Recently, public-interest news organization ProPublica, in partnership with public radio’s Marketplace, reported on allegations of fraud and deceptive enrollment tactics at the University of Phoenix, the nation’s largest for-profit educational institution. While the allegations are both saddening and disconcerting, they should come as no surprise. After all, the University of Phoenix’s parent company, Apollo Group, is a publicly-traded entity whose shares are listed on NASDAQ. As such, Apollo Group and its subsidiaries have one responsibility, and one alone: to increase shareholder value.
As any first-year business school student learns, “increasing shareholder value” is a fancy way of saying “make money that can be returned to shareholders,” either in the form of rising stock prices or income payments such as dividends. Unlike non-profit education providers, whose sole duty is to educate their students, for-profit entities must put profits before education. Were for-profit educators to focus their attention on anything other than making money, these organizations could face lawsuits from shareholders for neglecting their fiduciary duty. As the ProPublica/Marketplace report demonstrates, the University of Phoenix clearly recognizes this imperative.
By encouraging recruiters to deceive potential students into attending one of its programs, even if the program clearly does not meet the students needs and interests, the University of Phoenix has clearly placed profits atop quality education and service to students. While the school denies any wrongdoing, or that it encouraged recruiters to mislead potential students, its actions, as reported by ProPublica, The New York Times, and BusinessWeek, clearly speak to the contrary. That it has recently set aside $80 million in reserves for lawsuits further demonstrates its guilt. Accounting rules stipulate that such reserves are only established when the organization is both more likely than not to lose a lawsuit and when the amount is reasonably estimable. Not even the strongest denial from university president Bill Pepicello can counter the implications of an $80 million reserve.
In its response (PDF) to the ProPublica/Marketplace report, the University of Phoenix argues that the story is little more than a “series of anecdotes” and that it reflects the actions of a few rogue enrollment counselors. Were this the first time that the University of Phoenix, or other for-profit colleges, faced such allegations, its claim may hold some merit. On the contrary, the organization paid $10 million in 2004 to settle similar allegations.
Regardless of how one views the ProPublic/Marketplace report, or what opinion one may have of the University of Phoenix and its for-profit siblings, the simple fact is that for-profit colleges are answerable to shareholders in profits alone, whereas non-profit educational institutions are responsible to their students, faculty, and donors in graduation rates.