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FRONTLINE'S Response to the University of Phoenix's "THE FACTS"

May 7, 2010

For-profit institutions are under-regulated

U of P: University of Phoenix is one of the most heavily regulated institutions in the country. Since our inception, we have participated in 30 accreditation visits by regional accrediting bodies, 35 evaluations by state education agencies and undergone 10 administrative reviews by U.S. Department of Education. At our last Higher Learning Commission accreditation visit, University of Phoenix was awarded a 10-year grant of accreditation - the longest period of time for which an institution can receive approval without an interim review visit.

FRONTLINE Responds: The University of Phoenix sets great store by its oversight, in particular by the accreditation process. But that process is considered "problematic." In a speech on April 28, a senior Department of Education official described it that way, pointing out the "inherent conflicts of interest" that exist because accreditation is a peer review process and likening it to the way credit rating agencies work on Wall Street. He also pledged new federal guidance on the way accreditation should work.

For-profit institutions lack quality standards

U of P: University of Phoenix offers a comprehensive approach to higher education, with more than 100 degree programs at the associate through doctoral levels. Our programs are held to the same rigorous accreditation standards as public four-year colleges and universities, in addition to the myriad of regulatory standards for a market-driven institution. University of Phoenix is regionally accredited by the Higher Learning Commission and is a member of the North Central Association, one of six regional accrediting bodies considered to be the gold standard of accreditation. Regional accreditation is as rigorous for University of Phoenix as it is for the other colleges and universities accredited by the North Central Association, which include Northwestern University, University of Notre Dame, University of Michigan, Ohio State University and University of Arizona, to name a few. University of Phoenix is also approved by higher education regulating agencies or bodies in 43 states, with additional program-specific state approvals as required. State approvals include rigorous academic standards, and site reviews by teams of higher education experts are often required.

FRONTLINE Responds: The accreditation standards, as critics have noted, are not necessarily a good gauge of a University's success in teaching. Accreditation does not mean that the University of Phoenix has the same academic standards as other accredited universities.

The University of Phoenix does do more than other for-profit colleges in publishing information on its student body and outcomes in the form of an Annual Academic Report (AAR), which it started in 2008.

FRONTLINE was interested in reporting further on the quality of education at the University of Phoenix beyond what is in its AAR, including the differences between online and ground campus courses. In a letter to the University of Phoenix, FRONTLINE asked a series of questions about enrollments, retention and completion, but the University declined to provide the information requested.

For-profit institutions' cost of tuition is approximately five to six times that of community colleges

U of P: It is important to note that while public institutions are subsidized by taxpayers and represent a hefty portion of a state's annual budget, for-profit institutions such as University of Phoenix cost taxpayers substantially less than public and non-profit institutions. Our tuition is in the mid-range nationally for private universities, and our textbook and material costs are dramatically lower than average due to our innovations in making them available in electronic format.

FRONTLINE Responds: The University of Phoenix correctly points out that public universities are subsidized and that for-profit colleges cost the taxpayer substantially less in direct expenditures. However, they did not mention that they receive 86 percent of their revenue from federally backed student loans and that another significant source of Phoenix's revenue is tuition paid for by federally backed loans for students in the US military. So, as many observers have noted, taxpayers are underwriting the for-profit business model and the profits that inure to the benefit of shareholders and executives.

Students of for-profit institutions struggle with excessive debt

U of P: University of Phoenix promotes responsible borrowing practices and is committed to enhancing financial literacy and reducing student debt. In fact, student debt loads at the University are within national averages compared to both public and private, non-profit four-year colleges and universities. Our students (graduating between July 2007 and June 2008) average in loans between $14,200 for associate degrees and $25,221 for bachelor's degrees compared to the national average of $13,041-29,793 (or a mean of $23,200) as reported by the Institute for College Access and Success' December 2009 report, Student Debt and the Class of 2008. Additionally, our most recently reported student loan default rate of 9.3 percent is below the national average of 9.8 percent for comparable schools and well below the national average of 11.0 percent for all proprietary schools combined. University of Phoenix promotes responsible borrowing practices and is committed to enhancing financial literacy and reducing student debt. We have recently introduced a series of tools to assist students in better understanding the direct and indirect costs of their education, enabling them to make informed payment decisions. Additionally, we have dedicated resources and established partnerships with student loan servicers to communicate early and often with students to help them understand their rights and responsibilities regarding student loan repayment.

FRONTLINE Responds:  The University of Phoenix does not point out that their default rate measures only a small proportion of its total defaults.  The federal government requires schools to report only the "official" rate - but this rate measures defaults only in the first two years after a student starts repayment.  A high official default rate could seriously impact their business as it can trigger a government cut off of access to federal student loans. Moreover, the Government Accounting Office (GAO), in a recent report, noted default rates at for-profit colleges over three and four years after graduation and these show they increase significantly above the "official" two-year rate.

For a fuller discussion of student debt and for-profit colleges, see Chapter X of College Inc. and the latest report from College Board, entitled "Who Borrows Most?" and published in April 2010.

Enrollment counselors at for-profit institutions are incentivized to enroll anyone

U of P: University of Phoenix is committed to providing access to a quality education, while better identifying and enrolling only those students who have a reasonable chance of success in our rigorous degree programs. While enrollment advisors for University of Phoenix are compensated in part based on enrollment factors, the majority of their compensation is based on non-enrollment factors, including student retention, customer service, judgment, professional development, working relationships and communication skills.

FRONTLINE Responds: Enrollment counselors at the University of Phoenix and other for-profit colleges are incentivized to enroll large numbers of new students every quarter.  As FRONTLINE reported, The University of Phoenix, with no admission of wrongdoing, settled last December with the government and two former enrollment counselors for $67.5 million over incentive compensation issues. Incentive compensation for enrollment counselors was banned by Congress in 1992. In 2002, the Department of Education issued rules interpreting the congressional ban that permitted incentive compensation in certain circumstances. These so-called safe harbors are under review in the current rule-making process initiated by the Obama administration last year. New rules on this and other issues that will affect for-profit colleges will be issued before the end of the year.

For-profit institutions' marketing spend greatly exceeds investments in faculty

U of P: University of Phoenix spends almost twice as much on instructional costs and services than we do on sales and marketing. It is important to note, however, that any measured speculation about our marketing spend should be put into context with our size and scope. University of Phoenix is the largest institution of higher learning in the U.S., serving more than 450,000 students with 100 degree programs offered online and on-campus at more than 200 locations in the U.S. Therefore, our marketing is national, versus local in scope.

FRONTLINE Responds: The University of Phoenix's owner, Apollo Group, argues that it spends almost twice as much on what it calls "instructional costs" as on sales and marketing.  It gets there by defining "instructional costs" broadly. But Apollo's own figures show that in 2007 and 2008, the company spent significantly more on sales and marketing than on teaching and classroom expenses.  In 2008, for example, Apollo Group spent over $800 million on sales and marketing that year, but only $675 million directly on teaching and classroom expenses.

The rest of "instructional costs" includes expenses such as pay for general administrators, the cost of bad debt when students fail to pay their bills, and the cost of processing financial aid.

Apollo did not provide this breakdown in its 2009 annual financial report.

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posted may 4, 2010

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