The Higher Learning Commission of the North Central Association of Colleges and Schools last year wrapped up its accreditation review of Phoenix. In January the accreditor informed Apollo that it had identified unspecified problems that would be disclosed in a forthcoming draft report. Company officials told investors that it would probably be placed “on notice,” a less severe penalty than probation.
But the report, which Apollo received last week, surprised company officials and industry analysts alike. It described “alleged administrative and governance deficiencies” that led to the call for probationary status, according to a corporate filing Apollo released Monday.
“Specifically, the review team concluded that the University of Phoenix has insufficient autonomy relative to its parent corporation and sole shareholder, Apollo Group, Inc., to assure that its board of directors can 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,” the company said.
The university produces more than 90 percent of Apollo’s revenue. And company officials said Phoenix had become more autonomous since its last review by the commission, which was in 2002. The company also said its management structure is “customary” and designed to maintain the operational and financial well-being of its subsidiary, which enrolls 320,000 students.
“We believe that it is neither remarkable nor improper for a parent corporation to exercise appropriate influence over its wholly owned subsidiary,” Apollo officials said.
Last Friday was the first time Phoenix had heard it might be placed on probation, according to the filing. “The HLC has not explained why the recommendation changed from notice to probation.”
While the commission found other problems with Phoenix, Apollo officials said those issues were not the basis for the probation recommendation. The other areas of concern include retention and graduation rates, reliance on federal financial aid, assessment of student learning and documentation of credit hour policies “with regard to learning outcomes of learning teams,” the company said. Those problems will require future reporting and follow-up activities.
Western International University, which Apollo also owns, received a similar probation recommendation.
The commission’s Board of Trustees will consider whether to impose the suggested probation. Apollo officials said they plan to challenge and appeal the review team’s recommendation.
Probation status would mean that the commission had determined that Phoenix is out of compliance with criteria for accreditation. The probation could last up to two years, and would require another site visit. That’s a more laborious process than getting out from under “on notice” status, which can be accomplished with corrections and a written report.
Cracking Down?
Politicians and critics of for-profits have been pushing for a tougher approach by accreditors to the industry. The Higher Learning Commission in particular has faced scrutiny for its accreditation reviews of for-profits, most notably with a 2011 U.S. Senate hearing in which Sen. Tom Harkin, an Iowa Democrat, grilled Sylvia Manning, the regional accreditor’s president.
Harkin, a frequent antagonist of for-profits, was particularly incensed by the commission’s approval of Ashford University, which is owned by Bridgepoint Education. Last year, Bridgepoint failed in a bid to switch its accreditation to the Western Association of Schools and Colleges, and is now in the process of responding to a range of subsequent concerns raised by the Higher Learning Commission.
Manning had herself advocated for a more aggressive review process after she took over the commission in 2008. But the heat on accreditors has continued. For example, Sen. Dick Durbin last year wrote to Manning and urged “great care in considering the integrity and quality of the programs” at Phoenix. The Illinois Democrat also asked the commission to make public the results of its review of the university.
“Many of us in Congress are working to help raise the standards of postsecondary education. The propriety sector has grown faster than any other sector and warrants careful scrutiny,” Durbin wrote in the letter. “We have limited federal resources for student financial aid, making it imperative that participating institutions offer their students quality education, clear information about their financial obligations and appropriate educational support.”
Trace A. Urdan, an industry analyst with Wells Fargo, said the commission’s autonomy concern is based on a desire for the university’s academic mission to be protected from the more financially oriented interests of the parent company. Ashford is facing similar scrutiny.
However, Urdan, whose analyses often defend the for-profit industry, said Phoenix has become more autonomous and that the team’s report “seems to reflect a new sensibility on the part of the HLC” rather than any changes by Phoenix. Urdan said accreditors had been put on notice by the federal government, including last month by President Obama, and that they are feeling the pressure. "They need to look like they're incredibly tough," he said.
Company officials said the draft report included a number of positive findings, including references to the university being “well resourced and innovative,” and praise for its high level of student services and related technology.
Phoenix, like most for-profits, has seen its enrollment tumble in recent years. Some of that decline has been self-inflicted, however, as the university seeks to improve its student retention. For example, Phoenix recently began a free trial enrollment period, during which the university and students themselves can determine whether they are ready for college-level work.
The probationary status, if approved, will no doubt be a challenge for Phoenix. News last month of the possible “on notice” sanction took a big whack at Apollo’s share price. And the more severe probation would mean that Phoenix would need to reference its probationary status in all statements about its accreditation.
Company officials said they were reviewing the report and would work closely with the commission to address its concerns. The commission said it expected an appeals process to be completed by July, according to Apollo.
“We are confident that the University of Phoenix and Western International University will be successful in achieving institutional reaffirmation,” Mark Brenner, a spokesman for Apollo, said in a written statement.
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