April 23, 2023

U of Arkansas-U of Phoenix Deal Is Built on a House of Cards

U of Arkansas-U of Phoenix Deal Is Built on a House of Cards
University of Arkansas System President Donald R. Bobbitt

The University of Arkansas System Board of Trustees is meeting Monday to vote on a proposed deal under which a non-profit entity associated with the system would acquire the for-profit University of Phoenix. Skip Rutherford, the former Dean of the University of Arkansas Clinton School of Public Service, said Sunday that this hotly-contested decision shouldn’t be underestimated. “If approved,” he tweeted, “it will significantly change the state’s higher education landscape.” He’s right.

The deal would be a terrible mistake for the University of Arkansas, as mounting opposition from the university’s faculty and students and some trustees suggests.

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 Arkansas, is why U of A would want to buy Phoenix, at any price.

What’s not clear, still, months after negotiations on the deal leaked (after long being hidden from the U of A community) is how the deal would be structured, and financed.

What’s also not clear is whether U of A trustee Kelly Eichler, who has seemed to support the deal, will actually go ahead and vote in favor of it, when board policies suggest she should recuse — because her husband is the chief operating officer for Little Rock financial services company Stephens Inc., which will likely make millions if the agreement is approved.

What is clear is that central rationales for the deal that have been put forward of University of Arkansas officials are troubling and false. For example:

— University of Arkansas System President Donald Bobbitt told the Arkansas Democrat Gazette that the deal would provide the system with $20 million annually in revenue.  “You can’t imagine what that [money] would mean for our system,” he said, suggesting that revenue could subsidize U of A faculty and staff salaries, student scholarships, and campus maintenance. Bobbitt’s thesis boils down to this: Money from recruiting new Phoenix students, many of them low-income, into poor-quality programs will subsidize the University of Arkansas’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.

— Commenting on a record $191 million settlement that Phoenix reached in December 2019 with the Federal Trade Commission, which claimed the school had lured students with false claims about partnerships with major employers, Michael Moore, the UA System’s vice president for academic affairs, said, according to the Democrat Gazette, that the Phoenix ads were “not highly deceptive, and there was no intent to mislead.”  The paper paraphrased Moore as adding, “Those errors won’t be repeated, either, because of the new administration at Phoenix.”

But the Phoenix ads were indeed highly deceptive, falsely indicating that Phoenix 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.”

Worse, Moore’s comment about a new, supposedly more careful management team at Phoenix is at best ill-informed. As we reported 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.

The supposedly new and improved Phoenix management that Moore touts — under the control of private equity giant Apollo Global Management — 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.

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 A trustee Ed Fryar said last week, according to the Democrat Gazette, “I’ve heard there are four other schools talking to Phoenix right now. I really believe that.” I really don’t — at least I don’t think what Phoenix is selling makes sense for any ethical, rational buyer.

UA System 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 Arkansas’s central university system.