University of Phoenix to cancel $141 million in student debt to settle FTC dispute

Rachel Leingang | The Republic | azcentral.com

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Corrections & Clarifications: A previous headline on this story misrepresented the student debt some of the settlement money would cancel. It only resolves debts owed directly to the university.

PHOENIX – The University of Phoenix has agreed to a $191 million settlement with the Federal Trade Commission over claims that students were harmed by deceptive advertising, the commission announced Tuesday.

The University of Phoenix and its parent company, Apollo Education Group, faced FTC charges that claimed the school had "used deceptive advertisements that falsely touted their relationships and job opportunities with companies such as AT&T, Yahoo!, Microsoft, Twitter, and The American Red Cross," the FTC said in a press release.

The settlement money includes $50 million in cash and $141 million to cancel debt for students who were harmed by the deceptive ads, the FTC said.

The university did not admit any wrongdoing as part of the settlement.

The commission called the settlement the largest ever obtained against a for-profit school.

“Students making important decisions about their education need the facts, not fantasy job opportunities that do not exist," said Andrew Smith, the director of the FTC’s Bureau of Consumer Protection.

The university is based in Phoenix and had nearly 100,000 students last year. Students primarily take classes online. The school was owned by a publicly-traded company from 1994 to 2016, when it was sold to private investors. At its peak, the school had more than 470,000 students.

The commission's complaint and stipulated final order, which was approved by commissioners, will be filed in federal court in Arizona, the FTC said. Stipulated final orders from the commission have the force of law after they are approved and signed by a district court judge.

Rohit Chopra, one of the commissioners, said on Twitter that "today's action against University of Phoenix and future actions against scam schools will set the stage for canceling more student debt and terminating bad-actor access to valuable government benefits."

Students, meanwhile, can be left with "a mountain of debt and few career prospects" while for-profit schools haul in federal aid, Chopra said.

Today's action against University of Phoenix and future actions against scam schools will set the stage for canceling more student debt and terminating bad-actor access to valuable government benefits. https://t.co/ySQdYXQKEf — Rohit Chopra (@chopraftc) December 10, 2019

The FTC started its investigation of University of Phoenix in 2015.

The university noted that the settlement involved "a single advertisement campaign that ran from late 2012 to early 2014 and occurred under prior ownership."

In a statement, it said it continues to "believe the university acted appropriately."

"This settlement agreement will enable us to maintain focus on our core mission of improving the lives of students through career-relevant higher education, and to avoid any further distraction from serving students that could have resulted from protracted litigation, as well as the time and expense of the litigation itself," the university said.

What the FTC alleges

In its complaint against the school, the FTC alleged advertisements were a major part of attracting students to the school. Ads targeted military and Hispanic consumers in particular, the FTC said.

The ads showed employers like Microsoft, Twitter, Adobe and Yahoo!, "giving the false impression that UOP worked with those companies to create job opportunities for its students and tailor its curriculum for such jobs," the FTC said.

But the companies were not partnered with the university, and the companies were instead used in advertisements as a marketing strategy, according to the FTC.

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The school also misrepresented that other companies, like the American Red Cross, Avis and AT&T, had worked with them to develop courses, the FTC said.

These advertising and marketing materials targeted active-duty military members, veterans and their spouses, and the school has been the largest recipient of Post-9/11 GI Bill benefits since that program started, the FTC said.

Where will the money go?

Of the $191 million settlement, $50 million will be paid to the FTC for consumer redress. The remaining $141 million will cancel outstanding debt owed to the university by former students who first enrolled during the time period when consumers likely were exposed to the deceptive advertisements, the FTC said.

Students who have outstanding debts owed directly to the university and who were first enrolled between Oct. 1, 2012, and Dec. 31, 2016, will be able to have those debts forgiven, the university said.

Federal and private loan debts are not affected by the settlement, though.

The university will automatically relieve the outstanding balances for students who qualify, and students don't need to take any action. They will be notified by the university about the process, the school said on a website that answers questions about the settlement.

The university also will ask credit reporting agencies to delete the debt record for these balances for students who qualify.

Any restrictions on diplomas or transcripts due to outstanding balances will be lifted, the website says.

Complaint details ad shift

Before 2012, the school's advertising pitch focused mostly on flexibility, convenience, online classes and accreditation, the FTC wrote in its complaint.

But that wasn't differentiating the school enough from other options, and enrollment was declining, the FTC said.

A campaign called "Let's Get to Work" was launched, focusing on job opportunities. The companies used in these ads were chosen based on "desired brand association," the FTC said, not actual partnerships the school had.

"The strategy was to focus on 'large, stable, technology-based, forward-focused companies with great reputations' because these companies drove the highest level of prospective student interest," the complaint said.

For example, one television ad narrated by actress Phylicia Rashad showed a woman driving through a parking lot as logos for companies like Microsoft, the American Red Cross and Adobe are shown.

“Like a lot of things, trying to find a better job can be frustrating, so at University of Phoenix, we’re working with a growing list of almost 2,000 corporate partners, companies like Microsoft, American Red Cross, and Adobe, to create options for you," the voiceover from Rashad said.

The companies included in the ad did not have relationships with the university that would create job opportunities and were not involved in developing curriculum, the FTC said. Instead, many of the "partners" referenced in the ad were companies whose employees could receive a tuition reduction benefit from the university in exchange for promoting the school's academic programs, the FTC said.

One senior vice president said that including Adobe in the ad was "smoke & mirrors," the FTC said in its complaint.

Another television ad, also voiced by Rashad, showed several companies' logos as stops on a train. But the companies referenced in the ad did not have job opportunities specifically for the university's students. Instead, the university had a third-party provider that hosted an online portal with job listings from some of the companies, the FTC said.

"Most, if not all, of the job listings were in fact widely available to non-UOP students," the FTC wrote in its complaint.

An ad showed a "hall of success" of students and alumni who were hired by top companies.

But many students already were employed by these companies before they attended the school and why they were enrolled, and they were hired "regardless of their graduation from UOP," the FTC said.

This ad campaign is no longer running, and hasn't done so for five years, the university said.

The complaint details other practices in marketing and advertising, including online ads and misrepresentations from enrollment advisers.

The university said student outcomes have improved after new leadership took over in 2017.

A fact sheet from the university says the huge enrollment growth in years past, driven largely by associate's degrees that competed with community colleges, was "not the right approach to best serve students." Since then, more than two-thirds of these programs were eliminated, the university said.

The fact sheet also says retention and graduation rates for bachelor's programs have increased from 2017 to 2018.

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