Shutter Stock
Q&A with co-founder John Murphy on why the model worked, and how it was abandoned in the pursuit of stock prices

The University of Phoenix, the publicly traded grand-daddy of for-profit colleges, made headlines a few weeks ago with the revelation that the company's enrollment had dropped 50 percent over the past five years.

This comes at a time when the industry as a whole is facing severe scrutiny for high default rates, high student debt, sketchy recruitment practices and dubious outcomes. Proposed new rules by the Obama administration would further squeeze the industry based on these key data points.

John Murphy, a co-founder of the University of Phoenix, isn't surprised by any of this news. Murphy argues that the company lost its direction when it abandoned its roots, which were serving working adults, not recent high school graduates.

Murphy worked intensely to overcome political and academic hurdles during the UOPX’s rise to prominence. He was also closely involved in honing the school’s academic philosophy, which he says was grounded on teaching working adults in the their 20s and 30s, most of whom had tuition all or partly paid by employers.

By 2011, the Apollo Group, the holding company that owns the University of Phoenix, was valued at $5.36 billion. Enrollment peaked in 2010 at 600,000 students, but by 2015 had fallen to 227,000 as the for-profit industry came under intense public scrutiny.

The key moment — which Murphy calls the “betrayal” of the University of Phoenix mission — came shortly after he left the company and the company went public. At that point, the company began responding to Wall Street, Murphy says, chasing stock prices and lowering its admissions standards, while jettisoning the academic model that had made it work.

Murphy told his side of the University of Phoenix in a 2013 book, "Mission Forsaken." He recently sat down the Deseret News at a conference in Scottsdale, Arizona, sponsored by Arizona State University’s Center of Organizational Research and Design. The interview has been edited for length and clarity.

DN: You say at one point in your book that if UOPX were not-for-profit it would not have survived. Why is that?

Murphy: First of all, we all came from the nonprofit and public sector. Our business management skills were negligible. Being for-profit imposed fiscal discipline. We couldn’t go to the legislature for money. We couldn’t go to a foundation. John Sperling [the main founder of UOPX] mortgaged his house, had some retirement from being a professor,and his girlfriend put in some money, and that was it. If you make a mistake in the open market, you impose discipline on yourself.

DN: You also have noted that the companies you worked with respected your business mindset, right?

Murphy: All the companies we worked with here in Phoenix, such as Honeywell and Motorola, had been going to the state university system in Arizona for years trying to get them to provide education that that would allow their working adult employees to stay in the company and move up the scale, whether they needed a bachelor’s degree or a master’s to move up the ladder. They believed in us.

DN: Why did they believe in you?

They had all their education staff come in and vet everything. They inspected our academic accounting system, which was a detailed quality control about everything we asked of every student at the end of every class about instruction, curriculum, were the lights too dim? We were accountable. If we hadn’t provided quality, if they weren’t satisfied in the improvement in confidence and contribution to the company, we would have been out of there.

DN: As you point out, if these companies are willing to pay to educate their own people, they’re not going to waste the time and money on the bad product. So for all the talk about imposing discipline on the for-profits, where is the market discipline for the nonprofits?

Murphy: The University of Phoenix became the gold standard in adult education because it was absolutely accountable for the quality of its education and the success of his students. When we went public, the investment bankers and the SEC came in and vetted everything. The default rate was 5 percent, and 85 percent of the students had some or all of the tuition paid for by their employers. The graduation rate was 65 percent.

DN: Your six-year graduation rate was 65 percent?

Murphy: No. Our four-year rate was 65 percent. But it depended on what they brought in with them. The average age of our students at that time was 38. A lot came in with two or three years of college. They had work experience. They had taken company courses. If someone came in with 60 credits, they would graduate in two years.

DN: So Phoenix went from being above average on graduation and below average on defaults to inverting both of those after you left. That is the key data point in your book. Can you elaborate on that?

Murphy: It happened as soon as they changed the admissions standards, as soon as they started taking anyone in. Before that, you had to be at least 23 years old and had to be employed. The adult-learning model is an integrated whole. If you take one piece out, it doesn’t work. You take practitioner instructors and adults with long work experience and put them in a class with an 18-year-old who is never done anything and does not know why he is there, you can’t really have an active learning environment. I cannot understand why North Central [the accrediting agency] approved that change. I just do not understand. The entire thing hinged on the integrity of the model. And they just threw out the window.

DN: Why did they do it?

Murphy: My personal opinion is that did it to accelerate the value of the stock.

DN: So it was the combination of chasing stock prices with the temptation of the open spigot of federal loans?

Murphy: Absolutely. Phoenix was the one that got it rolling, and then all the other for-profits followed them in. But clearly the juice was student-loan money. If student-loan money did not exist they would not do it. Period.

DN: You describe in your book a conversation with the new chief financial officer when you are appalled to realize that he had absolutely no idea about the working-adult and employer-tuition model.

Murphy: I'm not ascribing any immorality or lack of integrity to people. It's just what they are. They are business people. They are not educators and they're looking to manipulate this model to make money. There is nothing wrong with making money, but I think anyone making money in an educational activity has a higher standard of accountability.