Phoenix takes a nosedive

October 2, 1998

Some of the gloss has rubbed off the University of Phoenix, the private university network seen as a threat to United States higher education.

The university's parent company, Apollo Group Inc, has been a favourite of Wall Street since it went public at the beginning of 1996. But its share price dropped 20 per cent to settle around the $30 mark after a thoroughly negative review by Department of Education inspectors. They found "systematic non-compliance" with regulations, sloppy record-keeping, and long delays in refunds of student aid to the department for those who dropped out.

The report will be grist for the mill for critics of the low-cost, unorthodox university, which has about 50,000 students enrolled via the Internet or at 100 "learning centres" across the country.

Shrugging off complaints of a "McEducation", it has tapped into the adult student market by offering after-hours courses in rented offices run by part-time instructors and has broken into new markets with radio and television advertising campaigns.

Phoenix has been increasing its numbers by up to 30 per cent a year. Though it has no formal campus it is an accredited institution. Even with the share price fall, Apollo has yielded handsome returns to early investors, soaring from just $2 a share in less than three years.

The education department's 38-page report said the university had failed to provide requested records and information, including a list of students who had dropped out and their academic progress.

The number of dropouts had been "significantly under-reported", it said. A story in the Wall Street Journal reporting the department's critical conclusions - and observing a sudden movement in the companies' accounts - was enough to spook some investors.

Enthusiasts have talked up the private education market as a growth business where families spend $200 billion a year and a safe bet in the market slump. In a conference call with more than 100 analysts and investors, Apollo Group president Todd Nelson said: "I absolutely deny ... any kind of sloppiness or incompetence."

He suggested Apollo was targeted in part because of its outspoken criticism of the department of education.

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