Wednesday, December 16, 2009


You know you're grading on a curve when settling to pay out only $78 million causes your stock to go up.

The University of Phoenix has reached a settlement in a False Claims Act lawsuit, in which it was charged with violating Federal law by paying admissions recruiters based on how many students they recruited. It had set aside slightly over $80 million for a settlement, and came in slightly below that. In the Chronicle piece about it, DeVry and Grand Canyon Education are alleged to have set aside about $5 million each to settle similar suits.

To my mind, a settlement makes perfect sense in this case, since in a meaningful sense, both sides are right. And the stock going up makes sense, too.

Having worked at a proprietary, I can attest that the Admissions side was a sales force, and was unapologetic about it. Admissions reps did what they had to do to close the sale. On the bright side, that meant that students got terrific help in navigating the bureaucracy of financial aid and registration. On the dark side, and it was much more dark than bright, students frequently came in with wildly absurd expectations that they got from somewhere. I've heard complaints at the cc level about a student sense of entitlement, but this was an order of magnitude beyond anything I've seen here. Upon the handoff from Admissions to Academics, students were often vocally disappointed to discover that they had to take gen ed courses; many of them had chosen PU to dodge gen ed altogether. Students who enrolled in "accelerated" programs were indignant to find that "I have just as much homework here as I do in my real classes!" I heard many a complaint along the lines of "he assigns too much homework. Doesn't he know I'm a working adult? Isn't he supposed to work with me?"

At the Proprietary at which I worked, the Admissions staff didn't report to the campus President. It reported to Home Office (in another state), which set its sales quotas. The Admissions staff responded to its incentives, and treated the academic side of the house as a faint embarrassment. Meanwhile, we academic sorts had the unenviable task of trying to talk reality to students who had been sold a bill of goods. The job of Admissions was to maximize revenues, and it was regarded as a profit center. The job of Academics was to minimize attrition, and it was regarded as a loss center. Salaries and internal power were allocated accordingly.

As a real academic who had landed there as a port in a storm, I was never able to make peace with what I considered a fundamentally backward business model. Arguments from academic integrity had to be couched as "quality control." When I finally got the chance to decamp for a nonprofit, I jumped at it and never looked back.

So yes, I'm without doubt that laws against paying recruiters to do their jobs were routinely broken.

But from the perspective of each institution, the argument for paying recruiters for, well, recruiting, makes a certain degree of sense. When your entire revenue stream is based on tuition, you either put asses in classes or you don't. Those recruiters who do are worth more to you than those who don't. If you can't keep your most effective recruiters, you won't last long. You don't have state subsidies or endowments to get you through bad times; economically, the model is closer to a restaurant than to a non-profit college. Empty seats mean lost income. The logic is hard-wired into the business model. Unless you change the model, the behavior will continue in one form or another.

So yes, I understand why they were prosecuted. They routinely broke laws. And I understand why they settled -- they knew they were guilty, and a finite settlement is much easier to work around that an open-ended liability. Phoenix can write off the $78 million and get back to business. The stockholders can exhale, knowing that the piper has been paid. And the government can say, truthfully, that it got its pound of flesh.

"Settling" is exactly the right word.