On August 1, the University of Arizona (UA) announced it was buying out Zovio, a for-profit education company, from a contract that was reached in 2020 and was supposed to last 15 years. Under the original agreement, giant public university UA bought an online school called Ashford University from Zovio, and renamed it University of Arizona Global Campus (UAGC). But Zovio kept a long-term contract to provide marketing, student recruitment and retention, instruction, and more — basically to operate its old school in exchange for some of the proceeds. 

The 2020 arrangement was controversial, because extensive evidence from government and media investigations showed that Ashford and Zovio, for more than a decade, had engaged in deceptive and predatory practices that left many students — veterans, single mothers, and other struggling Americans — worse off from the experience, often with heavy educational debt. After a 2011 Senate hearing focused on the school, committee chair Tom Harkin (D-IA) called Ashford “an absolute scam.”

Abuses and law enforcement problems at Zovio/Ashford

Ashford, whose peak enrollment was a staggering 77,000 students, and peak income from taxpayer dollars exceeded half a billion dollars a year, had by the time of the UA deal faced multiple investigations by federal agencies and state attorneys general.

In 2014, Ashford settled a probe by Iowa’s attorney general by agreeing to provide $7.25 million in restitution for the school’s 5000 Iowa students and to accept an independent monitor to guard against deceptive advertising and coercive recruiting. In 2016, Zovio entered into a consent agreement with the federal Consumer Financial Protection Bureau in which the CFPB found that the company “engaged in deceptive acts and practices” and ordered Zovio to provide students with loan forgiveness and refunds totaling some $23.5 million and pay an $8 million civil penalty. Zovio continued to insist it had done nothing wrong.

In 2017, California’s then-attorney general Xavier Becerra (now Joe Biden’s Secretary of Health and Human Services) sued Zovio for alleged false statements to students and fraudulent business practices, in violation of the state’s consumer protection laws.

Zovio disputed the charges, but after a trial last fall at which the state presented devastating evidence of abuses at the school, a California Superior Court judge ruled in March that Zovio and Ashford “violated the law by giving students false or misleading information about career outcomes, cost and financial aid, pace of degree programs, and transfer credits, in order to entice them to enroll at Ashford.” The court ordered Zovio to pay $22.4 million in civil penalties. The company has appealed the judgment. 

The California verdict put the school, despite its change of ownership, in serious danger of losing its access to federal student grants and loans. A few days after the court decision, eleven organizations (and me) wrote to Secretary of Education Miguel Cardona, arguing that the verdict, comparable to a finding of fraud, compelled the Department, under its governing law, to cut off UAGC’s access to federal student aid. UAGC is the same school — it retains the same Department of Education identification number (called an OPEID) — as Ashford, and it must face the legal consequences of a judgment against Ashford. 

Lack of Visible Action By the Department of Education

The Department of Education has not responded to our letter, and government sources say the Department is unlikely to act at least until it sees the outcome of Zovio’s appeal of the California verdict. But, as we noted in our letter, the Obama Department of Education in 2016 responded to a similar verdict, by a Minnesota state court, against Globe University, by quickly cutting of federal aid; it did not wait for the appeal to be resolved. (Globe eventually lost that appeal.)

The Department of Education has a history of bending over backwards to the demands of schools, with far less emphasis on protecting students and taxpayers from ongoing school abuses. It’s disappointing that the Biden administration, which had promised to flip the script when it came to predatory schools, has acted like the Department of old in continuing to send federal dollars, and thus U.S. students, to UAGC/Ashford.

Disappointing, but not surprising, especially because Zovio took advantage of the predatory-school-friendly environment created by Trump education secretary Betsy DeVos to hide itself behind the respectable cloak of Arizona’s flagship public university. It was a terrible deal for UA to enter into, but the university and its president, Robert Robbins, reportedly felt pressure from the state’s Board of Regents (which includes privatization enthusiast Larry Penley) to create an online school that matched the successful one at fellow public institution Arizona State. (Indiana public university Purdue made a similarly ill-advised deal with predatory for-profit Kaplan.) 

For-profit colleges have spent big on Washington DC lobbyists over the years and often have been able to have their way at the Department of Education. But their power and influence is far less than that of big public and non-profit universities, who are major employers in their states and often well-connected to members of Congress. In sorting out problems with the Biden administration in late 2021 over UAGC’s change of ownership from Zovio to UA, Robbins and other UA executives had a direct line to senior officials at the Department. 

The March California verdict increased UA’s motivation to jettison Zovio, and gave UA the leverage to do so without paying a major penalty. UA management could expect that key Biden education officials, long concerned about Zovio’s abuses, would side with the state university in the event of conflict. 

According to an article in the Arizona Daily Star, in May the education department wrote to UAGC raising concerns about the issues raised by the California verdict and the potential “risk to students, borrowers, and taxpayers.” 

But even though Zovio the corporation is out of the picture, it appears that Zovio’s predatory operation, once called Ashford, remains the guts of UAGC.

Which Zovio Employees Is UAGC Hiring?

In extensive comments to Inside Higher Ed published on August 2, UAGC’s president, Paul Pastorek, acknowledged there was an “inherent conflict” in a state university contracting with a for-profit entity that is “almost solely focused on new enrollment,” rather than student success. Pastorek seemed to promise a break with Zovio’s troubling past, insisting that he would exercise sound judgment in determining which Zovio employees to hire at UAGC:

Pastorek said he knew that some critics might see it as a “terrible idea” to hire Zovio’s employees, given that the company’s staff members have been found in the past to have misled students. He said Arizona Global has helped to supervise the Zovio employees working on UAGC’s programs for 18 months, and that it would make wise decisions about which ones to hire. And under the university’s stewardship, he said, the former Zovio employees will have the “right” incentives.

Pastorek also communicated with Higher Ed Dive about hiring some Zovio staff:

As part of the deal, the university is bringing over some Zovio personnel. The number is not set but it’s “in the hundreds,” according to an emailed statement from Paul Pastorek, UAGC’s president and CEO.

In an August 1 statement, Pastorek said UAGC would be “bringing key personnel and systems into UAGC” from Zovio. 

But on August 4, in a quarterly filing with the Securities and Exchange Commission, Zovio seemed to undercut Pastorek’s reported claims about “wise” hiring decisions or hiring “some” or “key” personnel. In the filing, Zovio stated, “UAGC hired substantially all of the UAGC Services Business employees (as determined by UAGC).” 

The Arizona Daily Star reported on August 8 that UAGC was seeking “to bring on over 800 employees from Zovio, which is about 90% of the Zovio employees.” 

UAGC also took over Zovio’s lease on the Arizona building from which Zovio employees have run the school. For these employees, arriving at work on the first day after the deal, the new boss might have seemed a lot like the old boss. 

Pastorek’s suggestion that UAGC’s supposed supervision of Zovio operations over two years had already reformed the operation is called into question by two whistleblowers who told me that Zovio continued to press recruiters to deceive prospective UAGC students and press  instructors to keep students enrolled even if they are gaining nothing from the overpriced courses. 

Leila Hudson, Associate Professor of Middle Eastern & North African Studies, chair of the UA faculty, and a strong critic of the UA-Zovio arrangement, cast doubt on the idea that UAGC had reformed itself into a better deal for students. “Restructuring costs money,” she told me. “If a for-profit company like Zovio hasn’t had the resources to do that effectively, how on earth can UA do that?”

Professor Hudson said many UA faculty members retain “deep concerns” about the status and future of UAGC. (UA vice president for global affairs and law professor Brent White, a key architect and implementer of the UA-Zovio deal, departed in December after 15 years at the school to be provost of Golden Gate University. The current UAGC board of directors includes Gail Burd, UA’s Senior Vice Provost, and Marc Miller, dean of the UA law school.) 

If UAGC has hired most Zovio-Ashford employees, working in the same offices, why should anyone have confidence that it is not retaining Zovio’s playbooks and predatory practices — deceptive and coercive recruiting and retention, low prioritization of instruction — and won’t have Zovio’s bad student outcomes? The school’s declining enrollment in recent years seems likely to increase the pressure to continue aggressive recruitment and retention policies, even if students don’t benefit. 

And if profits have stopped going to awful Zovio, isn’t it just as offensive that UAGC could become a vehicle for relentlessly recruiting and fleecing low-income people nationwide, many of whom have no intention of enrolling in school until they are pressured, and then effectively use the proceeds to subsidize the educations of Arizonans and others sufficiently knowledgeable and motivated to gain admission to the main UA campus?

The supposed justification for UA to acquire Ashford was for it to offer a separate school that is more focused on career education and that offers flexible online study, as contrasted with the central university. But that’s not quite the reality. UAGC offers a wide range of programs, from associates degree to doctorates, in business, health care, social sciences, liberal arts, and more — not that different from the offerings of the main UA campus. UA students can study online, just as at UAGC. The costs of attending are comparable. But: The quality of education at the main UA campus is much higher. So the combined UA-UAGC is a two-tiered system, with far better educational value available for those with access to greater information about education options.

Professor Hudson said, “As a faculty member and also a small business owner in Arizona, I have grave concerns about the management of this deepening entanglement, and I wonder if the University of Arizona, in the aftermath of the COVID era, is healthy enough to sustain a symbiosis with as problematic an entity as UAGC is.”

Zovio did not respond to my request for comment, including about how many Zovio employees UAGC is hiring. A UAGC official responded to my request with an email asking for more detailed questions, which I provided, but then she did not get back to me.

Who Stands To Gain From Zovio’s Legal Appeal?

At the same time UAGC is moving ahead, with Ashford guts, Zovio’s appeal of the California verdict, at this point, would seem to mostly offer potential benefits to UAGC, not Zovio. This is the case for at least three reasons.

First, Zovio, apparently to avoid the risk of being forced to post a statutorily-mandated $33 million appeal bond to the California court, has already paid the state the $22.5 million penalty the court awarded. (Zovio says it obtained that cash by selling its tutoring service subsidiary.) Under Zovio’s new agreement with UAGC, if the appeal results in a reduction of that fine, the refunded money will go to UAGC, not Zovio. 

Second, if Zovio’s appellate lawyers, from the big corporate firm Gibson Dunn (Sidley Austin represented Zovio at trial), manage to win the appeal, they will eliminate the danger that the Department of Education will promptly cut off federal aid to UAGC by invoking the law that requires it to halt grants and loans in the event of a fraud judgment. Again, the beneficiary would be UAGC, not Zovio.

Third, under their most recent agreement, UAGC agreed to release Zovio from all obligations under the prior contracts, “including from all indemnification obligations” under the original agreement. That would seem to mean that UAGC has now assumed Zovio’s liability in the event the Department of Education comes after the school to recoup losses for federal student loan debt that the Department erases under the federal borrower defense law, which discharges loans where there is evidence that students were defrauded. While the Department already has put Ashford on a list of schools that have likely engaged in bad behavior, triggering borrower defense concerns, a failed appeal, resulting in a final judgment, would increase the risk of more loan cancellation and possible recoupment. So, again, the beneficiary of a successful appeal would be UAGC, not Zovio. (An August 8 article in the Arizona Daily Star cited UAGC president Pastorek for the proposition that UAGC “did not take on any of Zovio’s liabilities, including those related to the California case.”  The article quotes Pastorek as saying, “we went to great pain not to assume liability.” Pastorek’s comments are not true.)

I have looked for other reasons, other than purely reputational, that would motivate Zovio to continue an appeal. If there are provisions of California law that are triggered by consumer protection violations and would disadvantage Zovio in its future business dealings, I can’t find them.

And it’s unclear if Zovio has a future at all. Its stock, worth as much as $13 a share during the DeVos era, is trading at barely 25 cents. Zovio has announced it is considering selling all three of its remaining businesses, including a computer coding bootcamp. 

So, if UAGC is really the main party that stands to gain from the appeal, why is Zovio pursuing it?

Buried in the new UAGC-Zovio agreement is the right of Zovio, in the event the $22 million award gets reduced on appeal, to deduct from the rebated amount going to UAGC “any legal fees then-owed at the time the Judgement is reduced.” That indicates that, while Zovio is publicly the party behind the appeal of a judgment about bad behavior at Ashford, UAGC is not only the party that will primarily benefit if the verdict is overturned, but also the party that would, in that event, pay the high-priced corporate lawyers defending Ashford’s years of misconduct.

In the wake of the California verdict, and with UAGC still tying itself so closely to Zovio’s troubled past, the U.S. Department of Education should, at the very least, impose new conditions on the school’s program participation agreement to guard against predatory practices — and perhaps require an independent monitor to watch for abuses. (The school’s accreditor, WASC, has expressed some concerns but, unfortunately, has failed to take decisive action against Ashford/UAGC over more than a decade of the school’s bad behavior.) The Department also should act to hold accountable former Zovio CEO Andrew Clark and other top officials who oversaw the predatory operation and profited handsomely.

And if Zovio loses the California appeal, or new evidence of abuses surfaces, the Department shouldn’t hesitate to remove UAGC from the federal aid program altogether. The 20,000 remaining UAGC students, most of whom likely don’t even know they are essentially enrolled at notoriously bad Ashford University, deserve a better educational future. 

UPDATE 9-13-22: On June 6 the Department of Defense temporarily placed UAGC into a probationary status, requiring the school to pause the recruitment and enrollment of new students using DoD Tuition Assistance funds, which covers educational expenses for active duty military personnel and their families.  The pause, according to the Pentagon, would provide time for DoD to assess the risk associated with the California verdict against Ashford and to review measures taken to prevent future misconduct. On August 8 DoD ended the probationary status, determining “based in part on the institution’s responses to the Department’s concerns, and the active engagement and cooperation by representatives of the institution.”

UPDATE 9-20-22: Zovio announced today that it will hold a shareholder meeting “to approve the liquidation and dissolution of the Company…”