University of Phoenix settlement 'drop in the bucket' for student debt, advocates say

"If you’re a student that is paying for costs out of pocket, presumably through a private loan, you're still on the hook for that," one advocate said.
Image: The University of Phoenix building in Arizona in 2010.
The University of Phoenix building in Arizona in 2010.Joshua Lott / Bloomberg via Getty Images file

Breaking News Emails

Get breaking news alerts and special reports. The news and stories that matter, delivered weekday mornings.
SUBSCRIBE
By Daniella Silva

Advocates for students and veterans lauded a record $191 million settlement reached in a case against one of the country’s largest for-profit college chains this week as an important step forward in protecting students, but said the compensation was “a drop in the bucket” compared to the total debt borrowers owe.

The University of Phoenix and its parent company, Apollo Education Group, agreed to cancel $141 million in student debt and to pay $50 million to the Federal Trade Commission to return to consumers in the deal announced Tuesday in the case that centered on allegations of deceptive advertising to students, including the targeting of veterans.

While the settlement is viewed as significant, advocates said the case showed the systemic problems in protecting students targeted by deceptive practices and shed light on the scale of debt students will still owe because of their loans.

“Despite the more than $100 million in relief, it’s a drop in the bucket in terms of the total amount of debt that these borrowers owe,” said Seth Frotman, executive director of the Student Borrower Protection Center, a nonprofit advocacy group. “I think what this case demonstrates is the deep systemic problems that continue to exist in the student loan market and in particular around predatory for-profit schools.”

The $141 million in debt forgiveness applies to debts owed by former students to the University of Phoenix who enrolled during a time when they could have been exposed to false advertising, according to the FTC, but it will not apply to money owed from federal and private loans. The settlement affects students who were enrolled between October 2012 and December 2016.

Toby Merrill, the director of the Project on Predatory Student Lending at Harvard Law School, said federal student loans were "by far the largest component of debt created" by for-profit schools.

"Unfortunately, because such enforcement actions are directed against the school, they don't directly cancel the loan debt," she said.

William Hubbard, a spokesman for Student Veterans of America, said the case "heavily underscores that questionable practices to aggressively recruit students are not acceptable," but added the debt covered represented "a small piece of the pie."

"Ultimately private loans, those don't fall under the debt cancellation rules," he said. "If you’re a student that is paying for costs out of pocket, presumably through a private loan, you're still on the hook for that."

The FTC said in its statement that those who believe they have been defrauded can apply for loan forgiveness using the borrower defense to repayment procedures, and borrowers looking to lower monthly payments on their federal loans could obtain information from the Department of Education about income-driven repayment plans.

The University of Phoenix was accused of luring students with deceptive claims in advertisements that touted job partnership opportunities at major companies such as AT&T, Yahoo, Microsoft, Twitter and the American Red Cross. The FTC said that the university used ads that specifically targeted military members and Latinos.

In a statement regarding the settlement, the University of Phoenix said the case was "principally focused on a marketing campaign that ran from late 2012 to early 2014."

The Morning Rundown

Get a head start on the morning's top stories.

"The campaign occurred under prior ownership and concluded before the FTC’s inquiry began," it added.

"We continue to believe the University acted appropriately," the university said. "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 did not admit any wrongdoing under the deal.

Andrew Smith, director of the FTC’s Bureau of Consumer Protection, said in a statement the settlement 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," he said.

The University of Phoenix has been the largest recipient of Post-9/11 GI Bill benefits since the program began and the settlement highlighted the lengths for-profit colleges will go to in order to target military populations, advocates said.

Carrie Wofford, president of Veterans Education Success, called the settlement a “really important step forward” in protecting veterans.

“The broader context of this case is for-profit colleges are incentivized by federal laws to target veterans,” she said.

For-profit schools cost on average twice as much as public colleges, and most of their revenues come directly from taxpayers through federal financial aid. The schools also spend heavily on marketing to recruit students who qualify for federal aid, especially veterans.

For every dollar of GI Bill funding for-profit schools secure, they qualify for an additional $9 in federal student aid. For-profit schools have made up eight of the top 10 recipients of GI Bill tuition and fee payments since 2009, according to an analysis of VA data by Veterans Education Success, which advocates for veterans and has worked against the tactics used by for-profit schools.

Jay Hernandez, a Marine Corps veteran, said he was drawn to the University of Phoenix because of its recruiting practices touting career advancement and success.

Hernandez, 30, said he enrolled in a program there in the summer of 2014 so he could continue to work his job in construction and pursue an education remotely from Oregon. But when he transferred to Clackamas Community College a year later, he discovered the credits he earned at the University of Phoenix couldn't be transferred to the school, he said.

"A year's worth of my benefits and a year's worth of my time all down the drain," he said.

Hernandez said he was seeking to get his year of benefits back and was excited for veterans and other former students who would be covered under the settlement.

"I know how hard of a struggle it is for veterans just to get into quality employment, let alone get success," he said. "A company such as University of Phoenix was one of those barriers for veterans trying to reach success."

Frotman said that while the FTC did its job in cracking down on the university in this case, the settlement was just “one small piece of the equation needed.”

Advocates have called on federal agencies, such as the Department of Veterans Affairs and the Department of Education, to take further action to protect students.

They say the program meant to provide federal loan forgiveness for defrauded students has all but stopped under Education Secretary Betsy DeVos. Merrill said the evidence uncovered by the FTC made the other forms of debt through loans invalid as well.

"There's still so much outstanding debt and students are no less cheated as to their federal loans or their private loans," she said.

Veterans groups have also called on the VA to enforce a federal law to cut off GI Bill funds to schools engaging in deceptive recruiting.

The Department of Veterans Affairs said in a statement it was aware of the settlement between the university and the FTC and would "review the facts of the case and take appropriate action in accordance with our statutory and regulatory authorities and duties."

The department added it encouraged veterans to visit their website for information when choosing a school to attend.

The departments of Education did not immediately respond to requests for comment.