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Allegations against U of Phoenix persist Part 2

For-profit schools such as the University of Phoenix get most of their revenue from federal student aid. They also face accusations of building enrollments through high-pressure tactics that leave students in deep debt. Amy Scott reports.

Kai Ryssdal: While most businesses are still trying to find their way out of the recession, for-profit higher education is doing quite fine, thanks very much. Enrollments are up 20 percent, profits are up as well. But that doesn't mean there aren't any problems.

The biggest for-profit schools get most of their revenue from federal student loans. The billions of dollars their customers borrow to pay tuition. The University of Phoenix is the biggest for-profit school out there, probably the best known as well.

A few years ago, it paid the government $10 million over accusations about its high-pressure recruiting tactics. Now it's put aside another $80 million to settle a lawsuit about the same thing.

And a joint Marketplace ProPublica investigation shows some for-profit schools are still abusing the system. Sharona Coutts and Amy Scott reported our two-part series. Here's Amy:

AMY SCOTT: You've seen the ads on mass transit, Facebook and TV, promising job retraining, online classes, flexible schedules.

UNIVERSITY OF PHOENIX AD: I was the first in my family to graduate from college. But I won't be the last.

Hundreds of thousands of Americans have been drawn to for-profit colleges like the University of Phoenix.

UNIVERSITY OF PHOENIX AD: And I am a Phoenix.

Phoenix isn't the only school that profits from the stream of federal student aid. But it's the single biggest recipient. Last fiscal year, 86 percent of its revenue came from the federal government. That's more than $3 billion. But who's benefiting from all that money?

MICHELE RAMBO: My name is Michele Rambo, and I live in Grand Prairie, Texas.

Rambo signed up at the University of Phoenix in Dallas a few years ago.

RAMBO: I did tell them that I was pregnant and they were like, oh, well that just solves everything, you know, you qualify for a grant, you're covered. And I'm like, so I don't have to pay anything? And they told me no.

Classes went well. She got good grades. She was almost finished with her associate degree when a school counselor called about moving her on to a bachelor's program.

RAMBO: And one of the questions that she asked me completely stopped the whole conversation. She had asked me, so what kind of loan do you have?

Rambo thought she didn't have a loan. But when she enrolled, she signed what she thought was a form inquiring about federal aid.

Turns out it was an application for loans that'll cost her $18,000 when she graduates.

RAMBO: It was scary. It still is scary. I'm still scared. I still don't even know what I'm going to do yet.

So how could this happen?

It turns out the enrollment counselors at the University of Phoenix get paid in part based on how many students they recruit. The university's negotiating the settlement of a lawsuit that claims employees were pressured to sign people up.

Bill Pepicello is president of the University of Phoenix. He says his school goes out of its way to ensure counselors don't mislead students.

BILL PEPICELLO: We train our financial counselors very carefully to provide an array of options for students, and to try to be as specific as they can as to what the implications of each of those are.

One financial aid expert told us it's not uncommon for students to sign a bunch of paperwork without really understanding the terms of their loans.

Sound familiar?

At a recent hearing, Congressman George Miller of California likened problems in student lending to another recent crisis.

GEORGE MILLER: I'm a little worried that we're developing a process here that looks a lot like sort of subprime student loans. And knowing that these people don't have the capacity to pay it back, knowing that they may not have the ability to benefit from this education, we go ahead and extend them the credit...

What he means by not benefiting, is that many students saddled with debt don't finish their degrees. The for-profit industry says about 60 percent of its students graduate from two-year programs. The University of Phoenix says its rate is less than half that. But whether students drop out or graduate, they still leave school burdened with debt. And it's debt they can't escape.

BARMAK NASSIRIAN: It is very important to understand, student loans are the most collectible obligation in the United States.

Barmak Nassirian is with the American Association of Collegiate Registrars and Admissions Officers.

NASSIRIAN: Students who default on their student loans have their Social Security benefits intercepted, have their tax returns intercepted, have their wages garnished. They are ruined for life.

The Department of Education says more and more students are falling behind on their loans. For-profit schools have a higher default rate than the average.

Harris Miller represents many for-profit schools as CEO of the Career College Association, a lobby group in Washington, D.C. He says defaults are higher at his schools not because they're for-profit, but because they sign up poor people. People who might not otherwise have a shot at college.

HARRIS MILLER: The simple fact is if your institution is willing to accept lower income students, which our institutions are, which community colleges are, which minority serving institutions are, they have higher default rates.

The taxpayer actually makes money from the interest on these loans. But critics of the system say students often lose out. Not only are they deep in debt, they don't always have much to show for it.

I went to see Katherine Clark at her home in Seal Beach, Calif. She signed up for a business management degree at the University of Phoenix. She says the program included courses like "Skills for Lifelong Learning."

KATHERINE CLARK: Like they had worksheets where it was like if you're deserted on an island, and you have a list of things, put them in order of how they would be important to you. And I'm just like are you kidding? What am I ever going to use this for?

Clark didn't qualify for federal student aid. So she paid some of the bill with credit cards. The rest she owes to a private lender, Sallie Mae.

CLARK: In total, I've paid out of my pocket, $3521. And I still owe $600.

Scott: And what did you get in return?

Clark: Absolutely nothing.

The Apollo Group, which owns the University of Phoenix, made just shy of half-a-billion dollars in profit last year. But Barmak Nassirian says no one's keeping a close eye on the quality of the education for-profit schools like Phoenix provide.

NASSIRIAN: In too many instances we see keyboarding skills transcribed as Computer Science 101, we have seen working with Microsoft Windows transcribed as a Theoretical Course in Operating Systems, and the like.

Clark was so disappointed she dropped out after a course and a half. University of Phoenix officials say out of more than 420,000 current students, a few anecdotes don't tell the whole story.

But Marketplace and ProPublica have heard other troubling accounts. Tomorrow you'll hear allegations of some abusive tactics for signing students up.

With Sharona Coutts of ProPublica, I'm Amy Scott for Marketplace.

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Examining U of Phoenix recruitment

The University of Phoenix is fighting a lawsuit claiming it ripped taxpayers off by billions of dollars. Marketplace's Amy Scott and Sharona Coutts of ProPublica get info from a former Phoenix recruiter in the last of a two-part series.

Kai Ryssdal: President Obama turned to education today. He dangled $5 billion in grant money in front of states that are willing to line up their priorities with his. That's K-through-12 education, of course. Yesterday we were talking about higher education. For-profit higher ed, specifically. The biggest for- profit university in the country -- the University of Phoenix -- is fighting a lawsuit. The suit says the school cheated taxpayers out of billions of dollars. Money that came from federal student loans. It's just the latest in a series of claims that for-profit schools use deceptive tactics to sign people up. Our story reported by Marketplace's Amy Scott and Sharona Coutts of ProPublica continues now. Here's Amy.

AMY SCOTT: It might start with a click on a banner ad. Or maybe an online competition to win an iPod. You fill out some personal information. And then the calls start.

KATHERINE CLARK: They were very persistent.

TERESA BARRON: She called me every day.

DANIEL RAY: I legitimately got three or four calls a day for about two weeks until I finally talked to him.

Katherine Clark, Teresa Barron, and Daniel Ray are just three of the many students around the country who tell a similar story. They've been hounded by enrollment counselors from for-profit colleges. Anyone familiar with the sales profession will recognize some of their hard-sell tactics.

But ProPublica and Marketplace have uncovered several instances where recruiters crossed the line. One tactic: win the target's trust.

CLARK: We would e-mail constantly throughout the day, text message, talk on the phone.

Kat Clark was a student at the University of Phoenix in Long Beach, Calif.

At first, she had a great relationship with her enrollment counselor.

CLARK: We had barbecues and stuff together.

Scott: Did you feel that the friendship was genuine?

CLARK: Yeah, I don't really think it was like a genuine thing, I think it was more of a, this is my job and I'll do anything to make sure that I get paid.

Enrollment counselors do get paid based at least in part on how many students they sign up. And how long those students keep coming to class. That's legal, as long as pay isn't solely based on recruitment. The company says frequent contact with students is about supporting them.

Bill Pepicello is the university's president.

BILL PEPICELLO: Certainly we want the students to believe that we are acting in their best interests, but it's certainly not by developing personal relationships.

But another student told us a University of Phoenix counselor buttered up her grandmother.

Jewel Calderon lived in Fayetteville, N.C. She says the counselor told her he and grandma had what he called "church" over phone.

JEWEL CALDERON: He said he prayed with her over the phone, and he told her his mother was sick, and that they prayed about that. And he gained her trust, which made me gain his trust, and that's why I decided on that college as opposed to others.

Calderon ended up taking out close to $12,000 in government loans. When she and other students started having problems with the school, the friendships they'd developed with counselors evaporate.

Brandon Burke lives in Portland, Ore.

Until last December, he worked as an enrollment counselor at the University of Phoenix. He says managers taught him and his colleagues a number of strategies to trick students into signing up. One ploy was to create a "sense of urgency."

BRANDON BURKE: One thing we would be told to do is call up a student who was on the fence and say, all right, I've only got one seat left. I need to know right now if you need me to save this for you. Well, that wasn't true.

In the training session, Burke says staff asked the manager what to do if that student showed up for class, and there were only six or seven people there.

<BURKE: And the manager said, well you tell them that the class got so full that we had to split it.

Scott: So you were basically told to lie?

Burke: Yeah. We were told to lie.

Burke wasn't the only counselor we spoke to who says managers told them to lie. And we've learned Phoenix isn't the only for-profit school that's used these tactics. Brandon Burke says managers encouraged him to bend the truth in other ways, too.

BURKE: People would say you know I saw the CSI, and I want to do that.

CSI: I got three GSWs. One to the left kidney area, one to the left thigh.

Burke says he got frequent calls from fans of the popular TV show. He says supervisors told him to steer them to the criminal justice program. That might qualify them to work as prison guards. But not as forensic criminologists. But one of the biggest complaints students had was that counselors misled them about credits.

BURKE: One of the things that we were told to do was, you say we are regionally accredited, which means they're transferable anywhere, which isn't true. They're eligible for transferability.

In fact, it's up to each school to decide whose credits they accept. And in many cases, University of Phoenix credits don't transfer. Burke says he never misled students. He left the company in disgust. Two former counselors from another campus sued the university, claiming they were pressured to sign students up.

Last week, the company announced it expects to cough up more than $80 million to settle that case. But the University says it doesn't train its counselors to lie or to mislead students.

Harris Miller is CEO of the Career College Association, an industry lobby group. He chalks any wrongdoing up to a few rogue employees.

HARRIS MILLER: If these accusations are correct than the appropriate authorities should investigate them. And if it's true, then my response is hang 'em high.

Miller says higher education is a heavily regulated industry with oversight by federal and state authorities, as well as private accreditors.

MILLER: The fact of the matter is we're educating over two million students. And focusing on a few wild allegations, and a few documented instances of violations of the law, is not the way to describe the career college sector.

But the sector has been in trouble before. In the early 90s, the government cracked down on hundreds of for-profit trade schools for abusing student-aid programs.

Barmak Nassirian represents college admissions officers. He sees many of the same abuses today.

BARMAK NASSIRIAN: The M.O. has not changed over the years. We have one step at a time over the course of the past 15 years removed all of the provisions that together momentarily cleaned the system up.

Congress and the Department of Education are looking at the rules again. The Obama administration wants more people to go to college. Congress poured more than $15 billion in stimulus money into college grants. Advocates welcome the investment in higher ed. But they also want change.

They say without it, the system will continue to benefit for-profit companies more than the students they're supposed to help.

With Sharona Coutts of ProPublica, I'm Amy Scott for Marketplace.

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