by Sara Kelly

edited 8/21/11

In May 2004, two enrollment counselors brought a $1 billion suit against the University of Phoenix under the False Claims Act, alleging the school paid incentives to counselors for enrolling students. If proved true, the action would constitute a violation of federal student-aid law. In January 2005, the Justice Department joined the suit, asking the U.S. Court of Appeals to reverse a previous dismissal of the case.

While the Justice Department was quick to defend the University of Phoenix's mission to provide greater education access to "people looking to advance their careers and to earn a better living for themselves and their families" (Blumensityx, 2005, para. 9), it also urged the court to force Phoenix to repay billions of dollars in federal aid it had received while it was allegedly violating federal laws. The Apollo Group paid $9.8 million in fines in 2004, but did not admit wrongdoing. The university still stands accused of violating the False Claims Act (Van Der Werf, 2006).

Because the University of Phoenix is nationally accredited by the Higher Learning Commission, and regionally accredited by five different local accrediting bodies across the U.S., its students can receive federal financial aid (Department of Education, 2006). While the cost of attending the University of Phoenix is generally less than the cost of attending the average private U.S. college or university (considering the cost of attending a traditional college or university usually includes room and board, while those costs are not included at the non-residential Phoenix), students must schedule an appointment to speak with an admissions counselor to determine the exact cost. This raises some concern given the university's ongoing legal troubles.

University of Phoenix netted more than $2.2 million in tuition income alone in 2005 (Apollo Group Annual Report, 2005), and is now reporting earnings of $2.39 per share for stockholders. The company's 173 million outstanding shares are now earning more than $400 million for their owners (E-Trade, 2006). However, the company recently announced it would restate earnings after discovering irregularities in its awarding of employee stock options.

By the end of 2005, 307,400 students were enrolled across the University of Phoenix's 244 locations (Apollo Group Annual Report, 2005). The vast majority of those students receive federal financial aid. While student financial aid is paid to the student, not the institution, most University of Phoenix students would be unable to attend without the help of generous aid awards.

The situation is similar at most U.S. colleges and universities, where millions of students receive aid yearly. However, while the availability of financial aid levels the playing field for the University of Phoenix, the playing field becomes wildly uneven when the institution's shareholder earnings are compared to the 501(c)(3) filings of its non-profit peers.

The Ethical Question

Is it right to use public monies to support for-profit education companies such as the University of Phoenix's Apollo Group? On the face of the issue, the answer seems obvious. It clearly is not. After all, some would argue, we do not throw taxpayer money at publicly traded companies.

Taxpayers strongly object to funding private for-profit companies. So why do we not see mass public outrage over the public subsidizing of an immense, rapidly globalizing for-profit education provider?

Simple. Since the taxpayer money the University of Phoenix receives is in the form of student financial aid, most do not immediately make the connection between their taxpayer dollars and the university's status as a publicly traded company.

It is an illusion that for-profit higher education institutions such as the University of Phoenix are self-supporting. Though they are not directly funded by federal, state or local governments, they are the indirect recipients of massive government subsidies in the form of student financial aid.

That most University of Phoenix students are from traditionally underserved groups with limited economic resources makes it particularly reliant on aid. Without these funds, the vast majority of Phoenix students who receive aid would not be able to attend. And if the school were forced to limit its enrollment to only those students who could pay out of pocket, it would not remain in business for long. (NBA star Shaquille O'Neal, who recently earned an online MBA through Phoenix, likely paid in full. He is the rare exception.)

The Ethical Environment

Among the most powerful trends now predicting the future of American higher education is the move toward privatization. This fairly recent development largely results from the reduction of state and federal subsidies to colleges and universities under the current presidential administration.

The Bush administration's budget for the 2007 fiscal year, which began Oct. 1, included numerous proposed cuts of financial aid programs intended to increase educational access to minorities and the poor. Included in these proposals were cuts to several well established federal need -- aid initiatives, including a failure to increase funding to federal work -- study programs and supplemental educational opportunities grants, and a similar freeze of grants to historically black colleges and to colleges serving Hispanic students.

President Bush also urged the elimination of the federal Perkins Loan program and of the Leveraging Educational Assistance Partnerships program, which matches need aid provided by the states dollar-for-dollar. Additionally, Bush recently revised the federal formula used to determine families' expected contributions to college costs, reducing the amount of Pell Grant aid some students can collect.

Though the new Congress that will be seated in January 2007 promises an increase in need-based funding available through Pell Grants and other programs that promote educational access to traditionally underserved groups, along with increased tax deductability of college tuition costs and a reduction in student loan interest rates, the possibility of gridlock between a Democratic Congress and a Republican White House may prevent any or all of those new initiatives from taking effect.

While the course of the next Congress remains unpredictable, at least one thing is known: If the pendulum does start swinging decisively back toward access, that move will most certainly come as a result of the pragmatism of those in charge. If business leaders once again find themselves unable to run competitive companies that are reliant on an educated American workforce, they will need to support broader educational access. Future ethical decisions impacting higher education will be increasingly defined by economics.

Among the critical trends that may help characterize the higher education ethics of the coming century is a predicted shortage of 10 million American workers by 2010 (Zeiss, 2004) and recent Advisory Committee on Student Financial Assistance reports that the U.S. is on target to lose 2.4 million bachelor's degrees because of financial barriers to education, and that current funding trends predict the creation of a "permanent underclass" in the United States (Porter, 2006, para. 3). This does not bode well for America's ability to compete in an increasingly complex global economy. The question remains whether U.S. business leaders will learn these lessons in time to save its privileged place at the top of the world's economic food chain.

That said, an increasing number of conservative American leaders would argue our colleges and universities, in what they see as their current liberal state, are ill equipped to offer the kind of education needed to keep the U.S. competitive in the future. As Bush's No Child Left Behind initiative for K through 12 education, and more recently, the Spellings Commission's recommendations for higher education have made abundantly clear, the American taxpayers are demanding more responsibility and accountability for education spending, and if these institutions cannot remain sufficiently attuned to marketplace realities to sustain themselves as any for-profit business must for the sake of its own survival, they clearly are not delivering a quality product efficiently, and therefore, do not deserve massive government subsidies. They must be allowed to fail.

Much of the current scrutiny of U.S. higher education can be traced to an escalating culture war that became unmistakably apparent to Americans during the recent election cycle. The Bush administration and its conservative supporters have come to believe the professorate, as a great undistinguished behemoth, represents liberal values run amuck.

"There is an urgency here," U.S. Secretary of Education Margaret Spellings told the Chronicle of Higher Education in October, the day before she announced her report's findings. "The academy is underestimating the American public" (Field, 2006, para. 4).

More recently, conservative education activist Anne D. Neal, president of the American Council of Trustees and Alumni, took the professorate to task for what she characterized as runaway liberalism. In a recent interview at the Harvard University Faculty Club, Neal blamed a lack of "intellectual diversity" for perceived troubles in higher education today (Wilson, 2006, para. 4)

Neil is hardly alone in her complaints. In fact, many Americans think she is on to something. They blame the "liberal professorate" for skyrocketing higher education costs, and while the suggestion of a vast left-wing conspiracy controlling higher education in America certainly oversimplifies the issue to an erroneous degree, it would be wrong to dismiss their claims entirely.

As the Spellings Commission reported, U.S. higher education has long operated as it pleased, with much waste and little accountability. While such inefficiency may have served higher education adequately in the past, in today's highly competitive environment, schools that do not deliver on their promises will eventually fail to attract the tuition dollars they need to survive.

The problem, of course, is that the number of U.S. colleges and universities with endowments large enough (and student bodies rich enough) to allow them to forgo financial aid can be counted on one hand. The question then becomes whether this is the intended consequence for a group that is more interested in reinforcing the current class system than in expanding educational access to the masses.

What is particularly intriguing about for-profits such as the University of Phoenix that are among the nation's most prolific providers of educational access is that they are also prodigious moneymakers for their shareholders. That these institutions outwardly appear to be self-supporting gives them a certain conservative appeal, but once again, what most education policy wonks all too easily forget is that the Phoenixes of the world are also among the nation's largest consumers of taxpayer dollars.

Five Ethical Arguments

I. Using public funds to support private, for -- profit institutions is wrong.

U.S. taxpayers have long rallied against "corporate welfare," the state subsidization of private companies such as Halliburton; Archer, Daniels Midland and countless other multibillion-dollar firms, many of which employ highly paid lobbyists to keep the money flowing from Washington. That the University of Phoenix is involved in education -- an enterprise U.S. taxpayers are accustomed to funding -- should not make its solicitation of what amounts to corporate welfare any less egregious.

II. Government support of exclusively marketplace-driven colleges and universities undermines America's core values.

For -- profit colleges and universities have been the primary beneficiaries of -- as well as the main forces behind -- higher education's ongoing move toward privatization. The introduction of for-profit education companies into the marketplace in recent years has forced all U.S. colleges and universities to reevaluate their business models in the best-case scenario, and to close their doors for good in the worst.

Competition is the foundation of American capitalism, and the current higher education environment embraces that business model more than it has since the earliest days of the 20th century. Whatever one's opinion of requiring colleges and universities to compete in the same way private companies have always had to, most would agree competition works only when it is fair and conducted on an even playing field. It is not fair that non-profit colleges and universities compete on the same playing field as for-profits because for-profit colleges and universities operate as businesses in support of private good, not as charities that promote the public good.

III. Reduction of higher education funding has supported a move toward privatization of the student loan industry and of public colleges and universities.

At both the state and federal level, education funding has been dramatically reduced in recent years. In addition to the president's current proposed cuts, it has also been revealed that some of the largest student loan providers in the United States share close ties to the current administration, and that many are major donors to George W. Bush (Burd, 2006). (Among the many campaign promises Democrats made during the recent election season was a promise to reduce the interest rate charged on student loans.)

Ballot measures in the recent midterm elections proposed spending caps for colleges and universities in several states. The situation was particularly dire at the University of Oregon, which threatened to sever ties with the state in order to remain viable, according to the institution's president Dave Frohnmayer. "We would have to make a very significant move that would, in essence, make us quasi-private," Frohnmayer told the Chronicle of Higher Education (Burd, 2006, para. 9).

IV. The proliferation of for-profit institutions will expedite the breakdown of theUS. higher education system.

Higher education in the United States has long been moving toward a marketplace model. The resulting paradigm shift has pushed colleges and universities to decide between either following their respective missions or catering to increasingly influential marketplace demands. Aside from the very few U.S. colleges and universities with endowments large enough to allow them to ignore competitive pressures, the vast majority of institutions -- especially in these days of limited government support -- must be increasingly mindful of maximizing their ability to compete in a fast-changing global forum.

The proliferation -- and proven marketplace success -- of for-profit colleges and universities in recent years has radically transformed the higher education environment in the United States, where for -- profit institutions such as the University of Phenix are bestowed the same financial advantages as their non-profit peers, only without the restrictions imposed by the need to follow a traditional values-driven mission. Now most schools must pay much closer attention to the needs and demands of the business world than they ever had to before.

It is a delicate balancing act, and one that many institutions will ultimately fail to pull off. However, countless for -- profit education companies will doubtless be lining up to fill the voids created by their absence.

V. The defunding of higher education discriminates against the least advantaged by perpetuating class stratification. The educational declines that will result will ultimately devastate the US. economy.

Women, the poor, minorities, and other historically disadvantaged groups bear the brunt of higher education defunding. With tuition costs rising and less grant aid available to the students who need it most, those at the bottom of the economic ladder will most acutely suffer decreasing access to higher education.

In addition to questions of fairness, on a practical level, this situation could ultimately endanger the entire U.S. economy. Population trends show that the largest percentage of Americans entering the workforce in coming decades will be from the lowest socioeconomic groups. If fewer people from these groups are granted access to higher education, the number of educated workers in the U.S. will decline. With a less educated, less competitive workforce, the entire U.S. economy will ultimately suffer.

Toward an Ethics of Egosim

The defunding of U.S. public education in favor of a more competitive capitalistic model is a brilliantly clear example of a sweeping move from an ethics of rights and utilitarianism to an ethics of selfishness and egoism. For most of the last century the overriding American educational philosophy supported a kind of equal access to education in which some childless people wound up paying for public education they did not directly utilize, but in which their small loss was far outweighed by the vast social gain of living in an educated society. In this utilitarian scenario, whatever provides the greatest good to the largest number of people defines what is ethically right.

One of the foundational principles of our nation's commitment to free public education is the belief that an educated population benefits all of society. By that reasoning, all people, regardless of whether they are directly experiencing the benefits of education, should be happy to support education for other members of their society.

For much of the last century, the nation's leaders professed the importance of an educated society, and impressed upon all its members the need to collectively support schools. Over the last decade at least, it has become increasingly clear that the nation's political leaders have come to view education as a personal, individualistic concern that should be supported by only the individuals it directly serves.

The recent move toward privatization, individualism and bootstraps capitalism is indicative of a fundamental transformation of our core educational values. If a nation's leaders believe the best results for society will arise from the adoption of a self-serving educational model, there is little doubt those who are best equipped to serve themselves will quickly rise to the top -- likely on the backs of those less well -- equipped to serve themselves. The net result will be a reinforcement of existing class stratification.

It is this philosophical shift toward egoism that has made possible the recent proliferation of the for-profit education industry. Much in the way vouchers and charter schools have sapped public education coffers at the K through 12 level, the exponential growth of for-profit higher education providers has claimed untold resources once provided for the common good merely to benefit the privileged few.

In the ethics of egoism that has come to define American higher education today, the rich get richer as the poor grow poorer. The shareholders of private education providers reap huge profits at the expense of the general public, while the most underserved populations are either frozen out of the system altogether or taken advantage of by a system in which they accrue an unmanageable amount of debt that ultimately forces them to leave school and return to the minimum-wage workforce with more debt and even fewer opportunities than before.

For the reasons outlined above, the use of public monies to fund for-profit education companies such as the University of Phoenix's Apollo Group is wrong. Not only does the practice take money from taxpayers (an involuntary group) to put it in the hands of Apollo Group shareholders and executives (both voluntary groups), but the practice is simultaneously expediting the already swift transformation of U.S. higher education from a public to a private model. A weak job market -- exacerbated by state and federal governments' rapid defunding of colleges and universities -- has encouraged the commodification of higher education.

This move toward capitalistic competition has been mirrored in many areas of the American public, as the dominant philosophy encourages an each-man-for-himself system in which only those who play the game best win. And in this case, the winner takes all. Meanwhile, the losers -- who are most of us -- are left to pick up the pieces.


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December 2006