University of Phoenix Cancels $141 Million in Debt for ‘Deceptive’ Ads

University of Phoenix Cancels $141 Million in Debt for ‘Deceptive’ Ads

The University of Phoenix, one of the nation’s largest for-profit college chains, agreed to a $191 million settlement on Tuesday with the Federal Trade Commission, which said the school had lured in students with fraudulent claims about partnerships with major companies that one of the chain’s own executives had described as “smoke and mirrors.”

The school’s deceptions centered on a marketing campaign that invoked A-list companies like Microsoft and Twitter, which affected students who enrolled between October 2012 and December 2016.

The University of Phoenix did not admit wrongdoing under the settlement. It will pay a $50 million penalty to the F.T.C. and cancel $141 million in debts, largely for unpaid tuition and fees, owed by former students who first registered during that four-year period. Tens of thousands of students will be covered, most likely for relatively modest sums.

The F.T.C. filed a complaint in federal court in Arizona on Tuesday that described the advertising campaign. Starting in 2012, a series of television ads and online postings from the university heralded its “corporate partnerships” with more than 2,000 employers, including the American Red Cross, AT&T and Yahoo. The ads said the school worked with those employers to “shape our curriculum” and “create options” for its graduates.

In reality, the companies had no special hiring programs or curricular ties with the school, according to the F.T.C.’s complaint. One senior vice president at the school complained in an email that the use of the software company Adobe in advertisements was “smoke and mirrors” because the chain did business with the company but did not have any academic relationship with it.

The complaint said the ads had prompted an executive at Staples, one of the featured companies, to send a note to the school asking, “What is Staples doing as part of this program?”

The school also made “deceptive claims” about employment opportunities in ads targeted at military veterans, the F.T.C. said.

The school undertook the campaign as its enrollment was falling. University of Phoenix was once the nation’s biggest online university, with more than 460,000 students in 2010. But increased competition led to sharp drops in enrollment; the school now has around 97,000 students nationwide, and was sold in 2017 to Apollo Global Management, a private equity firm.

The F.T.C.’s settlement, after an investigation that began more than four years ago, is the agency’s largest with a for-profit school. It previously settled complaints against two other chains, the DeVry Education Group and the Career Education Corporation, over what it said were false claims.

“Students making important decisions about their education need the facts, not fantasy job opportunities that do not exist,” Andrew Smith, the director of the agency’s consumer protection bureau, said in a statement.

The University of Phoenix said in a statement that it “continues to believe it has acted appropriately.”

The affected students must still repay any loans, but the F.T.C. prominently noted that federal student loan borrowers who believed they had been deceived could apply for debt relief through the Education Department’s borrower defense to repayment system. That program allows borrowers to seek the elimination of federal loans that they took to attend schools that acted fraudulently.

That program, however, has virtually stopped functioning under Education Secretary Betsy DeVos. The department stopped making decisions on claims as it fought litigation over its attempts to water down the program’s relief. More than 210,000 applications were stuck in limbo and awaiting a decision as of June, according to Education Department data.

At least 3,000 borrower-defense applications have already been filed by former students at the University of Phoenix, according to the Student Borrower Protection Center, a nonprofit advocacy group.

An Education Department spokesman did not have an immediate comment on how the F.T.C.’s action would affect borrower-defense claims filed by the school’s students.

For-profit colleges have frequently been criticized for leaving students mired in debt for degrees that rarely led to well-paying jobs. A federal and state crackdown in the middle of the decade tightened regulations and pushed some of the largest chains into bankruptcy.

The Trump administration has rolled back many of those changes.

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