Transcript

Stephen Smith: From APM, American Public Media, this is an American RadioWorks documentary.

The University of Phoenix started in 1976 with eight students. Today it's one of America's largest universities.

Phil Regier: Phoenix is ground zero for for-profit education.

More than one in ten students goes to a for-profit school.

Kelly O'Horo: The reputation is that it's a degree mill. That was certainly not my experience.

For-profits pioneered new ways of going to college. They're also the focus of lots of criticism.

Sen. Tom Harkin: They're on the hook to Wall Street.

Pauline Abernathy: Recruiters would say anything, do anything in order to get students to sign on the bottom line.

Coming up "The Rise of Phoenix: For-Profit Universities Shake Up the Academy" from American RadioWorks.

First, this news.

Part One

Stephen Smith: You have probably heard of the University of Phoenix. The school's ads are everywhere.

Ad 1: I'm the mayor of South Salt Lake, and I am a Phoenix...
Ad 2: I managed a network of over 1,000 nurses, and I am a Phoenix...
Ad 3: I helped turn an at-risk school into an award-winning school, and I am a Phoenix...

The University of Phoenix has been around since 1976. Back then the school had just eight students. By 2010, it was one of the biggest universities in the world, with enrollment of nearly half a million students - more than all the schools in the Big Ten Conference combined. The typical Phoenix student is a working adult. More than two-thirds are women. Phoenix has a higher percentage of African-American students than at most colleges. People attend the University of Phoenix for lots of reasons, but if there's one thing they're all looking for it is convenience. To get to class you either log in online or go to one of the school's more than 200 locations.

[Sound of a PATH train station]

Most University of Phoenix campuses are in office parks near freeways. But the one in Jersey City is next to a train station just across the Hudson River from Manhattan. Therese Stover comes to this campus every Wednesday night. She's a manager at Whole Foods. Stover says she tried a traditional college but it didn't work.

Therese Stover: The schedules, the homework, the classes, it was just too much for me to handle and still keep a full time job so I was starting to fail a lot of my classes so I just dropped out of school, period. Um, I took a year off and then I found out about University of Phoenix and I enrolled and I've been here every since.

Instructor: OK, good evening everyone. I'm going to get started...

Tonight Stover is in a business communications class - she's getting a bachelor's degree in hotel management. What Stover likes best about Phoenix is the schedule. Classes meet one night a week for four hours, and students typically take one class at a time. Each course lasts five weeks.

Instructor: Tonight we're going to talk about group dynamics in communication. Before we do that, just some feedback on your papers...

There are 14 students in this class and all classes at Phoenix are small like this. None of the classes are taught by tenured professors; they're taught by working professionals. The instructor for this class is an operations manager for Duane Reade, a New York area pharmacy chain. Hiring working professionals to teach has been a central tenet of Phoenix from the beginning. The idea is that students will be better prepared for careers if they learn directly from people who are working in the field. It's one of the things student Talitha Bravo likes best about the University of Phoenix.

Talitha Bravo: It's amazing. It seems like right after class you know you get to apply the things you learned almost instantly. You know, it's real life experience. Everything that we learn is exactly what's out there.

Instructor: Do you do that, do you find yourself doing that?
Student: Constantly, all the time.
Instructor: How does that work?
Student: Um, my customer will tell me what it is that they want...

Something else that's different about Phoenix is the way it is funded. Most colleges are non-profit. But Phoenix is a for-profit enterprise, and that makes a lot of people uncomfortable, says Mark Schneider. He's an education researcher who worked in the George W. Bush administration.

Mark Schneider:There's no other sector in the American government, the American economy, where the term for-profit brings up such negative attitudes as in higher education.

Schneider counts himself among the supporters of for-profit colleges. He says they can innovate and expand quickly - and this is key in a rapidly changing economy where more people need degrees. But critics say many for-profits are more interested in making money than educating students.

Sen. Tom Harkin: They're on the hook to Wall Street.

U.S. Senator Tom Harkin is a Democrat from Iowa. In 2010 the education committee that he chairs began an investigation of the for-profit college industry. Harkin was alarmed by how quickly the sector had grown. In just ten years, the number of students attending for-profit colleges had tripled. And even though only one in ten students went to for-profits, the government was spending a quarter of all its financial aid money on students at for-profit schools. Harkin wanted to know if that was a good use of public money. In July of 2012, his committee released its final report in a press conference on Capitol Hill.

Sen. Harkin: In this report you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and profit and regulatory evasion and manipulation.

Harkin has been particularly critical of the University of Phoenix. As the biggest for-profit, he says it deserves extra scrutiny. But Phoenix says it's being unfairly attacked. University officials say Phoenix is providing a quality education to hundreds of thousands of students who otherwise would not have access to college.

[Music: "Hip Hop Instrumentals 026" - Hip Hop Instrumentals - Giallani Records]

From APM, American Public Media, this is an American RadioWorks documentary, "The Rise of Phoenix: For-Profit Universities Shake Up the Academy." I'm Stephen Smith.

From the beginning, many people at traditional universities turned up their noses at the University of Phoenix. They didn't like the school's emphasis on career skills and its disregard for cherished academic customs like professor tenure. They were also suspicious of the school's embrace of corporate values such as top-down management and efficiency. But these were things that Phoenix founder John Sperling believed higher education desperately needed when he started the University of Phoenix in 1976. American RadioWorks correspondent Emily Hanford has the surprising story of what motivated Sperling and why his school, and the industry he pioneered, are so controversial today.

Part One

Emily Hanford: John Sperling no longer runs day-to-day operations at the University of Phoenix, but he still comes to his office. And that's where I met him in the spring of 2012.

John Sperling: My name is John Glen Sperling, birthdate 1/9/21. And that puts me at 91. So I'm a nonagenarian.

Sperling's office is at the University of Phoenix headquarters, a collection of modest buildings near the Phoenix airport. Among the books on his shelf are The Collected Poems of Emily Dickinson and The Oxford Companion to English Literature - books you might expect to find in the office of a humanities professor - and that's what Sperling was before he built a huge corporation that made him a billionaire.

There are a lot of unlikely things about John Sperling's story, like the fact that he made it to college at all. He was born in rural Missouri. His family was poor. None of them had gone to college, and he didn't think he would either.

Sperling: I had no idea that college was even a possibility.

After high school, Sperling joined the merchant marine. He says while he was at sea, he had a political awakening.

Sperling: These, um, seamen at that time were very politicized and they were passionate. And I got an ideology.
Hanford: What was the ideology?
Sperling: Left, left, left.

Sperling became a socialist. He says that system appealed to his interest in social justice. Socialism also ignited an intellectual curiosity that led Sperling to enroll at a community college in San Francisco. He went to class during the day and worked at a gas station at night. He loved college, and did well enough to transfer to Reed, an elite liberal arts school in Oregon. Sperling says it was his first interaction with people from the middle and upper classes, and he hated them.

Sperling: And I really did, I loathed them.
Hanford: Why?
Sperling: Because of their privilege. And they were always saying, "I got where I did because of all the hard work," and I thought, "You stupid son of a bitch, you don't know how privileged you are."

Sperling's experiences at Reed made him realize there was a class of people in America who had access to all kinds of careers and opportunities that people like him didn't. In the early 1940s only about 15 percent of people went to college and they almost all came from wealthy families. Sperling wanted access to the opportunities they had. He didn't know what career he wanted, but he decided to get as much education as possible. After graduating from Reed he went to Berkeley for a Ph.D. in history, and then to the elite Cambridge University in England. Sperling says the only thing all this education prepared him for was life as a professor.

Sperling: Well I didn't have any place else to go.

He says if he'd had the right connections, he might have gone to work on Wall Street. As a professor, Sperling wasn't very happy. Then in the early 1970s while he was teaching in the humanities department at San Jose State, he got a government grant to develop an education program for police officers and teachers. The idea was to help them learn how to cope more effectively with juvenile delinquency. Sperling had the teachers and police officers do research projects and write papers about what they were doing during the day at work. He loved teaching them, and he says they loved learning.

Sperling: The longer they were in there the more they got fascinated with the process of education. It grabbed their minds and they said, "Oh my God, this is fascinating. And we want to stay. Not only do we want to stay, we want degrees."

They wanted something to show for their work, a piece of paper they could use to move up in their careers. So Sperling designed a degree program that looked a lot like what they'd been doing in his class. Students would focus on learning from their experiences at work and they'd do a lot of group projects to develop communication and management skills. The teachers and police officers told Sperling lots of working people would love to get a degree like that. But when Sperling took his idea to university administrators they said "no."

[Music: "Acid Raindrops (Instrumental)" - People Under the Stairs - Acid Raindrops (EP, Single) - OM Records]

Sperling says San Jose State said "no" to his degree program because the school didn't need more students. In the 1970s the University had plenty of state funding and plenty of people who wanted the degrees they already offered - plus, setting up a new degree program required approval from deans, department chairs and all kinds of committees. And Sperling says his ideas about education just didn't sit well with traditional academics - career skills and group work weren't what university was about.

Sperling: The faculty were not going to put up with this sort of nonsense. And the accrediting association was not going to allow higher education to be debased by such activities.

Sperling saw the university's decision as a form of class bias, and he wasn't going to be deterred. So he took his idea to a Jesuit university in California that was in financial trouble - it needed new students. Soon Sperling got a contract with another college that was struggling financially, and then another. But the higher education establishment remained hostile to his ideas, and so did the accrediting association in California. They accused him of operating diploma mills and threatened to strip accreditation from the schools he was working with. That's when John Sperling decided he would start his own university. He moved to Arizona - where laws made it easier to start a new school - rented classroom space in a union hall, and opened for business in 1976. This is Terri Bishop, who's been working with Sperling since the early days.

Terry Bishop: We really felt like we were on a mission because we were fighting the establishment, and we were fighting for a good cause.

In the beginning, the University of Phoenix was a place for people who had started college and never finished. In fact, to get into Phoenix you had to be at least 23 years old, you had to be working, and you had to have a minimum of 60 college credits already. Muriel Duncan was a member of the first graduating class.

Muriel Duncan: I got so much junk here. I don't know where you want to start or where we want to end...

Duncan is 84 years old, sitting in her living room in Arizona, sifting through a pile of papers she had to submit to get in to the University of Phoenix. They're mostly documents chronicling her work history. When Duncan went to Phoenix she was working at the Arizona Department of Juvenile Corrections.

Duncan: At that point, I didn't, I didn't see myself going back to a four-year college.

She had started a degree when she was eighteen but quit because it was too expensive. Now she was 50. Her husband was on disability and they relied mostly on her income. She traveled a lot for work and says she couldn't take time off to get a degree. Then someone told her about this new school.

Duncan: And it was in a red brick building and we were on the second floor. Just had this one room with this long table...

The University of Phoenix worked for Duncan because classes were just one night a week. Duncan paid cash because the school wasn't eligible for federal financial aid yet - classes were about $200 each. By 1979, the year Duncan graduated, Phoenix had become a fully accredited university. Students could now get federal grants and loans and that allowed founder John Sperling to raise prices and still attract students. Eventually Phoenix tuition was significantly higher than tuition at most public colleges and universities, but for a lot of students the convenience was worth the cost.

Pattie Soltero got a bachelor's of science in nursing in 1997 and a master's in organizational management in 2002. She says she ended up with about $60,000 in debt.

Pattie Soltero: I'm still paying for it. Um, and I'll be paying for it for many, many years [laughs]. But it's all worth it, I wouldn't be in the position I am today, um, if I didn't have those two degrees.

Soltero is an operations manager at Children's Hospital in Los Angeles. Phoenix graduate Tracy Bespflug thought her degree was worth it, too. She was looking for a way to go back to college in 2008. She got in to several state schools, but the class schedules wouldn't allow her to keep her job. Bespflug works in the research department of a hospital in Portland, Oregon. She says Phoenix was her best option, but she did worry about the school's reputation.

Tracy Bespflug: I did my research so I certainly knew all of the criticisms that come along with University of Phoenix, a degree there. And in making my decision I didn't let that interfere. When I made my decision I really thought of, what is the best fit for me at this point in my life and what program will give me the best chance at success, to actually complete? I didn't want go to school and be there for eight years and get halfway through your program and think, "This is impossible."

Bespflug works with researchers who have degrees from places like Harvard and Princeton. They questioned her decision to go to Phoenix. But she says it shouldn't matter if your degree has a fancy name.

Bespflug: Like anything, you're going to get out of it what you put into it. And that's the same at any school.

Many Phoenix students I talked to have a chip on their shoulder about the perception that their degree is less valuable. Wendell Nelson is an assistant store manager at Barnes and Noble. He's working on a bachelor's degree in business administration.

Wendell Nelson: Seems to me like you know wealthier kids that just come out of high school and go to a traditional university, they go there, sit through class, then they go party 'cause they have a lot of extra free time on their hands. Whereas we're working their butts off. We're working on coursework. We're working on our usual jobs. We're taking care of our families. I feel that a University of Phoenix student, pound for pound, is stronger than a younger student that doesn't have a lot of life experience or responsibilities.

[Music: "The Waking Sleep - Instrumental" - Katie Herzig - The Waking Sleep - Downtown/Mercer Street]

When Phoenix founder John Sperling started the University of Phoenix, he was motivated by his interest in social justice. But he was no longer a socialist. He had come to believe the free market was the best way to bring innovation to higher education. In a memoir, Sperling wrote that being for-profit imposed a kind of "discipline" that was missing at traditional universities. At Phoenix, decisions would be made by managers -not faculty committees - and capital would allow the school to grow. A decade after opening its doors the University of Phoenix had more than 6,000 students - and Sperling wanted to get much bigger. He started online classes in 1989 - long before most other universities were doing it. He also created a parent company called the Apollo Group, and in 1994 he took the company public.

Trace Urdan: Apollo Group was really a rocket ship of a stock.

Trace Urdan is an equity analyst who covers the for-profit education sector. He says at first there was a lot of skepticism about Phoenix.

Urdan: Most of the people who work in Wall Street went to very fancy schools. And so there's a lot of prejudice and preconceived notions that come into play when people start thinking about a school like the University of Phoenix. But the results spoke for themselves. I mean there was legitimate demand.

Within just five years of going public, the University of Phoenix had more than 100,000 students and enrollment was growing by more than 25 percent a year. Taking note of the Apollo Group's success, several other for-profit colleges went public during this time too - many of them small trade schools that had been around for decades. John Sperling proved that higher education could be big business. And now his company was under pressure from investors who wanted Phoenix to keep growing. To do that, Phoenix invested heavily in online learning. The University also expanded overseas. And it started accepting people who didn't have previous college credits. By 2004, Apollo stock was at an all-time high. John Sperling was a billionaire. And then...

Urdan: Apollo got to a place where they started to see their business slowing.

This is Wall Street analyst Trace Urdan again.

Urdan: Part of it was that they had really been serving a Baby Boomer audience. And the Baby Boomer was starting to age out of the market where going back to school was even relevant. And so they decided that they needed a product for the Generation Y - for the children of the Baby Boomers. And that what that generation seemed to need was an associate's degree.

Associate's degrees had been gaining in popularity in part because more people were going to college and an associate's degree is a quicker, and typically less expensive way, to start. Phoenix created a new college called Axia that offered associate's degrees online.

Urdan: And they enrolled a lot of students.

Trace Urdan says Axia was popular because Phoenix priced the degrees so students could cover the full cost using just federal grants and loans. It required no cash up front. That pricing strategy brought in lots of students, but it ended up creating a big problem that the University of Phoenix is still trying to recover from. Most of the students who started in the online associate's degree program ended up dropping out. Senator Tom Harkin's Senate committee found that in 2008 and 2009 more than 177,000 people enrolled. A year later, 66 percent of them had left. Harkin says the Phoenix business model - and the model at other for-profits - is to sign up as many students as possible.

Harkin: What drives the profits is how many students they enroll.

Harkin says Phoenix and other for-profits specifically target low-income and military students because their tuition can be paid for with government grants and loans.

Harkin: The school gets the money; they pay their shareholders; they pay their school administrators 2, 3 million dollars a year. And the student drops out and has this debt hanging over his or her head for the rest of their life. It's just unfair.

[Sound of a crowded phone bank]

Enrollment Adviser: Hi this is Raphael with the University of Phoenix, just uh, following up with on our appointment we have set up for later this evening. Uh if there's anything that has changed, just please give me a call...

This is how the University of Phoenix recruits students: a person sees an ad on TV or the Internet; they call or email for more information; and they end up talking with an enrollment advisor.

Enrollment Adviser: You know, I'll be here to answer any questions for you at any time...

These enrollment advisors are talking with prospective students at what the University calls its Online Central Campus in Phoenix, Ariz. Four hundred advisors work in this building and another three hundred work in the building across the street - and that's just to service online students in the central United States.

Phoenix spends more than a billion dollars a year on recruiting and marketing - about 23% of the company's revenue. Phoenix says it's making the complicated process of enrolling in college simpler and more user-friendly. But Bob Shireman, former deputy undersecretary of education during the Obama administration, says for-profits make college too easy to buy.

Bob Shireman:They get the train moving down the track and the next thing you know, you're signed up for the program, you've taken out a federal loan, and it's happened, sort of like buying something at the check-out stand at the store. It kind of happens. You didn't totally plan it, but you kind of had a little bit of interest and next thing you know, you're a student.

Shireman and other critics of for-profits are most concerned about first-generation college students who may not know much about how college works; or realize that they could go to a community college or state school and likely pay less. Lots of colleges and universities now offer online and other kinds of flexible programs. Senator Tom Harkin thinks a lot of students are better off at lower cost public schools, and he thinks the University of Phoenix and other for-profits are not doing enough to make sure students finish - especially first-generation students who he says need lots of help.

Harkin: They need support services, they need tutoring, they need counseling, but these for-profit schools aren't providing that. They just get 'em hooked up. A student finds out they can't handle it, and they drop out.

Phoenix executives say they are providing support to their students - we'll return to that question in the second part of the program. But first back to the question of dropout rates. This has become a sore spot for the University of Phoenix. Graduation rates are widely acknowledged to be too low. Even company executives say this. All the higher-ups are consistently on message about raising graduation rates - except for John Sperling, who's never really been an on-message kind of guy.

Hanford: By your own calculations, about 31% of the students who are starting bachelor's degrees are finishing them. What do you think of that?
Sperling: I think it's wonderful that there are 31% of those students that would have gone right down into the lower-middle class and stayed there. And now there are 31% that have got a shot at a halfway-decent life and are going to help build this economy. What do you want 'em to do? You want to have 100% down there or do you want to save at least 31?

[Music: "If You Stayed Over (instrumental)" - Bonobo - Days to Come – Ninja Tune]

John Sperling started the University of Phoenix at a time when access to higher education was a problem. There weren't enough ways for working people to get degrees. Now, there's a different problem. Lots of people have access to college, but many of them don't finish. The official data shows that only 56 percent of students at public universities complete their degrees. The big question facing everyone in higher education is how to get more students to graduate. Critics of for-profits are skeptical that schools like the University of Phoenix are committed to doing that. But the University of Phoenix is betting hundreds of millions of dollars on the idea that it can improve graduation rates - by figuring out a way to help college students learn better.

[Music continues]

Stephen Smith:That was correspondent Emily Hanford. You're listening to an American RadioWorks documentary, "The Rise of Phoenix," I'm Stephen Smith.

Coming up, we visit Silicon Valley veterans who've signed on at the University of Phoenix to try to reinvent education.

Rob Wrubel: We've reinvented media; the experience of music; we've reinvented social connection. We really haven't applied those same sophisticated technologies at scale to learning.

To read more about this program and see photographs of Phoenix founder John Sperling visit our website AmericanRadioWorks.org. You can also find links to the report released by Senator Tom Harkin's Senate committee documenting problems with the for-profit college industry. That's at AmericaRadioWorks.org.

Support for this program comes from Lumina Foundation and the Spencer Foundation. "The Rise of Phoenix" returns in just a moment from APM, American Public Media.

Part Two

Stephen Smith: Since it was founded in 1976 , the University of Phoenix has been challenging traditional notions about higher education. And it's been the focus of lots of criticism.

Sperling: The cascade of negative publicity is endless.

Phoenix founder John Sperling says he's come to expect it.

Sperling: We're so used to it, the attacks, that it's just part of doing business.

But there's an increasing amount at stake for the University of Phoenix. When the school started, all of its income came from students who paid out of pocket, and often got help from their employers. There was no public money involved. Today Phoenix and other large for-profits get close to 90 percent of their revenue from the federal government in the form of student grants and loans. That's because an increasing number of low-income students are choosing for-profit schools - and low-income students qualify for lots of government aid. Democrat Tom Harkin, chair of the U.S. Senate's education committee, says with so much money at stake, the government should have more oversight of for-profit colleges.

Sen. Harkin: This is an industry that is ripe for, begging for, some kind of regulation.

Harkin is proposing new rules to reign in for-profits like Phoenix. He wants to reduce the percentage of revenue they can get from the federal government. He wants to ban the use of taxpayer dollars for marketing. Republicans are fighting the proposals, and the for-profit industry is lobbying hard against the proposed restrictions. As the battle continues on Capitol Hill, the University of Phoenix is making changes, and it's spending big money to try to improve its reputation. It wants to prove that it offers something the government , and students, should be willing to buy. Here's American RadioWorks correspondent Emily Hanford.

Instructor Jim O'Keefe: Why is it that you want to be here?

Emily Hanford: This is an orientation class at the University of Phoenix campus in Columbia, Md. It's a free, three-week course. Students with little or no college experience have to take it to make sure they know what they're getting into.

O'Keefe : Because it's going to be easy to say, "You know what, I'm bagging it. It's not worth it..."

Phoenix used to use a more aggressive approach with prospective students. A 2007 training manual urged recruiters to get people to sign up quickly - like a salesman getting you to buy that TV today, not tomorrow.

O'Keefe : Who's nervous?

This orientation class represents a new approach. One thing the company is trying to do is weed out people most likely to fail. The class instructor Jim O'Keefe asks the students to think about the obstacles they may face.

O'Keefe : Lorraine, what makes you nervous, or apprehensive, or whatever the right term is?
Lorraine Sann: Um, well I see my children's homework sometimes. So I guess failure, you know...

It's been 30 years since Lorraine Sann was in school. What worries her most is reading. She says it's hard for her to stay focused and retain information. But at the end of the three-week course, Sann decides to enroll anyway.

According to the University of Phoenix, four out of five people who go through this orientation end up starting a degree program. Lots of struggling learners are attracted to Phoenix, in part because you don't have to prove you're a good student to get in. Wendell Nelson had a tough time with math in high school. When he started a degree in business at Phoenix two years ago, and his advisor told him he was going to have to take Algebra, he kind of freaked out.

Nelson: You know, I said to myself, "How am I going to approach this class?" You know, this is a guy that graduated from high school, you know, with "Math A" as a credit, you know? [Laughter] I was saying, you know, like I look at a number and I get a headache. So I said to myself, "How's, what's going to happen?" Like, "I'm going to fail..."

Nelson is telling this story to a group of fellow students at the Phoenix campus in Gardena, Calif. They're part of a new student organization trying to get the word out about their positive experiences at Phoenix. They say they're fed up with their school being portrayed as a dropout factory that exploits students. Nelson says when he was struggling with Algebra, he went to his advisor and she told him Phoenix had a math lab and online tutoring he could try.

Nelson: So I said, "Oh, that's cool, let me go check that out." And there it was, right there and I was able to, just block by block, break it down, break each problem down. I had live tutors...

Nelson says it was lots of work, but he made it through math. He insists any student who needs help can find it. And that's not the case at some other schools Phoenix students have tried. Ting Ting Wang was at a California community college before coming here.

Ting Ting Wang: ...just to be able to see a counselor is like, if you can even get them on the phone, it's like, like a miracle...

But at Phoenix, Wang has three counselors - an enrollment counselor, a financial counselor, and an academic counselor. It's part of the university's effort to provide more student support.

In addition, Phoenix says it's investing a billion dollars in new research and technology to help students learn better. The heart of this operation is in San Francisco and the leader is Rob Wrubel whose title is Chief Innovation Officer. Wrubel says education is behind the curve when it comes to technology.

Rob Wrubel: We're reinvented media; the experience of music. We've reinvented social connection. We really haven't applied those same sophisticated technologies at scale to learning.

That's what Phoenix is trying to do. Wrubel oversees a team of people who used to work at companies like eBay and Yahoo. A group of them has gathered in a conference room in downtown San Francisco. They've brought their laptops to show me some of the things they're developing. Gailene Nelson is working on something called a "Tutored Formative Assessment."

Gailene Nelson: Let me, let me get you started on the first screen here. So the Tutored Formative Assessment actually comes with three pieces. One is a weekly knowledge check...

The weekly knowledge check is a quiz. The one she's showing me is for an economics class.

Nelson: So the question here is: "The purpose of a market system is to: a) allow the government to control what is sold; b) set constraints between buyers and sellers...

Each person in the class takes the quiz online - even classroom-based students often work online. If you get a question wrong on the quiz, the tutored assessment points you to the part of the textbook you should read again - or it could show you a YouTube video or a lecture to help you better understand the concept. When you're finished with the quiz, the system generates a personalized study guide for you, and your instructor gets a report about what you're struggling with. Something else the system is doing all this time is collecting data - lots and lots of data. This is Chief Technology Officer Satish Menon.

Satish Menon: Every class that you go through gives us opportunity to collect additional knowledge pieces about you and where you are. Every interaction that happens in a classroom, when a student - you know, how long are they taking to solve this problem? How long are they remaining in this session here? Are they signaling whether this concept that we introduced is something they understand or didn't understand? All of that data, you want to collect that and analyze it and get insights from it.

The idea is to create systems that "adapt" to the specific needs of each learner. "Adaptive learning" is the term experts use, and there's research that shows it can help people learn better. The University of Phoenix is building upon work done by learning scientists at Carnegie Mellon University who started a company called Carnegie Learning. In 2011 the Phoenix parent company bought Carnegie Learning in a deal worth nearly a $100 million. The acquisition is touted in investor materials as key to the success of the University of Phoenix going forward. CEO Greg Cappelli believes adaptive learning will help more students succeed.

Greg Cappelli: This is the first time that we truly have an opportunity to change learning outcomes and I think we're going to have success doing that along with others I'm sure in the industry.

"Learning outcomes" has become the new buzz phrase in higher education. Colleges are trying to prove that their students are actually learning something worth paying thousands of dollars for. Peter Smith is senior vice president of academic strategies at Kaplan University, a for-profit that's also investing in adaptive learning. Smith says higher education is in the midst of a huge shift in thinking about what it means to be a good college.

Peter Smith: The quality of your impact on learners is going to be the basis for a good reputation going forward and that is a substantial change from simply having reputation based on history; based on, you know, whatever set of prestige factors there were.

Prestige has always been the bottom line at private, non-profit and public colleges and universities. Prestige drives decision making much the way profit does at schools like Kaplan and Phoenix. One of the ways schools earn prestige is by becoming more selective. And as demand for higher education has exploded over the past few decades, colleges and universities - especially state universities - have been able to become more selective without necessarily doing anything to improve quality says Phil Regier, a dean at Arizona State.

Phil Regier: What universities did is not increase their enrollment nearly as quickly as the population in the state rose and all of a sudden they're starting to look elite. Why? Because they're rejecting a lot more students than they used to reject.

But Regier says this business model is no longer working. States are making deep cuts in funding for higher education and universities are looking for additional revenue. Arizona State started online degree programs in 2007. The goal is to recruit students - and tuition - from all over the world. Arizona State is investing in adaptive learning technology, too. And Regier thinks when it comes to improving education quality and developing new technologies, public research universities like his have the edge over for-profits like Phoenix.

Regier: We've got 1,800 faculty - with Ph.D.s - who are brighter than hell at a lot of different things. And being able to bring those resources together, coalesce those resources, is something that University of Phoenix can only buy.

Make no mistake: This is a competition. Arizona State's online program is trying to attract the same kinds of busy professionals Phoenix was built to serve. And Regier thinks, given a choice, students would prefer to get a degree from a school like ASU.

Regier: If I took 100 people off the street in Phoenix and I said, "Look, you can have a degree from ASU or the University of Phoenix," I think 100 of them would say, "I'd rather have a degree from Arizona State University."

Whether or not Regier is right, schools like ASU still hold the trump card when it comes to prestige. And that matters to a lot of people.

[Sounds of music at a café]

Vickie Pederson: Might still be hot...

Vickie Pedersen is at an outdoor café in Phoenix with her six-year-old son.

Jack Pederson: I am Jack!

Jack and his mom come to this café a lot. He eats pizza and plays on his mom's iPad. She gets her laptop out to work on her college degree.

Vickie Pedersen: And usually we're inside at the big bar and on the weekends a lot of people are doing the same exact thing, so, and the music's even louder in there and total chaos and...[laughs]

Pedersen says the commotion helps her focus. She's working on her bachelor's degree through Arizona State's online program. Pedersen used to be a student at the University of Phoenix.

Pedersen: ...and fully expected I would get a four-year degree from University of Phoenix. It was incredibly expensive but I didn't care, because I could fit it into my life.

When Pedersen started at Phoenix in 2002, she didn't have Jack yet, but she did have a sales job that took her all over the country. She says online was the only way she was going to get her degree and Phoenix was the obvious choice. But then she had Jack, then got divorced, and then got laid off. Pedersen stopped going to school, and when she was ready to think about starting again, University of Phoenix was in the headlines.

Pedersen: People were questioning the validity of the education and so even though I didn't have a bad experience and I felt like the work was challenging and relevant, I was very concerned about paying that much money and then having it be worthless. I mean I've already waited this long to get it, now it better be worth it!

Pedersen searched for other options and by then Arizona State had its online program. ASU doesn't cost as much as Phoenix, but Pedersen thinks the Phoenix online system is actually better. I ask her if she would consider going back to Phoenix if it turned out she could learn more there with the company's new adaptive learning technologies. Pedersen says, "No."

Pedersen: I have to say, I'm not in this to learn more. [Laughing] I've been learning a lot through life. I love getting engaged in the learning process, but that is so secondary for me at this point in life.

What Pedersen wants is a degree.

Pedersen: Get it done [laughs].
Hanford: The piece of paper.
Pedersen: The piece of paper. Put the check mark on the box on an application: "Yes, I have the degree."

A big question for the University of Phoenix is whether enough people will be willing to pay Phoenix prices now that they have more options elsewhere. CEO Greg Cappelli says the University of Phoenix is not planning to drop its prices to compete with schools like ASU.

Cappelli: We will either have something that people want and appreciate it and enjoy it and want more of, if it's good and if it's quality and if it does the right things for students and if it gets them the career that they want. Or we won't. So, the proof will be in the pudding.

Cappelli likens what Phoenix offers to Apple products like the iPhone and the iPad.

Cappelli: Now, they're not the cheapest, but they provide a value proposition to me that I'm willing to pay for, because of the brilliance of what they did with - not necessarily just the piece of technology you hold in your hand, but the App store, iTunes - the things that I want together to make my life easier in one package. OK, it's expensive, relatively speaking, but it's a tremendous value proposition to me. And I know to a lot of people in America as I think they're the largest market-cap company in the world right now...

[Music: "Intro" - The xx - The xx - XI]

Total tuition for a bachelor's degree at the University of Phoenix is about $75,000. The same degree at Arizona State costs about $44,000. If Phoenix can deliver on technology that will help students learn better it's not clear students will buy it. But corporate America might. There's widespread evidence that employers are unhappy with the quality of many students coming out of college today. Phoenix is now working with industry associations to build custom degree programs. The bet is that corporate America cares more about learning than prestige, and that this new line of business will help turn Phoenix around - because right now, the company is struggling. The stock price has fallen from a high of nearly a hundred dollars a share in 2004 to less than $30 a share in 2012. And enrollment has dropped from a high of nearly half a million students to fewer than 350,000. The company has responded to the enrollment drop by raising tuition. And this brings us back to the question of profit in education. Publicly traded companies must earn money for their shareholders. Public and non-profit schools must earn money, too, and they've also been raising tuition. But their revenue doesn't pay investors.

Sen. Harkin: It's not going for $2 million salaries of the administrators of the school and things like that.

This is Senator Tom Harkin.

Sen. Harkin: It's not going into high priced marketing where they pay for all these fancy ads. It's going into the structure of the university itself.

The top five executives at the Phoenix parent company make more than $2 million each - if you add in stock awards and options. Senator Harkin's biggest concern about profit in higher education is that so much of the profit is coming from taxpayers.

Sen. Harkin: Ninety cents of every dollar they get comes from the taxpayers of this country.

Harkin calls that money a "Wall Street subsidy." But for-profit schools object to that characterization. They point out that less than a quarter of the government money they receive is from grants for low-income students. The rest is from student loans. And when students pay back their loans, the government makes money on the interest. Phoenix spokesman Mark Brenner says a loan is not a subsidy.

Brenner: They're not federal dollars. And it's the student's obligation, not the government's or the taxpayers obligation, that ultimately is the driver of that.

But when a student defaults on a loan, taxpayers lose. Default rates have become a big political issue. About 12% of all college students go to for-profit schools, but they account for nearly half of all federal student loan defaults. Even when students don't default, they can spend years, even decades, paying for their degrees.

Jeff Holmes: I kind of look at the University like a, kind of like a car dealership.

Jeff Holmes has not had a good experience as a student at the University of Phoenix.

Holmes:They want you to get you in the door; they want you to buy a car. Now, they want you to have success with the car. They want it to go well for you. But if it doesn't, they've already been paid.

Holmes says Phoenix enrollment counselors misled him about how long a degree would take and were unclear about how much it would cost. He's now four years into a master's degree and more than $60,000 in debt. It bothers Holmes that his money is going to a for-profit company. But Phoenix graduate Kelly O'Horo doesn't think there's much difference between a for-profit and a public or non-profit school.

Kelly O'Horo: I always thought every school was for-profit. When you're paying $300 for one book I'm thinking somebody's making money off of this cause this book is not $300.

Like a lot of people, O'Horo chose Phoenix because the schedule worked for her – and because she was frustrated with traditional higher education. Before getting her master's at Phoenix in 2010, O'Horo got a bachelor's degree at Northern Arizona University - a state school. She says the University of Phoenix provided great customer service. Northern Arizona didn't.

O'Horo: You know, we all gathered in the field house and waited in15 different lines for half an hour each in order to get your schedule here and then get your books here and then pay your fees here and then do this here and it was not efficient.

O'Horo thinks she got better value at Phoenix. She didn't use government grants and she's paying back her loans. She's the kind of student Phoenix was originally designed for: a working professional who had college experience already. Sen. Tom Harkin would like to see Phoenix go back to serving that smaller, more targeted market.

Sen. Harkin: It's a big institution. I think it just needs to be restructured. It needs to be less of a money-making machine for Wall Street and more of an educational institution for students and taxpayers.

Harkin wants more students - especially low-income students - to choose public schools. But in some places, those schools are full.

[Sounds at a protest rally]

Voice on Megaphone: They say cut back, we say fight back! They say cut back, we say fight back....

This was the scene in Sacramento, Calif. on a March day in 2012: college students and their supporters protesting huge cuts to California's higher education budget.

[Protest sounds]

Public colleges here have turned away hundreds of thousands of people in the past few years because there's not enough money to educate them. Thousands more can't get the classes they need because of overcrowding. This is Stewart Stout.

Stewart Stout: I'm a student at City College of San Francisco. I'm going for nursing pre-requisites and it's taking years and years to get any classes at all.

What's happening in California is a more dramatic version of what's happening all over the country. Taxpayer support for higher education is going down, tuition is going up and in some places students are being turned away. Bill Tierney is a professor at the University of Southern California. He thinks the state should be investing more in public higher education.

Bill Tierney: But the citizenry of California have said to us time and again, they don't want to raise taxes. So, if the public sector says we cannot increase dramatically, what do we do?

Tierney wrote a book about for-profits and calls himself a "loving critic" of the industry. He thinks for-profits need to be better regulated but he worries too much regulation could stifle innovation or even cause schools to fail. And he says that can't happen because there are too many people that need to be educated.

Tierney: It is impossible for me to see how we can reach our capacity goals without the for-profit sector playing an important role.

But some California politicians don't want the for-profit sector to play a role at all. In the summer of 2012 Gov. Jerry Brown, a Democrat, signed a law cutting off state grants for students at most large for-profits. Backers of the measure say graduation rates at for-profits are too low and default rates are too high. They say the state can't afford to support those schools. But according to Jorge Klor de Alva it actually costs taxpayers more when students go to public schools. Klor de Alva used to be president of the University of Phoenix and now runs an independent research center that studies higher education financing. He says for-profits are the better deal for taxpayers - because they don't get direct state funding, and in contrast to public and non-profit schools, for-profits pay taxes - typically around 40 percent.

Jorge Klor de Alva: If we could increase the for-profit sector, in order to be able to increase capacity, to take the pressure off of the public schools, so that they could do a better job because you would have better faculty/student ratios, etc., etc., it would be cheaper for the taxpayer.

But it would be more expensive for students. For-profit colleges represent the idea that higher education is a private good - the government provides grants and loans but at the end of the day most of the cost is borne by the students. Public colleges represent the idea that education is a public good - because state taxpayer support lowers the tuition students pay. Bill Tierney at the University of Southern California says the debates about for-profits are fundamentally about the question of who should pay for higher education.

Tierney: We are shifting. We are saying that rather than we the state, we the citizenry, paying for education, we are shifting to you the individual, pay.

Tierney says the only way to change that is to raise taxes.

[Music: "Waterfall" - Moonlit Sailor - A Footprint of Feelings (EP) - Deep Elm]

When John Sperling started the University of Phoenix in 1976 he was trying to give people a better shot at opportunity with a new way to complete college degrees. He believed traditional higher education was turning its back on working-class people like him. He looks at what's happening in California today and sees the same thing.

Sperling: Traditional education has slammed the door. Where in the hell are you going to educate these people? Well it's going to be places like the University of Phoenix or they aren't going to be educated, period.

Critics see opportunism in a statement like that. John Sperling makes a lot of money when students are shut out of the traditional system and come to the University of Phoenix instead. I ask him what he thinks of people who are bothered by the fact that the University of Phoenix has made him rich.

Sperling: Why should they be critical? That I've lolled around and done nothing? That I've been a slack jaw? What are you supposed to do in life? Am I supposed to work hard to become a failure? Is that what they want?

[Music: "Hip Hop Instrumentals 026" - Hip Hop Instrumentals - Giallani Records]

John Sperling is in many ways the epitome of the American Dream. He was born with nothing and through education and hard work became wildly successful. That path to success is more expensive today. College tuition has been rising faster than inflation for decades, and students at all schools are being asked to pay more of the cost. The only way most of them can do it is to borrow lots of money. Critics of for-profit colleges say with tuition so high already, there's no room for big paychecks and big bottom lines in higher education. But schools like the University of Phoenix say their business model is good for students and good for the country, because it allows universities to expand and innovate rapidly. Even many experts who have mixed feelings about for-profits say America needs them in order to meet the growing demand for higher education.

This is Emily Hanford.

Stephen Smith: And this is Stephen Smith.

Higher education has changed dramatically in the decades since eight working adults got a chance to finish their degrees at this new kind of school called the University of Phoenix. But today Phoenix is a lot like a traditional university system. It has lots of campuses and a huge infrastructure. That kind of overhead could be a hindrance going forward. The buzz these days is about small start-ups that offer education at a low price - and about elite universities experimenting with huge online classes that are open to everyone for free. The University of Phoenix could be left behind - or it could become an even bigger player. One thing that is clear: the way many people go to college in another generation is likely to be much different than it is today.

[American RadioWorks theme music]

You've been listening to an American RadioWorks documentary, "The Rise of Phoenix: For-Profit Universities Shake Up the Academy." It was produced by Emily Hanford with help from Suzanne Pekow. Catherine Winter is the editor. The web producer is Andy Kruse. Special thanks Capital Public Radio and KQED in San Francisco.

The American RadioWorks team includes Ellen Guettler, Craig Thorson, Jeff Johnson, Peter Clowney, Grace Fredrickson and Zack Shlachter.

I'm Stephen Smith.

You can download and share this program at our website, AmericanRadiWorks.org. You can also see photographs of University of Phoenix students and read more about what critics say about the for-profit college industry. That's American RadioWorks.org. While you're there, send us feedback and sign up for our weekly education podcast. You can also like us on Facebook at American.RadioWorks and follow us on Twitter at @AmRadioWorks.

Support for this program comes from Lumina Foundation and the Spencer Foundation. American RadioWorks is also supported by Josh and Ricka Kohnstamm and the staff of Kohnstamm Communications. This is APM, American Public Media.

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