December 19th, 2019

$191m settlement against Univ. of Phoenix

Education Secretary Betsy DeVos offers partial forgiveness for defrauded borrowers

The University of Phoenix (UOP), one of the nation’s largest for-profit colleges will pay a record $191 million settlement to resolve charges stemming from a five-year investigation by the Federal Trade Commission. On December 10, Andrew Smith, Director of FTC’s Bureau of Consumer Protection noted it was the largest settlement the Commission has obtained in a case against a for-profit school.

“Students making important decisions about their education need the facts, not fantasy job opportunities that do not exist,” stated Smith.

Among the multiple charges filed against UOP were deceptive lead generation, false claims of affiliation with government or major employers, misrepresentations about credit transfers and a lack of proof for the job and earnings touted by the university. FTC additionally noted that enforcement actions against bad actors in the for-profit college sphere can also prompt actions related to student debt cancellation, end access to taxpayer-funded higher education programs, and specific protections of military education benefits.

The settlement also had unanimous support of FTC’s Board of Commissioners, two of whom   issued separate statements related to the accord: Commissioners Rohit Chopra and Rebecca Kelly Slaughter.

“The deceptive claims set out in the Commission’s complaint are particularly galling to me because they sold false hope – robbing consumers of their time and money for the prospect of a job that did not exist,” stated Commissioner Rebecca Kelly Slaughter. “We know that many consumers are still victims of or vulnerable to the abuses perpetrated by unscrupulous for-profit schools.”

UOP’s “Let’s Get to Work” marketing campaign claimed nearly 2,000 corporate partnerships that did not exist. Firms such as Staples, Microsoft, Red Cross and Twitter were falsely represented as partners that would fast track employment opportunities for Phoenix students.  The effort was also launched at a time when UOP’s enrollment waned over a four-year period.

“In the years after the recession when good jobs were scarce, this message held a lot of appeal for struggling Americans,” noted Commissioner Rohit Chopra. “But – as alleged in the complaint – it was false. No such partnerships existed…Today’s order returns millions of dollars to students deceived by this campaign.”

According to FTC, former students who were enrolled from October 2012 to through December 2016 may be eligible for $50 million in restitution, and an additional cancellation of $141 million owed in unpaid tuition balances. This settlement does not address federal loans borrowed during this time period. Apollo Education Group, UOP’s parent company, was given 15 days from the settlement date to advise former students who are covered by the agreement. Additionally, Apollo and Phoenix must alert credit reporting agencies within 55 business days to remove related debts from the affected students’ credit report.

“While Education Secretary Betsy DeVos continues to make it easier for predatory education companies to recruit and rip off students, the FTC has proven that they have the backs of the borrowers and their families,” added Whitney Barkley-Denney, a senior policy counsel with the Center for Responsible Lending (CRL). “The students defrauded by the University of Phoenix deserve nothing less than full loan forgiveness from the Department.”

On the same day as FTC’s record enforcement action, Secretary DeVos announced a new plan to limit loan forgiveness to only partial amounts determined by a formula, a different and debatable approach to the Department’s Borrower Defense to Repayment rule (BD) adopted under the Obama Administration.

By its own admission, the Department conceded that as of November 12 this year it had received over 290,000 borrower defense applications, and further that more than 225,000 or 77% remained pending. Even so, the Department’s official policy statement on the change states, “successful BD applicants whose program earnings were less than the median could be awarded 25, 50, 75 or 100 percent relief, depending upon where their program median earnings fall in the range.”

“Despite the mess we inherited from the previous administration, we committed from day one to getting this right for students and taxpayers,” said Secretary DeVos. “We cannot tolerate fraud in higher education, nor can we tolerate furiously giving away taxpayer money to those who have submitted a false claim or aren’t eligible for relief. This new methodology treats students fairly and ensures that taxpayers who did not go to college or who faithfully paid off their student loans do not shoulder student loan costs for those who didn’t suffer harm.”

Reactions from student loan advocates seemed opposite to that of DeVos.

In a statement to the Washington Post, Virginia’s U.S. Representative Bobby Scott, chair of the House Education Committee said, “The Department of Education has the clear authority to provide full debt relief to students defrauded by their college. Rather than simply exercising that authority and providing life-changing relief to defrauded borrowers, the Department is inventing another scheme to provide students less relief than the law allows.”

“Once again, Secretary DeVos has demonstrated that her goal is to protect predatory for-profit institutions at the expense of borrowers and taxpayers,” said Ashley Harrington, also a CRL senior policy counsel. “The Borrower Defense to Repayment rule was created to ensure accountability for the federal investment in higher education. The premise of the rule is that predatory for-profit colleges like ITT Tech and Corinthian Colleges deserve to have their loans fully discharged.”

Charlene Crowell is the Center for Responsible Lending’s communications deputy director.

Education