For-Profit Colleges: Scooping Up the Stimulus

(page 2 of 2)

Critics point out that degrees earned at for-profit schools, including Phoenix, often carry less clout in the marketplace, despite price tags comparable to those at many public universities. "I don't think a degree from the University of Phoenix adds any value at all," says Edward Fleischman, chief executive of Execu/Search Group, a New York recruiting firm that specializes in financial services and health care. "It means you could not get into a better school."

MISLEADING MATH?

Graduation rates at some for-profit schools tend to lag overall levels, at least by the federal standard. The Education Dept. measures the percentage of first-time undergraduates who obtain a degree within six years. Phoenix has a rate of 4%, among the nation's lowest, according to the government. The national average is 57.3%. But Phoenix criticizes the federal approach as misleading in its case because the school serves mostly older students who began college elsewhere. Phoenix claims a 38% overall graduation rate for students seeking bachelor's degrees.

Students who attend for-profit schools tend to carry heavy debt loads. According to data from the College Entrance Examination Board, the average total debt per for-profit university graduate is $29,900, vs. $10,500 for graduates of public four-year schools. Phoenix says its graduates have debt levels of $14,200 to $25,221, depending on the degree they pursue. Tuition for a two-year associate's degree from Phoenix comes to about $19,500; a four-year degree costs about $51,600.

Last July, long before the $787 billion stimulus, the fed boosted its guaranteed educational loan limits by $2,000 per student in response to worries that privately funded lending would dry up in the recession. To maximize revenue—and federal aid dollars—Phoenix employs more than 6,000 enrollment staff members. Names of prospective students, gleaned from online ads and phone inquiries, are funneled to recruiters. Those employees strive to convert each lead into a paying student, according to interviews with former Phoenix workers.

An e-mail sent in late 2006 by an enrollment manager in San Diego urged employees to use "trick messages" to get prospective students to call back. One such message: "Can you please call me, John.... [Y]ou have an unresolved issue that I need to discuss with you as soon as possible." The e-mail was disclosed in a whistleblower lawsuit filed against Phoenix by two former employees in federal court in Sacramento. The pending suit accuses the company of improper compensation of recruiters. Phoenix argues that the suit lacks any merit but acknowledges that it has tightened enrollment practices in recent years. The alleged acts of one or two rogue recruiters don't represent company policy overall, it contends. "We have always recruited students legally," says Bishop. "This isn't a boiler-room environment."

Several enrollment workers told BusinessWeek that they felt pressure to sign up as many people as possible. "They were giving you [financial] incentives to stick whoever you could into class," says Christopher Lother, who worked as an enrollment employee and manager at Phoenix until last November. "It's not what college is all about. I couldn't do the job because it was unethical, and I couldn't sleep at night."

Elgin is a correspondent in BusinessWeek's Silicon Valley bureau. Silver-Greenberg is a reporter for BusinessWeek.com.

With Steve LeVine in Washington