Deceptive ads result in fine of less than 2% of revenue

The University of Phoenix and its corporate owner, Apollo Education Group, spent $1.7 billion on advertising and marketing between 2013 and 2015 alone, but the Federal Trade Commission agreed to a $191 million settlement on behalf of students who may have been lured by allegedly deceptive advertisements.

The $191 million settlement includes $141 million to cancel unpaid balances owed directly to the school by eligible students and payments totaling nearly $50 million to more than 147,000 students to resolve Federal Trade Commission charges that the business used deceptive advertisements that falsely touted their relationships and job opportunities with companies such as AT&T, Yahoo!, Microsoft, Twitter, and The American Red Cross.

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

Since at least 2012, University of Phoenix and its parent company have deceptively advertised the benefits of an education there through the use of television, radio, and internet advertisements and other marketing materials to convince American consumers to pay tuition ranging from about $7,400 to $19,400 per year.

In that time, the company’s net revenue has exceeded $13.5 billion.

The $191 million credited or refunded to students represents 1.41 percent of the company’s revenue, or less than the credit card processing fees it paid to collect that $13.5 billion revenue.

The FTC alleged that University of Phoenix and Apollo relied heavily on advertising to attract students, including specific ads that targeted military and Hispanic consumers.

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.

In reality, these companies did not partner with the online school to provide special job opportunities for UOP students or develop curriculum. Instead, University of Phoenix and Apollo selected these companies as part of a marketing strategy to drive prospective student interest, the FTC alleges.

In addition to falsely touting relationships with 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 complaint further alleges that University of Phoenix’s deceptive advertising and marketing materials targeted active duty servicemembers, veterans, and military spouses, and that the company has been the largest recipient of Post-9/11 GI Bill benefits since the program’s inception.

The settlement requires UOP to pay $50 million to the Commission, which will be used for consumer redress, and to cancel approximately $141 million in debts owed to UOP by former students who first enrolled during the time period consumers were likely exposed to UOP’s deceptive advertising.

This settlement will not affect student borrowers’ federal or private loan obligations. Borrowers looking to lower their monthly payments on federal loans can obtain free information from the United States Department of Education about income-driven repayment plans, and those who believe they have been defrauded or deceived can apply for loan forgiveness through the Borrower Defense to Repayment procedures. Applying for these programs does not cost anything.  Student borrowers should steer clear of debt relief scams that charge thousands of dollars for services that are available for free.

The Commission vote authorizing the staff to file the complaint and stipulated final order was 4-0-1, with Commissioner Christine S. Wilson recused. The complaint and stipulated final order will be filed in the U.S. District Court for the District of Arizona. Commissioners Rohit Chopra and Rebecca Kelly Slaughter each issued separate statements.

“Every year, roughly one million Americans default on their student loans. The consequences of default are devastating for both individuals and society. For-profit colleges enroll about 10 percent of students, but account for roughly 50 percent of defaults,” said Chopra. “According to one analysis, students who attended just one of these colleges, University of Phoenix, owed nearly $36 billion in federal loans as of 2014.”

“The deceptive claims set out in the Commission’s complaint are particularly galling to me because they sold false hope—robbing consumers of their time and money for the prospect of a job that did not exist, said Slaughter. “The proposed order requires the University of Phoenix to pay 50 million dollars back to deceived consumers and relieves many affected consumers of the debt they directly owe to the University of Phoenix.”

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