University of Phoenix and Student Outcomes

Kevin Carey of Education Sector comments on the allegations concerning the University of Phoenix:

“Shameful. That’s the only word for the University of Phoenix’s conduct if the allegations described in today’s Higher Ed Watch and reported in the Chronicle are true. In a nutshell: Back in the early 90’s there were a series of scandals involving unscrupulous for-profit colleges that tricked students into borrowing lots of money through federal loan programs for which the students received little or nothing in return. The students would quickly default on the loans, the colleges would keep the money, and the federal government, which guarantees student loans, would be left holding the bag. In response, the feds prohibited students from using federal loans to attend colleges where more than 25% of borrowers default within two years. (Last year Congress changed the provision to 30% within three years).

Now three former Phoenix students have filed a class-action suit in Arkansas alleging that after they dropped out of the university, Phoenix payed off their federal loans without their knowledge and then turned around and demanded repayment on more onerous terms that the students would have gotten under the federal loan program. Other for-profit institutions have allegedly used similar tactics in the past, involving collection agencies and other high-pressure tactics. Basically, it’s a way of lying about default rates that hurts students in the bargain. Phoenix disputes the allegations.

I’m not among those who think that for-profit colleges and universities are necessarily bad. It’s a free country and some institutions have put together a package of services that students want to buy. For-profits often seem to be focused on meeting the needs of their customers, particularly working and non-traditional students, in ways that traditional non-profits do not. But they also tend to be expensive and highly dependent on students borrowing a great deal of money to attend. Dropout rates at for-profits are often quite high. And if more than a quarter or a third of your students are defaulting on their loans within a few years of leaving, then pretty much by definition they weren’t getting a sufficiently valuable service in exchange for their money.”

There are obviously many aspects to this situation, but I’m particularly interested in dropout rates. It would be useful to know to what extent dropout rates are a result of the recruiting/admission practices. In other words, would these students – recruited by schools like U of P – do better or worse at other kinds of institutions, namely traditional colleges and universities? Until we have better data on student outcomes, this will be difficult to answer. Presently, we ‘explain’ these dropout/completion statistics by pointing to the commercial intent (for-profit or non-profit) and status (exclusive or open admission) of the schools, but that’s not a particularly advanced analysis.
Let me know what you think.

Posted in: Business Models

2 thoughts on “University of Phoenix and Student Outcomes Leave a comment

  1. You mentioned abuses in the early 90’s but I can provide personal verification that this abuse began soon after the Guaranteed Student Loan Program was established in the 1960’s. I happened to have established the second state program (Oklahoma) to administer this law and almost immediately began to see evidence of abuse from proprietary schools.

    The common practice was to promote their program assuring the students that the school was arranging financing for them and making it sound as though they might not have to repay. I began to receive calls from disappointed students who discovered they were in a program for which they were ill-suited and when they tried to drop out of the program they were told their student loans which normally should have been arranged between the students and their bank but in these cases were arranged by schools were immediately due and payable and the students were left with no educational benefit and a big loan on their hands.

    Working closely with the U.S. Office of Education (then a part of the old HEW) we worked out a procedure for disqualifying schools from future participation based on these abuses. As I recall we probably had 3 or 4 colleges in the state that were disqualified.

    I have no personal knowledge of any abuse by the University of Phoenix and do not want to imply otherwise. I am however still cautious about “for-profit” schools based in part of my experience in the past.

    John Cleek


  2. This just happened to me….I was told that my financial aid was being processed and to just start class and everything would be ok. However, the first class they enrolled me in was a course on how to be successful in college..Really??? I already have a degree, I think I know how it works..After a few weeks in that class and having to deal with classmates that couldn’t write a complete sentence, I decided that it just wasn’t worth it. I completed the “withdrawal form” and almost immediately began getting emails stating that I owed them $1300 immediately…WHAT??? I thought I had a student loan?? Why am I paying the University of Phoenix if I had a loan through Wachovia?? I guess this is their way of “padding” their dropout rates. If they return the whole loan, there is no record of that student dropping out..WHAT A SCAM!!!!!


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