May 17, 2023

Rebuffed in Arkansas, University of Phoenix Now Plans to Sell Itself to University of Idaho

posted at 5:41 pm by

The University of Arkansas System Board of Trustees last month voted its disapproval of a plan by the institution’s president to acquire the troubled for-profit giant University of Phoenix, with several trustees expressing concerns, including about the structure of the deal, and one trustee declaring that Phoenix “has a terrible reputation.” Two weeks ago, six United States senators wrote to four federal agencies asking them to investigate ongoing deceptive practices at Phoenix, citing a report on this website, and declaring that “Phoenix is an unscrupulous and predatory for-profit college that has long preyed on veterans, low-income students, and students of color.”

So this afternoon, the University of Idaho announced that it will acquire the University of Phoenix.

OK. 

The University of Idaho says its aim is “increasing access to all learners, improving capacity for supporting all learners and helping all learners achieve their higher education goals.”

The purchase price is $550 million. The school’s current owner is private equity giant Apollo Global Management, which paid $1.1 billion to acquire it in 2017. Idaho says the new deal will “be financed through non-taxable and taxable bonds. This money is separate from any U of I budgets or funding lines.” Apollo is also, according to U of I, “providing $200 million in cash that will transfer to the not-for-profit corporation.”

According to the University of Idaho, the actual buyer of Phoenix would be a non-profit organization associated with the school, which was also how the proposed Arkansas deal was structured. The Idaho deal would be closed by early 2024.

The Idaho State Board of Education is convening a special board meeting in Boise at 1 pm MDT Thursday to “to consider a proposal by the University of Idaho to create a not-for-profit entity to acquire the University of Phoenix.” The livestream will be here.

According to the board, “After regulatory and accreditation approvals are attained, University of Phoenix will move from a for-profit institution to a public non-for-profit institution.” 

On its new new FAQ page, the school explains why it never told the school community about the negotiations for a deal that it now says needs to be approved in the next two days:

Why are U of I employees and student just now learning about this?

Because of the sensitive nature of such a transaction, a very limited number of members of U of I leadership, supported by outside advisors who specialize in the nuances of such acquisitions, worked on the transaction pursuant to a seller-required non-disclosure agreement.

So, I guess, nuances that the U of I community wouldn’t understand.

The president of the University of Arkansas System told his trustees and the public that acquiring Phoenix would generate $20 million in annual revenue for the state’s universities. Now the University of Idaho is claiming, “The initial benefit is $10 million in supplemental education funding to U of I. We expect that amount will grow over time.”

It’s understandable that the University of Phoenix’s private equity owners would be eager to unload an operation, currently with some 80,000 students studying online, that has seen falling enrollments and revenues for years; that has abysmal graduations rates; that has repeatedly been investigated and penalized by law enforcement agencies and the Pentagon for deceiving veterans, single mothers, and other students; and that faces potential billions in liability for cancelled loans from ripped-off students.

What’s not understandable, at least in terms of the interests of the people of Idaho, is why U of I would want to buy Phoenix, at any price.

The assertion that the acquisition would bring at least $10 million annually to U of I boils down to this: Money from recruiting new Phoenix students, many of them low-income, into poor-quality programs will subsidize the University of Idaho’s central operations and its more affluent students. That plan is not only morally troubling, it’s dubious financially, because Phoenix’s predatory practices may end up costing its new owner billions in the long run, through potential liability for deceptive practices and federal government recoupment of cancelled student loan debts.

In December 2019, the University of Phoenix reached a record $191 million settlement with the Federal Trade Commission, which claimed the school had lured students with false claims about partnerships with major employers. Phoenix ran ads falsely indicating that the school had deals with companies including AT&T, Yahoo!, Microsoft, Twitter, and the American Red Cross to create job opportunities for its students and tailor school programs for such jobs, when that was not the case. The deceptive claim went to the heart of prospective students’ motivations for enrolling. Andrew Smith, Director of the FTC’s Bureau of Consumer Protection, said at the time of the agreement, “Students making important decisions about their education need the facts, not fantasy job opportunities that do not exist.”

Deep in the U of I FAQ page is this discussion of Phoenix’s troubling record:

University of Phoenix’s reputation was tarnished by massive growth in the mid-2000. A change in ownership refocused the university on its founding mission to serve working adult learners who did not have the ability to attend college in a traditional setting and found the need for credentials to advance in their careers. They required a career-relevant education, significant student support and flexible online learning. Part of the evolution under new ownership in 2017 included the strategic closing of some physical campuses, greater investment in student support and outcomes, and improving business practices. 

U of I leadership has done due diligence to assess the current state of University of Phoenix and believes University of Phoenix has strong academic operations and a robust compliance-oriented approach, and that the acquisition would benefit the U of I. The potential financial risks have been factored into the transaction structure and terms. 

The claim that the University of Phoenix is under new, enlightened management that took over in 2017 is undermined by the facts.

As we reported January 17, a week before the Arkansas Times revealed the proposed Arkansas-Phoenix deal, the University of Phoenix, despite its 2019 commitment to the FTC to tell prospective students the truth, and its ongoing obligation to the U.S. Department of Education to do the same, has this year been running an ad campaign falsely implying that it is already a state-run institution, rather than a for-profit school. The ads also falsely suggest that Phoenix’s tuition is on par with in-state tuition at state schools, when in fact it is higher than average in-state costs.

As a result, Phoenix might soon be in trouble again with the FTC, if it’s not already. It was this deceptive ad campaign that led to a letter earlier this month from six U.S. senators, including Dick Durbin (D-IL) and Elizabeth Warren (D-MA), calling on the secretaries of education, defense, and veterans affairs to examine the University of Phoenix, and its participation in federal student aid programs. The letter also copied the chair of the Federal Trade Commission and alleged that the current Phoenix ad campaign “clearly defies” the settlement agreement with the FTC. 

The supposedly new and improved Phoenix management that the University of Idaho now touts also decided just last year that the right person to lead the University of Phoenix as its president was one George Burnett, who previously ran Westwood College, a for-profit school shut down after law enforcement probes exposed its cruel and illegal deceptions against low-income students. Burnett resigned after the Department of Education posed tough questions about his record.

After Burnett left, Phoenix promoted Chris Lynne, who had joined the company in 2018 as chief financial officer, to be the new president. Lynne was CFO at for-profit Northcentral University from 2010 to 2014, overlapping there with the school’s then-president and CEO, George Burnett. In addition, from 2003 to 2010, Lynne was a senior executive of Education Management Corporation (EDMC), another of the biggest for-profit college operations. EDMC collapsed after in 2015 it settled, for about $200 million, major fraud investigations pursued by both the U.S. Department of Justice and more than a dozen state attorneys general, brought over alleged deceptive practices and other illegal conduct that extended back into Lynne’s tenure at the company. At that time of the settlements, U.S. Attorney General Loretta Lynch called EDMC “a high pressure recruitment mill.”

In addition, Gregory W. Cappelli, current insider board member and ex-CEO  of the University of Phoenix’s parent company, Apollo Education Group, is the CEO who was in charge when Phoenix ran those deceptive ads about ties to employers, and also when Phoenix was caught in 2015 engaging in recruiting violations on U.S. military bases.

U of I officials seem to think that failing to buy Phoenix would leave the state behind on providing online career education, and on financing higher education in the state. But buying the troubled, struggling University of Phoenix would be a huge step backwards, not forwards, for education in Idaho. 

UPDATES 05-18-23:

— Deals or proposed deals in the past for state universities to acquire for-profit colleges with records of predatory abuses have tended to heavily involve the university president (Purdue-Kaplan, Arizona-Ashford, Phoenix-Arkansas).  So who is the president of the University of Idaho? It’s C. Scott Green, who took office in 2019. Green had a long career in banking, including at Goldman Sachs, and serving at the top of three global law firms: CEO at Pepper Hamilton, executive director at WilmerHale, and, most recently, chief operating and financial officer for Hogan Lovells. During Green’s 2007-2012 tenure at WilmerHale, the firm represented the for-profit college industry, which was under fire at the time for predatory practices, including on critical priorities for the industry — trying to stop the Obama administration from issuing a “gainful employment” rule that would penalize colleges for leaving graduates with overwhelming debt, and suing the administration seeking to block “incentive compensation” regulations that made it more difficult for for-profit colleges to pay sales commissions to its admissions representatives, a practice that has led to deceptive recruiting.

— The Idaho State Board of Education has now posted online the articles of incorporation and by-laws for the new nonprofit that would buy the University of Phoenix, the asset purchase agreement term sheet, and the proposed resolution for the board, who are also the Regents of U of I, to consider at today’s meeting.

If you don’t think the University of Idaho is making itself vulnerable in this shaky deal to buy the University of Phoenix, look at this fine print:

— The American Federation of Teachers, New America Higher Education Program, Institute for College Access & Success, Veterans Education Success,  Century Foundation, and I have sent a letter to the Idaho regents raising concerns about the deal.  

— Commencement at the University of Idaho’s main Moscow campus occurred last Saturday, so President Green, in an email yesterday to faculty and staff, announced the deal after much of the school community had scattered. He claimed the delay in informing employees resulted from “a need for extreme discretion.” 

— Idaho Statesman editorial: “Proposal for Idaho to purchase University of Phoenix should stop in its tracks…. If the plan is for the University of Idaho to operate the University of Phoenix as an income-generating sideline to subsidize traditional students, as appeared to be the plan in Arkansas, it’s a bad one. If morals matter, don’t buy the University of Phoenix because it’s exploitative. If morals don’t matter, just buy up a whole bunch of payday lenders instead. Their margins are probably better….The State Board of Education is supposed to be administering public assets, not running a hedge fund.”
 
— At this afternoon’s Board of Education meeting, University of Idaho president Green says of the University of Phoenix: “We met their management team that was hired subsequent to their regulatory issues” and “found them to be good, caring people who are focused on providing a quality educational experience to their students.” Green didn’t tell the board that Greg Cappelli is the CEO of Apollo Education Group, which operates Phoenix, and that he was CEO when Phoenix misconduct occurred that created regulatory issues. Or that six US senators wrote to federal agencies this month charging that the University of Phoenix is still engaged in deceptive advertising.
 
— Regarding Title IV federal student aid liabilities, Green tells the Board that U of I is prepared to sign the Department of Education’s Program Participation Agreement for the University of Phoenix. U of I is working on getting in place financial and insurance measures to protect against liabilities. He says U of I has reviewed policies and processes at University of Phoenix to address any concerns around student loans, and that Phoenix has a very robust process to submit information to the Department. He says Phoenix estimates its potential student loan liability as low —  $1.5 to $7 million. “We think it’s a bit higher,” he says, but still manageable. When pressed, Green says the insurance policy being negotiated would have a $250 million coverage limit and a $40 million deductible. He also cites the $200 million cash commitment made by Phoenix.
 
— President Green says of the Phoenix management team, “These are just good people,” and the first they thing they talked about when the two teams met was not the sale price, or their jobs; instead they talked about their students. U of I provost Torrey Lawrence says he agrees the teams had “wonderful discussions” about students and student success, and how the Phoenix faculty operates.  Asked about whether the Phoenix management team would stay on after the deal, Lawrence says they would like to ensure that the Phoenix CEO and provost continue, as they are “pretty critical to the operation.” 
 
— A board member asks whether Phoenix had made representations regarding graduate success. Torrey says the graduation rate measure that is normally used is “not a great metric” for Phoenix because their students typically take longer to graduate.
 
— A board member raised that the board has received numerous comments from the public that raised questions — are we taking on reputational risk, and what about the lack of faculty and public input? Green responded that “we knew there would be folks” criticizing the deal, “we saw what happened with the University of Arkansas.” He said there would reputational risk whenever there are “private entities” involved in education. “All private institutions,” he said, “are under attack.” But he said, the new Phoenix management team is focused on the students, and they want to be non-profit. Green admitted there were “problems in the past, and people are rightly upset” at what occurred at Phoenix, but “they are on a very different path now” and, as to the risks, “we’re prepared to live with that, we are comfortable.” 
 
— At 2:31  pm MDT, the Idaho State Board of Education voted unanimously to approve the motion for the University of Idaho to proceed with the deal to purchase the University of Phoenix.
 
UPDATE 05-19-23:
 
The Washington Post quotes University of Idaho provost Torrey Lawrence as saying of the allegations of deceptive conduct at the University of Phoenix, “We’re aware of the concerns and we’ve carefully looked at them… Some of these problems are from quite long ago when the university was under very different leadership. We’re very confident about the University of Phoenix leadership team and what they’ve done … to improve the institution.” As with Lawrence’s and Green’s statements at Thursday’s Board of Education, Lawrence’s comment to the Post is itself deceptive.  As noted above (1) Greg Cappelli is the CEO of the University of Phoenix’s parent company, Apollo Education Group, and he has been in that job since 2009; (2) the University of Phoenix is currently running an advertising campaign falsely implying that it is a state university, and this month six U.S. senators wrote to federal agencies documenting this ongoing deception, calling it a violation of Phoenix’s 2019 settlement agreement with the Federal Trade Commission, and asking the agencies “to scrutinize the University of Phoenix’s … participation in federal student aid programs.” 
 
UPDATE 05-21-23:
 
New Idaho Statesman editorial: “Idahoans — and especially the thousands of people closely associated with the Moscow university — should have the right to give input on a major decision like this, not simply be led around by the nose.” 
 
UPDATE 06-01-23:
 
 
UPDATE 06-23-23:
 
 
UPDATE 07-07-23:
 
The Idaho State Board of Education woke up early and unanimously declared that AG Labrador has no case. 
 
UPDATE 07-14-23:
 
 
UPDATE 08-30-23:
 
Amended complaint, filed August 3, 2023, in lawsuit brought against the Idaho State Board of Education by Idaho attorney general Raul Labrador
 
UPDATE 09-11-23:
 
“DURBIN, WARREN, BLUMENTHAL WARN UNIVERSITY OF IDAHO ON THE DANGERS OF PURCHASING PREDATORY FOR-PROFIT COLLEGE UNIVERSITY OF PHOENIX” – Letter
 
UPDATE 09-20-23:
 
 
UPDATE 10-16-23:
 
 
UPDATE 11-02-23: