University of Phoenix could face probation, lose federal aid

A regulatory agency has put the University of Phoenix on notice and recommended that it be placed on probation if it does not separate its corporate structure from its parent company's.

A higher education regulatory agency has recommended that the University of Phoenix, an online college, be placed on probation after finding that the school had "insufficient autonomy" from its corporate parent, The Huffington Post reports.

In a recent SEC filing, the Apollo Group — which owns 100 percent of the university's stock — announced that accreditors from the Higher Learning Commission determined that the university's close relationship with Apollo compromised its board of directors' ability to "manage the institution, assure the University’s integrity, exercise the board’s fiduciary responsibilities, and make decisions necessary to achieve the institution’s mission and successful operation."

Currently, the university's board of directors contains four members who also serve on Apollo's board or its senior leadership team, according to The Huffington Post.

Apollo plans to appeal the commission's recommendation, which is not final. The agency will make a concrete decision in June. Apollo says its corporate structure is not foreign to parent companies and their subsidiaries.

"We are confident that all concerns expressed by the [accreditors] can and will be successfully addressed in due course," Mark Brenner, a spokesman for the Apollo Group, told The Huffington Post. He also noted that accreditors found the University of Phoenix "to be in compliance with substantially all criteria associated with academic matters."

Universities rely on accreditation to receive federal student aid, which makes up much of its revenue. According to The Huffington Post, the University of Phoenix last year received 84 percent of its revenue from federal financial aid programs, totaling more than $3.2 billion.

If the university were to be placed on probation, it would have up to two years to fix its governance issues. It would remain accredited while on probation, which also means it would not become ineligible for federal student aid.

Apollo executives told shareholders last month that the company likely faced reprimand from accrediting agencies. It said a loss of aid money would diminish its ability to recruit and enroll students and faculty. It currently enrolls 319,000 students, which is down sharply from the 460,000 students it taught two years ago.

Online institutions like the University of Phoenix have faced increased scrutiny in recent years following low graduation rates, high tuition costs and skyrocketing loan default figures. Federal data showed that the University of Phoenix had a three-year loan default rate of more than 26 percent — four percentage points higher than the national average.

In the past, education regulation agencies have targeted schools that suffer from poor graduation rates and spend more money on student recruitment than student education. A Huffington Post investigation found that a West Coast accreditor denied Ashford University accreditation last year after it found the Iowa school was spending disproportionately more on student recruitment, leaving Ashford saddled with a dearth of qualified faculty and staff. Ashford, which began as a 300-student Catholic university, exploded into an online college with 90,000 students.

Businessweek reports that the Higher Learning Commission also recommended that a smaller Apollo subsidiary, Western International University, be placed on probation due to weak university autonomy and financial stability. Additionally, the regulatory agency took issue with the school's student learning assessment. Apollo said it will also appeal Western International's probation.

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