The University of Phoenix has agreed to pay $6-million to the federal government and to lenders to resolve Education Department charges that the institution gave federal financial aid to students who were ineligible for the funds. The department’s inspector general had sought more than $55-million in fines against the for-profit university.
In the agreement reached with the department, the university acknowledged no guilt or errors, said Todd Nelson, president of the Apollo Group, the university’s parent company. He called the charges “outrageous” and said that the university had settled only to avoid a lengthy and costly battle with the department.
The $6-million fine pales in comparison to the tens of millions of dollars that the department’s inspector general had urged the department to seek from the university to repay to lenders and the government.
In an audit report released late last month, the inspector general, Lorraine Lewis, said that the University of Phoenix’s students did not spend enough hours in class to qualify for the aid they received. As a result, she recommended that the department require the university to repay lenders $50.6-million in federal loans that she said its students had received improperly. She also recommended that the university be required to reimburse the government for the interest and the federal subsidies that the department had paid to lenders for those loans.
In addition, Ms. Lewis said the university should be required to return to the federal government $4-million in Pell Grant funds that she said were wrongly disbursed to the students.
Officials in the department’s Office of Student Financial Assistance, which reached the agreement with Phoenix, were not available Monday to explain why they had agreed to the reduced payments.
University of Phoenix officials were outraged by the inspector general’s complaints.
Stanley A. Freeman, a lawyer representing the university, said in a letter to the inspector general’s office in November -- after the office had released its draft report -- that the charges were “devoid of any legal, regulatory, or factual basis.”
This is the second time in the last eight months that the Education Department has penalized the university for mishandling federal-aid funds.
In July, after conducting a two-year audit of the management of aid funds on the university’s campuses, the department ordered the university to pay a total of $650,000 to the government and to lenders. The department said it had found systemwide problems with Phoenix’s management of student aid, particularly the institution’s failure to pay refunds to the government and to lenders in a timely manner on those aid recipients who had withdrawn from the university. (See an article from The Chronicle, August 13, 1999.)
The inspector general’s charges center on the question of how many hours students must attend classes in an academic year to be eligible to receive federal loans and grants.
Education Department rules require that students who attend institutions that do not use a semester, trimester, or quarter system must attend classes at least 12 hours a week for 30 weeks to obtain aid as full-time students. Postsecondary institutions may offer programs with classes that meet less frequently than 12 hours per week, but if they do, the classes must run longer, requiring an equivalent of 360 instruction hours. For example, if an institution decided to establish an academic year for a program with classes that met for 10 hours a week, the classes would need to be held for 36 weeks.
The inspector general stated that Phoenix, however, requires its students to attend classes only four hours a week for 45 weeks, the equivalent of 180 instructional hours.
University officials contested that claim, saying they require students to attend study groups with their classmates for an additional four hours a week. Between classes and the study groups, they said, their students receive instruction eight hours a week for 45 weeks, or 360 hours.
They added that in 1994, the department gave Phoenix its approval to count the study groups toward the requirement.
The inspector general agreed that the department had provided its approval, but said that it did so under two conditions: that the meetings be required of all students, and that they be held at a site that the university either leased or owned.
In the report, the inspector general said that the university had no way of knowing if all students were participating in the group meetings. Ms. Lewis said that no Phoenix instructors or representatives attended the meetings, and that student handbooks and other documents provided to the university’s students did not state that study-group participation was required. The inspector general also noted that the study groups rarely occurred on sites controlled by the university.
In response, Mr. Freeman, the university’s lawyer, wrote that “the study groups have been, and continue to be, an essential and integral component of the university’s regularly scheduled instructional activity.” He added that the sessions were mandatory for all students.
He also stated that he knew of “no department regulation that expressly or implicitly” required that the study groups be held at a campus site.
As part of its settlement, the university has agreed to require that each of the students attending the study groups sign an attendance log showing that they were present and that they had participated for the requisite number of hours.
“This modification to the student study group attendance log will have no negative impact either on the University of Phoenix or its students,” Mr. Nelson, the Apollo Group’s president, said in a news release announcing the settlement.
Background articles from The Chronicle: