March 19, 2018

The Mysterious Deal to Take DeVry University Private

 

Who owns the private company that is buying 30,000-student DeVry University, which gets some $400 million a year from taxpayers, and how do they plan to run the school? No one is saying.

 

In December, one of the largest for-profit education companies, Adtalem Global Education, formerly known as DeVry Education Group, announced that was transferring ownership, for zero dollars, of its flagship DeVry University and its Keller Graduate School of Management, to Cogswell Education, the owner of Cogswell College, a California-based for-profit college with programs in art, video game design, music, and software engineering.

Cogswell has about 600 students. Keller and DeVry have a combined 30,000 students. So that seemed weird.

Under the agreement, Adtalem has committed to provide Cogswell with “a minimum working capital balance of $7.5 million, subject to increase up to $20.1 million,” and in turn Adtalem would be paid as much as $20 million over 10 years if DeVry University reached certain cash flow benchmarks.

But Cogswell has the power to back out of the deal if enrollment at DeVry University drops below about 20,050 in May 2018, or if former DeVry students have filed more than 2,250 claims with the U.S. Department of Education seeking loan forgiveness based on school misconduct. Some 1,905 such complaints were pending against Adtalem schools late last year, but new Department of Education data obtained under the Freedom of Information Act by the Century Foundation and provided to me today indicate that DeVry University alone now has at least 7860 borrower defense claims against it, well past the threshold that would allow Cogswell to void the agreement.

But there are other issues beyond whether Cogswell might back out, issues related to protection of students and taxpayers going forward.

DeVry has a troubled past, with multiple law enforcement investigations and reports of deceptive recruiting. In December 2016, DeVry agreed to pay $100 million to settle a lawsuit brought by the Federal Trade Commission alleging that the company misled prospective students with ads that falsely claimed high job placement rates and salaries.

By then, under new CEO Lisa Wardell, DeVry had made some solid commitments to do better at protecting students, announcing that it would voluntarily hold itself to earning a higher percentage of revenues than is required by law (the 90-10 rule) from sources other than federal student aid, and renouncing the common and disgraceful for-profit college practice of using forced arbitration clauses to prevent ripped-off students from suing in court.

But those DeVry commitments may now be at risk.

The proposed buyer of DeVry University, Cogswell Education, is a bit hard to fathom. The company doesn’t seem to have a website, and the Cogswell College website doesn’t seem to name owners or administrators. But it does list a “Board of Trustees,” which includes Brad Palmer, the managing partner of a private equity firm called Palm Ventures LLC, and Jason Woody, senior managing director, at the same firm.

Also on the board is Fardad Fateri, CEO of for-profit International Education Corp., a former president, for ten years, of the DeVry University, and after that, from 2004 to 2007, chief academic officer at Corinthian Colleges, which collapsed in 2015 under the weight of its frauds and deceptions. Fateri also is a commissioner of the discredited accreditor ACICS.

Brad Palmer sold California-based Heald College to Corinthian in 2009.

At the time the DeVry-Cogswell deal was announced, a Cogswell spokesperson told a reporter that the company is “controlled by private equity.”

According to a media reports, Palm Ventures acquired Cogswell in 2010.

Yet at some point recently, Palm Ventures removed Cogswell from its list of investments on its website.

UPDATE 03-23-18 4:30 pm: Cogswell is seeking to hire a new CEO, and Palm Ventures links to the job opening on its website.

Cogswell College, like some other for-profit colleges offering comparable programs, is expensive, according to federally-mandated disclosures. For example, Cogswell’s four-year program in digital art and animation costs $96,842 for tuition and fees, another $4,000 for books and supplies, and another $57,188 if the student wants on-campus room and board. (Other programs at the school cost slightly more.) Just thirty-eight percent of students receiving federal financial aid complete the program within 4 years. The typical graduate earns $22,613 per year after leaving the program.

UPDATE 03-19-18 6:38 pm: A Department of Education database shows that in February Cogswell received from its accreditor, the WASC Senior College and University Commission, a “Warning or Equivalent-Factors Affecting Academic Quality,” with the notation that “Additional oversight is required to ensure a resolution of compliance issues.”

Adtalem’s publicly-traded shares, along with some other for-profit college stocks, have risen steadily since the election of the predatory friendly Donald Trump, former head of scam Trump University, and the installation of Secretary of Education Betsy DeVos, who has approved all manner of for-profit college restructuring deals and seems ready to tolerate all kinds of egregious behavior in the industry. The stock continued climbing after the Cogswell deal was announced. After the transfer, the company will still operate medical, nursing, and veterinary schools, as well as schools in Brazil.

So here are some pending questions about this deal:

1. How is a 600-student school able to acquire and effectively operate giant 30,000 student DeVry?

2. Is the deal still going through?

3. Has DeVry met its obligations in the agreement so far?

4. Will Cogswell maintain the DeVry public commitments on the 90-10 rule and forced arbitration clauses?

5. Will Cogswell agree to make some of the disclosures that public companies like Adtalem are required to make, as the University of Phoenix did, as required by the Department of Education, when it went private?

6. Who are the owners of Cogswell Education?

7. Why did Palm Ventures remove Cogswell from its posted list of investments?

I asked all these questions of Adtalem, Cogswell Education, and Palm Ventures.

Adtalem Vice President for Global Communications and Public Affairs Jennifer McGuffin did not resolve the mysteries, writing, “at this time we don’t have any comment beyond the announcement” that Adtalem made late last year. She added, “The transition has not yet been approved or finalized.”

Melanie Durian, an outside spokesperson for Cogswell Education, similarly would tell me only, “Yes, the deal continues to move forward but it remains subject to regulatory approval and therefore has not been finalized yet.”

There was no response from Palm Ventures.

Many of the other big for-profit college chains already have moved to new forms of ownership that shield them from various forms of scrutiny and accountability, as the DeVry move could in some respects.

For the most recent year reported, 2015-16, DeVry University received $387 million, about 63 percent of its revenue, from Department of Education student grants and loans, and even more federal dollars through student aid from the Pentagon and VA. Before any DeVry deal is completed, taxpayers should at least know how this operation will be managed going forward, and who is getting the money.

UPDATE 05-22-18 7:20 pm:

A letter sent today by pro-student organizations to the Illinois Board of Higher Education raises additional questions about the DeVry-Cogswell deal, including about Cogswell’s operation of Heald College before it sold the school to Corinthian:

Another reason for caution is Palm Ventures’ past association with the owners and operators of
the troubled Corinthian Colleges chain. In 2007, Palm Ventures purchased Heald College
anonymously, and quickly removed the school’s management team. It installed as President
a man who served as a Corinthian Colleges executive while that company allegedly engaged in
false advertising and unlawful business practices, for which it later settled with the California
Attorney General.

UPDATE 06-11-18 3:30 pm:

On June 5, the Illinois Board of Higher Education, without discussion, approved the sale of DeVry to Cogswell.

On June 1, Senators Dick Durbin (D-IL) and Sherrod Brown (D-OH) wrote to DeVos raising numerous questions about the deal (similar to those I raised above) and asking her to “carefully scrutinize” it and “include protections for students and taxpayers should it be approved.”

UPDATE 06-26-18 pm:

On June 19, as disclosed by Adtalem late today, the Department of Education wrote to Adtalem, stating that it “does not see any current or known impediment to” Department approval of the deal, but imposing a number of conditions, including, for a provisional period, DeVry University complying with the voluntary commitments announced in 2016: capping ED/VA/DoD funding at 85%; barring forced arbitration; providing a 1-page disclosure to students; recording admissions calls; and more.