School’s Out

Death of a Diploma Mill: University of Phoenix Going Down in Flames?

The troubled online university might have finally been dealt dual deathblows as they announced an FTC investigation and a 54% drop in enrollment.

07.31.15 10:15 PM ET

A phoenix is a bird that rises from the ashes, but the University of Phoenix is a diploma mill that may soon go down in flames.

On Wednesday, University of Phoenix’s parent company Apollo Education Group announced that the business and marketing practices of the for-profit school are now under investigation by the Federal Trade Commission (FTC). CNNMoney reports that Apollo will “cooperate fully” with the FTC investigation, which requires them to provide the federal agency with documents on their finances, marketing, accreditation, and military recruitment practices from the last four years.

Apollo’s stock (APOL) predictably took a nosedive following the announcement.

For the University of Phoenix, which is the largest for-profit higher education institution in the U.S. with an emphasis on online programs, a federal investigation is the latest in a long series of disasters that could topple a once-thriving enterprise.

With this latest investigation, University of Phoenix is under particular scrutiny for recruiting veterans. The Associated Press reports that the school’s online program has collected over $488 million in tuition and fees from veterans, not including the hundreds of millions in GI Bill money that individual campuses have collected. Over the last several years, the school has come under fire for allegedly soaking up this GI money while leaving veterans strapped with debt.

New federal rules require schools with career-training programs to produce graduates who can repay their student loans in order to receive federal student aid. For a school that already has notoriously low graduation rates, this bar may be out of reach.

According to Department of Education data, the University of Phoenix online campus has a graduation rate of 7.3 percent and a loan default rate of 19 percent—5 percent higher than the national average. A report from the Center for Investigative Reporting (CIR) claims that 24,000 Iraq and Afghanistan war veterans were enrolled in the online program last year.

Earlier this month, that CIR report prompted Senator Richard Durbin to ask the Department of Defense to investigate allegations pertaining to the school’s recruiting on military bases.

In response to Wednesday’s news of the FTC investigation, Durbin released a statement saying, “I wish I could say I am surprised by the news that the FTC is investigating the University of Phoenix for unfair and deceptive practices, but these allegations are all too familiar when it comes to the for-profit college industry.”

The investigation also comes after a long line of financial defeats for the for-profit school.

In 2012, University of Phoenix shuttered 115 of its physical locations and laid off over 4 percent of its staff. These closings came on the heels of a damning 2010 report by The Education Trust (PDF) that found the school had a six-year graduation rate of only 9 percent for students seeking a bachelor’s degree.

Student debt, on the other hand, seems to be a fairly reliable outcome for University of Phoenix students. In 2013, USA Today listed several of its campuses as “red flag” schools for posting graduation rates that were significantly lower than the rates of students defaulting on their loans—in Metro Detroit, for example, graduation rates were just 10 percent, but over 25 percent of students defaulted on their loans.

The school has also come under scrutiny for its enrollment of veterans in the past. Last July, the state of California asked the University of Phoenix to halt veteran enrollment in seven of its programs to prevent violations of the Veterans Affairs 85/15 rule, which requires that programs do not enroll more than 85 percent veterans. The rule is intended to prevent schools from exploiting federal aid for veterans.

This seemingly endless stream of bad news has taken its toll on the school’s bottom line: tuition. According to a CNNMoney report from March of this year, University of Phoenix enrollment has dropped from 460,000 students five years ago to 213,000—a precipitous 54 percent dip.

Apollo declined further comment to AP about the FTC investigation into the University of Phoenix and has not released further statements. The federal government, on the other hand, has already warned that other for-profit schools with poor performance numbers could be next.

In a July statement, U.S. Secretary of Education Arne Duncan said: “The clock is ticking for bad actors in the career college industry to do right by students. We know many have taken steps to improve or to close programs that underperform, but we believe there is more work to be done across the board so students get what they pay for: solid preparation for a good job.”