelous lawsuit for making false and damaging statements. Online learning has enabled many adult learners to return to higher education given their personal job and family commitments. This results in increasing the education of people (well, most people Disgusted). Traditional colleges and universities have jumped on the bandwagon now only after schools like Walden University (the first) started distance education many years ago. While I agree that private colleges and universities can sometimes be greedy and this needs to be checked; non-profit institutions have been guilty of egregious acts throughout history as well. It is called capitalism. If you do not like it, I would suggest moving to a communist country or dictatorship where you would not have to worry about these issues… but perhaps others. Try changing your pen name to Ignorant next time.

   — Robert    Mar 13, 08:41 AM    #

5. Yes Robert, but did those adults who returned to higher education receive an education or just a diploma?

   — Dr. Fred Fidura    Mar 13, 09:49 AM    #

6. A question…I would ask for a student or professor for Capella to speak on this, as right now it appears that many assumptions are being made on what is believed to be true or false when we did not actually knows the validity of any statements. Education or diploma, who knows, we would need to teach or enroll to find out with certainty correct?

   — Rational Logic    Mar 13, 10:27 AM    #

7. Here’s some data from NCES on Phoenix. Capella doesn’t report graduation and retention because it doesn’t admit Freshmen. University of Phoenix Online: Freshman Retention – 28%, 6 year graduation rate – 6%. Source: http://nces.ed.gov/collegenavigator/?q=University+Of+Phoenix&s=all&pg=4&id=372213
   In the interest of my own academic integrity, I do want to state that I think these numbers are probably not 100% representative since many students who attend online institutions may take a quarter off and therefore show up as a non-retained student. They will probably also take longer than 6 years to graduate using this option. As for educational quality, I’ve asked it before and I’ll ask it again…what’s the difference between sleeping through a lecture in a 600 seat auditorium and listening to one online? While I question the educational value of online programs, I ask those same questions of large-scale industrially structured programs at flagship universities. To me, if the threat of online schools taking market share convinces the big universities to focus their efforts on improving undergraduate education, then it’s worth it.

   — JS    Mar 13, 11:48 AM    #

8. As a doctoral canditate for Capella and former financial aid advisor for three traditional institututions of higher education, I can proudly say I am receiving an OUTSTANDING education.

   — Candy    Mar 13, 11:53 AM    #

9. For God’s sake people… have you never made a processing error, personally or professionally? I work in the Student Loan industry and can name several public and private schools that have experienced refund and processing issues with audit findings. It happens all the time and were the press to name them all, you might be surprised at the well-known schools who have experienced audit findings. Federal regulations are very complex and difficult to keep up with under the best of circumstances. Let’s not rush to broad generalized judgments here about the calibre of education offered based on some financial aid refund issues. That’s like saying we should shut down a restaurant because their till was short… their food is still fine!

   — CanDo    Mar 13, 11:57 AM    #

10. Everyone, pick up your toys and go to your room! The issue is: Did Capella University commit an accounting faux pas? Probably. If so, they will be held accountable for the balance, will likely pay a fine, and then move on smartly. Sidebar issue: Are ACCREDITED universities and colleges “diploma mills” if they offer education by means other than brick-and-mortar classrooms? No. The US Department of Education’s accreditation process is extremely rigorous and does not allow for substandard pedagogy. In the end, I suppose, if you are an idiot you will remain so whether you received your degree online or through an Ivy League institution…Oh, I forgot, Yale is also offering online courses now—what a kick in the liver of the pompous academic purists!

    — Jack Mac    Mar 13, 12:04 PM    #

11. I am a PhD student at Capella and have been busting my butt for four years. I have to write at least one research paper in every class with at least 30 peer-reviewed journal articles. Not to mention all of the other research in writing I have to do in every class. There is constant interaction in the classroom, dispite the fact it is online. I have had 6 of my papers published. I have developed three commercial software packages. I teach at a major public university. I would say I am getting an education. I can’t believe someone would be so ignorant to say that it is a diploma mill.

    I attended a state university where many of their classes are online and their instructors sucked. They were dumb as a box of rocks. My point is, it does not matter on the delivery method. It matters on how you are taught. The people that bad mouth Capella are just worried they may not have their student base because they do not have a better delivery method. Get your facts right before you run your big mouth.

    Mad as you know what!!!

    — Mad as you know what!!!    Mar 13, 12:23 PM    #

12. #8 I think you mean candidate.

    — D    Mar 13, 12:48 PM    #

13. People…get a grip! This is not isolated to “just” online programs! I worked for an institution that was considered a key player in traditional classroom education. The financial aid education scandal that was revealed, rocked its boat! But, it was not called a diploma mill, nor was its’ accrediation challenged or attacked. I think that the backlash against online teaching is that “society has not come face to face with the realization” that the teaching industry has changed and that there is now competition for the brick and mortar style of education! I say this because I earned a Ph.D. from a traditional university and a second from an online university. And I can say that pound for pound, I worked just as hard for the online degree, if not harder, as I did for the traditional degree.

    — Masie Madden    Mar 13, 01:27 PM    #

14. Much ado about nothing.

    — Hoover    Mar 13, 09:20 PM    #

15. I am a financial aid director for the past 4 years and have been in financial aid for 10 years and am working on my Master’s degree at Capella and am also proud to say that I am receiving a great education. Yes, Capella actually has instructors and professors that are, more than highly, qualified to teach in the realm of education. Yes, I applied for financial aid and have received the appropriate amount of student loans based on my eligibility and yes, they performed verification and yes, I did not receive my financial aid until I was admitted into my program and had begun my first class. I have never had any problems with any of their services. I have two four year institutions right in my back yard and I don’t enroll there because they do not have online programs! For those of you who are still in the dark ages of traditional education, you need to come out of your caves and realize that people need an education but don’t have the time to sit and listen to dull lectures at times that are convenient for the faculty.

    — Corey    Mar 14, 12:06 PM    #

16. Cory, very well put. I feel the same way you do. I can speak from experience, since I am working on my doctorate at Capella. Capella is by no means an easy place to get an education. You have a lot of work to do every week. You have to justify every comment you make with peer-reviewed journal references. Above all, their instructors understand technology to be able to use it effectively.

    Sam

    — Sam    Mar 14, 12:19 PM    #

17. Having attended (and worked for) both so-called public and for-profit universities, campus-based and online, I understand the difference as one of marketing. Public universities rely on both government subsidy and private donation, and are thus in a constant PR campaign to get money. My alma matter shut down its General College because it threatened the University’s prestige, which threatens its funding.

    The loan scandal craze of 2007, by the way, involved public and private schools and even Dept. of Education officials. By contrast, this story is just about an administrative error.

    — Diploma Miller    Mar 14, 12:19 PM    #

18. Disgusted (post #2) is acutally an ex Capella learner who was kicked out of the university on 2004.

    THe ex-learner sued Capella University in 2005 for discrimination and failing to accomodate him because he claimed to be disabled and subject to certain rights under the American’s with Disabilities Act.

    A judge in the US District Court found not only was this ex-learner not disabled as concerned with the ADA but also that Capella did more than it had to even if he was. A search of degreeboard.com can show actual copies of the judges order in which he dismisses the case with prejudice.

    The ex-learner has waged a one man war against Capella and has a web site dedicated to this. Another judge found that his web sites contain untruthes and distorted facts.
    Concerning this incident he declares that Capella is guilty of violating the law.

    He fails to mention on his site that the lawsuit he files against Capella was dismissed and does not mention that their lawsuit against him has been allowed to proceed.

    — Niles Standish    Mar 14, 10:43 PM    #

19. Why can’t Capella supporters realize that their school violated the law? They keep pointing their fingers at other schools claiming that “they did it too” but the USDE web site certainly doesn’t support that claim. The Inspector General’s Office found that,

    ““For the 2002-2003 through 2004-2005 award years, the University did not comply with the provisions of the law and regulations governing the return of Title IV, HEA program funds and FFEL and Pell disbursements.”

    That is significant.

    — DJ    Mar 15, 10:48 PM    #

20. DJ no one is claiming they didn’t violate “the law” but we are looking at this from a point of view that is was an oversight in having inadaquate practices and accounting principles and not an intential violation of the civil (and not criminal code) that governs Title IV funds.

    The University has made more than adaquate changes to make sure that those mistakes were corrected and the errors would not be repeated.

    — Niles Standish    Mar 16, 02:13 PM    #

21. Capella will pay the money back and then continue provide the excellent education they are known for.

    — Leftowich Murphy    Mar 16, 05:44 PM    #

22. While the school may have its supporters they obviously have not done what they are supposed to do with respect to financial aid. It doesn’t take a mental giant to take the next leap to their programing and staff. Online can be a good thing but without brick and mortar facilities it is often more problematic for the consumer.

    Further, there are great online programs out there but the high caliber programs offer and pay for buildings. In any case, no school should have access to Title IV funds carte blanc and all should have to comply with all the department mandates. Seems to me they served up their financial aid director last year for taking kickbacks.

    No doubt they will be forced to pay the funds back once they have a lengthy battle over the amount but look what they cost the taxpayer in their error or effort to get by with it. Are we looking at the tip of the iceberg? How much of this is going on? Schools that don’t play by the rules hurt us all especially those who are enrolled there.

    With regard to accrediting bodies it is important to remember who pays what to their organization. We are talking about taxpayer funds here. If they don’t accredit they don’t function or exist. It is perhaps an inherent conflict of interest and all schools should be required by the feds to provide ADR and an Ombudsman program.

    — tiffany    Mar 17, 10:15 AM    #

23. Do you really think this was an intentional act by Capella? It was an error due to the way Capella was processing the financial aid, nothing more.

    Do you know how may other colleges and States have made this same error?

    If the Chronicle wasn’t so anti-online you would never have heard this story.

    — Niles Standish    Mar 19, 10:49 PM    #

24. I agree, Tiffany. Capella isn’t one of many others. If you look at the US Dept of the Inspector General’s web site, there are very, very few cases like this one.

    — DJ    Mar 20, 06:11 AM    #

25. Actually Capella violated a civil code and not a criminal code. What they did was not a criminal act but a civil concern. Capella could be fined or sued but not criminally charged. Persons could only be criminally charged if they knowingly treid to steal the money or commit fraud and in this case thay did not.

    — Niles Standish    Mar 20, 08:37 AM    #

26. Actually Tiffany I am mistaken. Those listed on the website are just for this year.

    I do see that land-based Vatterott College in Des Moines Iowa and that the school designed exclusively for the deaf, Gallaudet University, also recently were audited by the OIG.

    These two schools are known for quality and have very goos reputations.

    — DJ    Mar 20, 08:44 AM    #

27. I graduated with my bachelors degree from the U of MI. I decided to pursue my MBA and I have to say that the calliber of education that I am recieving is better than any traditional institution. The Faculty, most who are PhD from traditional schools are engaged, helpful, and responsive. Some faculty are more critical than others; but isnt that the case with any school? The education that I am recieving has made an impact in my role as a Project Manager with Microsoft. Also, I heard about Capella through one of Microsoft’s VPs who is an Alum of this great University.

    — M K    Mar 20, 05:32 PM    #

28. I am an new applicant and will be starting the program in April. Ive heard nothing but great things about this University.

    — Siggs    Mar 20, 05:36 PM    #

29. Please be reminded that almost everything negative about Capella University is the from one man.

    — Niles    Mar 20, 08:27 PM    #

30. Capella University as well as other institutions aren’t nor should be beyond reproach. While there is a very negative site about Capella there are many former or current students and employees that have posted there. Intent is a tricky thing but they have definitely gotten caught with their hand in the cookie jar. A look at the sanction will also tell you that Capella also held 13.5 MILLION dollars in federal aid that wasn’t returned appropriately. What a great way to generate huge operating costs. I do not find that to be ethical and believe that competent universities would not make those kinds of errors. It would be interesting to see if any schools ever make one in the favor of the department. I am not an online objector but have concerns about the ease in which business can now expand into the educational sector and the huge potential for corruption.
    Tif

    — tiffany    Mar 25, 10:57 AM    #

31. Tif,

    What I do not find ethical is schools that raise tuition costs for garbage such as new stadiums and sports program improvements. However, when I attended these schools years ago, it seems I had not choice in the matter. Look at one of the most recent examples, the University of Minnesota student body paying for a new football stadium. I wonder, are all student football fans? If not, why are they paying for it?

    — Scot    Mar 26, 03:15 PM    #

32. I do not think it will be as long as one might think before degrees from schools such as Capella garner more respect. Through conversations with collogues of my wife and through my B&M MBA, most of these professors see it as a two decade project and by 2025 significant changes of the view of online education will have taken place.

    Dare I say that several Tier 1, II, and III colleges will place much focus on online education in the next 20 year. Further, while the Capella’s and the Phoenix’s of the world may not exist forever, they are changing the precious landscape so many “scholars” have attached themselves to like barnacles to a boat for centuries. The real fear is the online environment and that for profit is merely a cover from this writer’s perspective. The justification goes only as far as shareholders and maximizing profits. Scholars continue to share these as the primary reasons and fail to actually conduct any feasible research on the quality of the education. This, my friend, is hypocrisy at its finest, scholars who live by research, but when threatened, run to the corner of obvious truths and fail to provide any further insight.

    — Scot    Mar 26, 03:25 PM    #

33. JS (early on) had it right…what is the difference between sleeping through one of these mass lectures at a “big name school” and getting a (let’s be honest) similar experience online. Big name universities are much more concerned with research than with education. If not then the tenure process would be weighted towards teaching and not how much grant money you bring in.

    — TR    Mar 26, 03:57 PM    #

34. Dear JS and TR,

    There is a huge difference in education formatting, style, and a multitude of other considerations that as of yet have not been dealt with. Don’t forget some of these institutions and for-profits have tremendous political lobbying power. I believe each type of institution serves a purpose but hesitate to recommend stricly online settings that do not offer a campus no matter how tall their administrative tower may be.

    Whether it is a stadium or Rupunzel’s Castle they all are going to cost you. The potential for fraud in any institution is great however, recourse and frequency tends to be less in certain settings. One of the most disturbing things about graduate education is the lack of recourse students have when something goes wrong. Schools play possum and the student is out when one of their faculty or administrtive personnel blunders. The students and the yes taxpayers foot the tremendous bill. A nasty trend is to deny a degree or license in order to effectively shut down the financial resources of anyone who may have a legitimate claim.

    Attorney’s aren’t anxious to take on multi-million dollar companies unless there is an open-shut case and they have the funds to float the boat. It is a shame that the institutions who do not play by the rules injure the ones who strive for excellence. The problem is that internal corruption rarely comes to light. The universities control all the information and decide what to release and what to bury. One has to wonder what happens to all those complaints that never get investigated.

    I even know a student who went to a big ten that can’t seem to find her residency grades so while she has her degree she can not get licensed as a physician. Seems there was a harrassment issue that put a fly in the ointment. Legislators don’t make it a priority either unless big bucks are on the line.

    That’s a real concern for those at this higher level. Few can afford to take them to task and when they get there, the judicial system is hesitant to interfere. It is also notable that any school will also cut off faculty that poses any risk to the mother ship no matter if they are tenured or not. There are many instructors who also bear the brunt of a system that has few if any, accountable checks and balances.

    With all the publicity Capella has been getting I am a whole lot more than suspicious.
    Tiffany

    — tiffany    Apr 7, 11:27 PM    #

35. Tiffany,

    What publicity concerning Capella makes you suspicious?

    Is it the fact the their growth is in the 20% area quarter after quarter?

    Is it the fact that they hold accreditations and designations that most online schools are not even allowed to apply for?

    Is it the fact that Capella graduates are being promoted to hig level positions?

    Is it that Capella meets the needs of a larger market (adult learners) that Big Ten and other schools?

    The only publicity that this subject is getting is from the Chronicle, which has proven itself to be anti-online, and one web site that is run by a forner Capella student that was suspended from the school and has lost mulitple complaints and lawsuits filed agianst Capella.

    Have you been posting anything on the other 8 schools that have been accused of mishandling title IV funds including two that made mistakes with 4 times the money that Capella is said to have mistakenly kept?

    What is your agenda Tiffany (if that is your real name)?

    — Niles Standish    Apr 8, 09:37 AM    #

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