• UPDATED: Like its namesake, University of Phoenix has ups and downs Wednesday, November 11, 2009

    Politically connected University of Phoenix is preparing to make a big pay-out to settle a federal lawsuit filed in Sacramento.

    University of Phoenix is the world’s largest for-profit college, and advertizes heavily to attract students, airing television commercials in which people proclaim, “I am Phoenix.”

    The parent company, Apollo Group, reported in its latest annual filing with the Securities & Exchange Commission that enrolled 443,000 students as of the end of its last fiscal year, and it continues to expand. It has roughly 40 “learning centers” spread across California.

    Through its Apollo Global, the corporation is opening for-profit schools globally in a parnership with the Carlyle Group, itself a politically connected investment house that has counted former President George H.W. Bush as an advisor. Carylye, too, has had legal troubles.

    University of Phoenix is the largest recipient of federal student aid among for-profit schools, saying in its SEC filing that federal student financial aid accounted for 86% of the $3.76 billion in revenue in its last fiscal year. Its revenue had been $2.98 billion in the prior year.

    UPDATE: Here is the latest news on federal payments to for-profit universities.

    Big growth numbers aside, University of Phoenix has problems

    Despite all that, University of Phoenix has hit a rough patch. First, Bloomberg detailed issues related to the company’s bottom line.

    Then, reporter Sharona Coutts of the investigative journalism project, ProPublica, detailed students’ stories about sales pitches to entice them to enroll:

    “The students said Phoenix counselors misled them about whether credits would transfer to other schools, pretended to befriend them and lied about financial aid. The recruiters said they were told to rope students in with phony claims that classes were filling fast, or by suggesting that federal grants would cover costs, even if that was uncertain.”

    University of Phoenix called the story nothing more than anecdotes.

    Bad press is one thing. Quite another is a whistle blower lawsuit, pending since 2003 before U.S. District Judge Garland E. Burrell Jr., in Sacramento.

    Recruiters Mary Hendow and Julie Albertson, both of the Bay Area, brought the case, contending that their pay included incentives for enrolling students, a violation of the Higher Education Act. 2:03-cv-00457-GEB-DAD, Hendow, et al., v University of Phoenix.

    Apollo Group, the school’s parent company, issued a statement to investors announcing that it had set aside $80.5 million for “estimated litigation settlement.” Several firms are involved in the case including this one, this one, this one and  this one. Apollo is represented by this firm.

    Because the whistle blower case involves federal money, Uncle Sam stands to collect more than half of any settlement.

    Apollo is not alone.

    A second for-profit school, Devry, Inc., told investors earlier this month that it was settling a similar whistleblower case in which recruiters alleged they too were paid incentives to enroll students. Devry said it was settling for $4.9 million to “avoid the cost and distraction of a potentially protracted appeals process.” The settlement awaits court approval in U.S. District Court in Chicago.

    Apollo is a major political player nationally

    Apollo founder John Sperling and his son Peter Sperling are among America’s wealthiest people. The father and son, along with Apollo, are heavy donors to California politics. In this decade, Apollo and the Sperlings have spent at least $6.3 million on California campaigns. The bulk of it has gone to ballot measures, including propositions to ease legislative term limits and criminal sentencing and drug laws, and to promote alternative energy.

    They also have given $418,000 to to state candidates and both political parties, California Secretary of State records show.

    Apollo and other companies that operate for-profit schools spend heavily on federal campaigns and lobbying in Washington. Their main issue is the ensure that students can collect federal aid if they enroll in such places.  Businessweek reported in March that the schools are intent on collecting federal stimulus money.

    University of Phoenix’s parent has spent $1.2 million on lobbying since 2008, according to the Center for Responsive Politics.

    Federal Election Commission records reviewed by ProtectConsumerJustice.org show that Apollo employees and executives have contributed $1.4 million to federal campaigns in this decade. Other companies, including Devry, Inc. and Nova Southeastern, have donated $200,000 to federal candidates this decade.

    Dan Morain

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