FTC and Phoenix Settle Over Ad Probe

University of Phoenix and the Federal Trade Commission settle a five-year investigation into whether the university falsely touted its relationships with big employers.

December 11, 2019
 
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Image from U of Phoenix television commercial

The U.S. Federal Trade Commission and the University of Phoenix have agreed to a multimillion-dollar settlement relating to a long-running investigation by the FTC into whether the university engaged in deceptive advertising.

Under the settlement announced today by the commission, Phoenix and its private investment group owners will owe the FTC roughly $50 million in cash while forgiving another $140 million in fees owed to the university by former students who allegedly were harmed by the ads. The agreement does not include an admission of wrongdoing by Phoenix.

"This is the largest settlement the commission has obtained in a case against a for-profit school," Andrew Smith, director of the FTC’s Bureau of Consumer Protection, said in a statement. "Students making important decisions about their education need the facts, not fantasy job opportunities that do not exist."

The university said in a written statement that it was pleased to have reached the settlement and to have resolved the investigation, adding that it had complied fully with the FTC.

"The campaign occurred under prior ownership and concluded before the FTC’s inquiry began," the statement said. "The university continues to believe it has acted appropriately and has admitted no wrongdoing. This settlement agreement will enable the university to maintain focus on its 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 investigation was first announced in July 2015 by Phoenix, which then was a publicly traded company worth more than $3 billion. Since then the university has changed owners and is now privately held by a consortium of investors including the Vistria Group and funds affiliated with Apollo Global Management. The university’s enrollment also has declined during the last four years and is now below 100,000 students, although sources said Phoenix appears to have stabilized in recent months.

In a corporate filing, the university’s then-holding company said the civil investigative demand focused on whether Phoenix engaged in “deceptive or unfair” forms of advertising and marketing.

The FTC called on the university to release a wide range of documents and information about its business practices. The demand covered “marketing, recruiting, enrollment, financial aid, tuition and fees, academic programs, academic advising, student retention, billing and debt collection, complaints, accreditation, training, military recruitment and other compliance matters, for the time period of January 1, 2011 to the present,” the former company said in 2015.

Claims in Commercials

However, the settlement appeared to focus on several television and radio advertisements that Phoenix ran from 2012 until early 2014.

“The companies’ ads featured employers such as 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 Tuesday. “In reality, these companies did not partner with UoP to provide special job opportunities for UoP students or develop curriculum. Instead, UoP and Apollo selected these companies for their advertisements as part of a marketing strategy to drive prospective student interest, the FTC alleges.”

Although Phoenix no longer runs the ads in question, they are available through a university website explaining the settlement or on the FTC's site.

One television commercial describes how Phoenix is 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 narrator said, as the video depicts a middle-aged black woman driving through a crowded parking lot. Logos for several other large employers appear during the ad.

“Not only that, we’re using what we learned from these partners to shape our curriculum. So that when you find the job you want, you’ll be a perfect fit. Let’s get to work,” the narrator concludes as the woman finds a parking spot.

A radio commercial from the same time period featured a similar message.

“In business, getting your foot in the door is half the battle. So University of Phoenix works with leading companies interested in our students and alumni,” the ad’s narrator said. “For our school of business students, we connect with companies like AT&T, Sodexo and Adobe, so you will have more than just a foot in the door. Learn more at Phoenix.edu. Let’s get to work.”

In some ways, the settlement announced today resembles one DeVry University agreed to with the FTC for $100 million in December 2016. (DeVry’s former parent company, now called Adtalem Global Education, a year later sold its flagship university to a small, private for-profit college company.)

That investigation centered on advertising claims made by DeVry about its former students’ employment statistics. Specifically, the FTC probed whether the university was being misleading in marketing to prospective students that, since 1975, 90 percent of its graduates were employed in their field of study within six months of graduation. The ads in question also claimed DeVry’s graduates had 15 percent higher incomes one year after graduation, on average, than did the graduates of other colleges or universities.

A former FTC official, speaking on background, said the DeVry ad claims were stronger than those made in the Phoenix ads, which featured "implied claims" with weaker takeaways.

In addition, the DeVry ads continued to run up to the point of the university’s settlement with the commission. The Phoenix ads last ran five or more years ago, when the company had different owners.

The FTC’s mandate for pursuing deceptive advertising only covers for-profit colleges. It does not apply to nonprofit institutions, including large online universities that increasingly have competed with and eaten into enrollments of for-profit colleges.

To cross the line with marketing to prospective students, the former commission official said advertising claims have to move people to make a decision, which is hard to prove. And the FTC has the burden of proof with such allegations.

The official said the almost five-year gestation of the commission’s investigation of Phoenix, "if not unprecedented," is "close to it."

The FTC, however, said the ads from the university “falsely touted their relationships and job opportunities” with specific companies.

“The defendants also misrepresented that companies, such as Adobe, American Red Cross, Avis, AT&T, MGM, Microsoft, Newell Rubbermaid, Sodexo and Twitter, worked with UoP to develop its courses,” according to the FTC’s complaint.

The commission also said the university’s deceptive advertising and marketing materials targeted military and Hispanic consumers.

The $50 million cash payment to the FTC will be used for “consumer redress,” the commission said. And the $141 million in debt cancellation will go to former students who first enrolled during the time period consumers were likely exposed to the ads in question.

The commission’s vote authorizing the complaint and the final order was 4 to 0, with one commissioner recusing herself.

Rohit Chopra is an FTC commissioner and former assistant director and student loan ombudsman at the Consumer Financial Protection Bureau. He said on Twitter that many of Phoenix’s students “leave with a mountain of debt and few career prospects.”

Chopra suggested that the federal government’s pursuit of for-profit colleges would continue.

“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,” Chopra said.

Joshua Sexton graduated from the university last month with a bachelor's degree in business. The university made him available for an interview about the settlement.

Sexton, who served in the U.S. Marine Corps, saw some of the ads in question. But he said he mostly heard about the university from a fellow military veteran. Sexton was attracted to how the Phoenix degree program fit well with his schedule as a small business owner.

"The ad didn't make me think I'd be working at Microsoft if I attended the University of Phoenix," said Sexton.

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