The parent company of the University of Phoenix expects to spend no more than $80.5-million to settle a contentious six-year-old whistle-blower lawsuit filed by two former admissions counselors, the company announced on Tuesday.
While the amount could be a record settlement for an institution of higher education, the sum is far smaller than the $1.5-billion that the parties had hoped to collect for themselves and the federal government after accusing Phoenix of obtaining federal student-aid funds under false pretenses.
The whistle-blowers filed the lawsuit under the federal False Claims Act on the government’s behalf. In such cases, the parties bringing the suit usually receive about 15 percent of any damages awarded or negotiated in a settlement.
The case against Phoenix, which gained new life in 2006 after an appeals court reinstated it, has not been formally settled, but parties announced last month that a settlement could be imminent.
Throughout the years of litigation, which has included a failed effort by the University of Phoenix to involve the U.S. Supreme Court and the still-unexplained release of confidential documents to the university’s lawyers three years ago by officials of the U.S. Department of Education, Phoenix executives have insisted that the institution did not act improperly.
The $80.5-million figure—disclosed as the university’s parent company, the Apollo Group Inc., issued its annual earnings report—is the company’s “best estimate of the loss to be incurred in connection with this matter,” including all legal expenses, it said in a news release.
Nancy G. Krop, a lawyer for the two former employees, Mary Hendow and Julie Albertson, said she could not comment because the parties had agreed not to discuss the case during settlement talks.
Apollo officials, in their announcement of financial results, also revealed little more about any pending settlement. The company did report annual revenue of $4-billion for the year ending August 31 and a 22-percent increase in enrollment at the University of Phoenix, bringing its total enrollment of degree-seeking students to 443,000.
On higher-education matters, Apollo officials announced that they had instituted new programs at the University of Phoenix designed to ensure that students who enroll are adequately prepared to handle the academic work. Company officials said this was a response to national concerns about unprepared students dropping out of college but still carrying student-loan debt, and its own calculations that students who persist are ultimately more profitable for the company.
The programs might result in slower enrollment growth, said Greg Cappelli, Apollo’s co-chief executive officer, but “we would gladly make the trade-off for higher retention.” A company spokeswoman said details about the new retention programs would be described in the university’s second annual academic report, to be released in November.
The company also reported that it would be exploring the sale of an online high school, Insight Schools, which it acquired a few years ago, and focus more of its attention on “the opportunities in international postsecondary education.”
Apollo, through its Apollo Global joint venture with the Carlyle Group, recently paid $602-million to acquire the company that runs BPP Professional Education, which in 2007 became the first for-profit higher-education organization to offer degrees in Britain. Mr. Cappelli said the company plans to use BPP as a “platform” for expansion in Europe.
Of particular interest to investors, Apollo also reported that the U.S. Securities and Exchange Commission had begun an “informal inquiry” into how it reports its revenues to investors.
