​An Education in Misleading Ads

U.S. regulators have many options for investigating deceptive advertising and marketing claims by universities.

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​The University of Phoenix will pay $191 million to settle deceptive advertising charges, National Public Radio reports. According to the U.S. Federal Trade Commission (FTC), the for-profit university's ads "gave the false impression" that it could provide job opportunities with employers such as AT&T and Microsoft. The FTC says the ads targeted minorities, military veterans, and service members and their families.

The settlement requires the University of Phoenix to cancel $141 million in debt owed to the university by students who enrolled from October 2012 through the end of 2016. The university must pay $50 million to the FTC.

Lessons Learned

This story is yet another example of why educational institutions, especially for-profits, must strive to prevent and detect fraud on the behalf of students. The settlement in this case follows on the heels of last year's college admissions bribery scandal. In continuing fallout from that story, students have filed a class-action suit against eight universities.

The fraud involved in this story is neither new, nor does it address a bigger issue. In its complaint, the FTC notes the University of Phoenix has been the largest recipient of money from the Post-9/11 GI Bill Fund established to help veterans pursue education.

The FTC's settlement with the university puts pressure on the Veterans Administration to cut off GI Bill funds to schools that engage in deceptive recruiting and advertising, as required by federal law. Here are some strategies that could help deter false advertising by universities as well as address misleading and predatory marketing practices.

  • Authorities must act against deceptive advertising. It helps to understand why the University of Phoenix is in trouble. The Federal Trade Commission Act allows the FTC to act in the interest of all consumers to prevent deceptive and unfair acts or practices. According to Section 5 of the act, a representation, omission, or practice is deceptive if it is likely to mislead consumers and affect their decisions about the product or service. In addition, an action or practice is unfair if the injury it causes, or is likely to cause, is substantial, not outweighed by other benefits, and not reasonably avoidable. 
  • Claims must be substantiated, especially when they concern health, safety, or performance. The type of evidence required may depend on the product, the claims, and what experts consider necessary. If an ad specifies a certain level of support for a claim — "tests show X" — the advertiser must have at least that level of support.

    The University of Phoenix was not able to substantiate the connection between paying fees and obtaining jobs at major companies. Therefore, prospective students should be skeptical about this type of advertising. They should ask for evidence, in writing, that a course was developed with reputable partners, or that attending the school will lead to jobs at the companies mentioned in the ads. If the claims are true, the school should be able to produce signed partnership agreements or testimonials from individuals about jobs, without compromising privacy rules.
  • Third parties can be accountable for deceptive claims by advertisers. Although in-house employees perform much of universities' advertising and online marketing work, third parties often are involved. The FTC's investigative framework allows the commission to hold advertising agencies, website designers, and catalog marketers liable for deceptive marketing practices. These groups can be accountable if they participate in preparing or distributing deceptive representations or know about the false claims.

    All agencies working on ads are responsible for reviewing the information used to substantiate claims, rather than relying on the advertiser's assurance that they are true. In determining whether an ad agency should be held liable, the FTC looks at the extent of the agency's participation in preparing the challenged ad. The commission also considers whether the agency knew or should have known that the ad included false or deceptive claims. If the agency is aware of false claims, agencies should not perform the requested work and should notify authorities such as the FTC.

  • An effective whistleblower program is an important deterrent. In addition to in-house reporting, organizations should ensure employees can talk to authorities about potential wrongdoing. During the FTC's investigation of the University of Phoenix, an advocacy group for students who are military veterans connected the commission with six whistleblowers who served as recruiters for the university. Those whistleblowers in turn helped the FTC uncover deceptive advertising practices.
  • The federal government should take a more vigilant stance regarding advertising fraud. In addition to the FTC, agencies should step up monitoring and auditing of schools that receive government money. This funding is a major, stable source of revenue at for-profit schools.

    The aggressive marketing and recruiting practices of some for-profit colleges has been well-documented. A 2012 Senate investigation found evidence of schools deploying teams at veterans hospitals and Wounded Warrior centers to enroll students. Veterans groups have long criticized federal agencies for not doing enough to keep education benefits out of the hands of colleges that they say prey on military members. One recent audit found lax oversight could result in $2.3 billion in tuition benefits going to predatory schools during the next five years.

  • Authorities should consider significant sanctions against schools that commit major or protracted advertising fraud. Such sanctions are particularly needed when vulnerable segments of society, such as students and veterans, are involved. For example, the Defense Department has considered banning the University of Phoenix from participating in its tuition assistance program, citing the FTC's investigation and other government inquiries.

    The department also has suspended the university from recruiting on military bases and placed a six-month moratorium on access to education funding dedicated to service members. That decision stemmed from allegations that the university sponsored recruiting events in violation of an executive order preventing for-profit colleges from gaining preferential access to the military.
Art Stewart
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About the Author



Art StewartArt Stewart<p>​Art Stewart is an independent management consultant with more than 35 years of experience in internal audit, financial management, performance measurement, governance, and strategic policy planning.​​​</p>https://iaonline.theiia.org/authors/Pages/Art-Stewart.aspx


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