Private US university hit by £8m fine

September 24, 2004

The breakneck growth of private for-profit universities in the US has suffered a setback after allegations that the nation's largest commercial higher education corporation recruited unqualified students.

The Apollo Group, which runs the University of Phoenix, agreed to pay nearly $14.2 million (£8 million) to settle a variety of charges. It was the largest amount ever to result from an investigation by the Department of Education. More than $10 million of the total is in fines.

The university did not admit any wrongdoing. It said the allegations were unfair and inaccurate.

The $10 million in fines were imposed in relation to recruiting practices at the university. The additional charges concern a division of Apollo that provides recruiting services to traditional non-profit universities in a complicated arrangement that the Government said violated federal law by rewarding Apollo based on the number of students it recruited.

Apollo also paid a $6 million fine over the summer to the Department of Labor after two cases involving unpaid employee overtime.

Enrolment at for-profit universities in the US is far outpacing that at even the largest traditional non-profit American universities, largely by offering flexible schedules of classes online or in convenient locations for working adults. Phoenix alone has more than 200,000 students.

There have also been allegations surrounding other large companies that provide for-profit higher education. ITT Educational Services, which runs ITT Technical Institutes and has nearly 40,000 students, is accused in a lawsuit brought by shareholders of exaggerating its enrolment and financial performance and destroying documents.

Because students at these schools are eligible for federal financial aid, the problems have attracted increased scrutiny from bureaucrats and elected officials.

"It's not a good thing for the industry," Ronald Taylor, president and co-chief executive of the DeVry Private University chain, told an investors' conference. "If there turns out to be inappropriate activity, it will stimulate regulators to take a more aggressive role."

The parent company of the Bryman College chain, which has nearly 65,000 students, has had one of its campuses cut off from some financial aid because of differences between students' financial disclosures and their financial status as determined by tax returns and other sources. The company blamed two employees, who it sacked.

Career Education Corporation, which operates the Katherine Gibbs secretarial schools and other for-profit divisions, has acknowledged that it is also under investigation by the Justice Department.

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