January 25, 2023

University of Arkansas in Talks To Buy Troubled For-Profit University of Phoenix

University of Arkansas in Talks To Buy Troubled For-Profit University of Phoenix

The Arkansas Times revealed Tuesday that a non-profit organization affiliated with the University of Arkansas System has been in talks about acquiring the University of Phoenix, long one of the country’s largest for-profit colleges, from that school’s current private equity owners. A spokesman for the University of Arkansas System acknowledged to the news outlet that discussions “are ongoing.” The report confirms a rumor that has been floating around the higher education world recently.

It’s puzzling and disturbing that a major state university would want to take over a big online for-profit college operation like the University of Phoenix, one with a long history of deceiving and abusing students, with repeated law enforcement probes and settlements, and with a high rate of bad outcomes for students.

Two similar bad deals were reached in the past five years — Indiana’s Purdue University acquired for-profit Kaplan University from Graham Holdings to create Purdue University Global, and the University of Arizona bought Ashford University from Zovio and renamed it University of Arizona Global Campus (UAGC). 

The for-profit owners of those two schools, like the University of Phoenix, had been exposed for ripping off students and violating the law. Yet both deals were met with support from the U.S. Department of Education under the Donald Trump/Betsy DeVos regime, which was openly hostile to efforts to protect students from predatory abuses. 

The Biden administration resolved to be different; candidate Biden pledged that for-profit schools would have to prove their value before getting federal aid, and Biden education secretary Miguel Cardona and his team have taken vital steps to protect students and taxpayers from predatory abuses.

In that spirit, the Biden education department should be working to prevent the harm that would come from folding the predatory University of Phoenix into Arkansas’s state university system.

State university executives and regents, it appears, are entranced by the prospect of acquiring seemingly high-tech platforms that will quickly move their state systems to the forefront of the online education future. But in reality, though these operations are potential profit centers for cash-strapped state universities, they can be a nightmare for the students who actually enroll. Rather than a ticket to well-paying health care, IT, and other jobs for veterans, single parents, and other adult learners, these operations often leave dropouts and graduates alike with mountains of debt and no career advancement at all. These predatory schools ultimately can be a nightmare for their owners as well, as scandals erupt, law enforcement investigates, and operations collapse.

The worst possible outcome would be for the new proposed deal to model itself on the Kaplan-Purdue arrangement and the initial version of the Arizona-Ashford deal: where the for-profit owner formally sells the school but locks in a long-term agreement to get paid to provide recruiting, educational, and other services to the state school. All that does is put state lipstick on a predatory pig, allowing the school to escape the stigma and regulations that for-profit college abuses have created, while the former owner corporation continues to get rich off the bad practices and poor quality programs it devised.

It appears from the Arkansas Times story that the proposed deal with the University of Phoenix might instead be an outright sale of the school, without an extensive continued entanglement. The outlet quotes University of Arkansas System spokesman Nate Hinkel as saying that the deal would “not include any remaining private ownership of the nonprofit entity or the University of Phoenix.” The outlet also quotes an anonymous source confirming a ballpark “cost estimate” of $500 million to $700 million. If that means that the non-profit associated with the Arkansas state system would pay that much to buy the school, then it’s less likely the former private equity owners would also get a lucrative service contract.

If so, then the deal would be more like what the Arizona-Ashford deal has evolved into. After a California court, following a trial last year in a case brought by that state’s attorney general, found Ashford and Zovio had violated state consumer protection laws by deceiving students, and facing tougher scrutiny from the Biden administration, UAGC has now freed itself from its service contract with Zovio. But UAGC has kept the employees and guts of the predatory Zovio operation.

It would not well serve Arkansas students and taxpayers for the state university system to conclude a similar deal with Phoenix, even if the current for-profit owners are excluded from a future role — just as a 2021 deal for the Arkansas system to acquire much smaller for-profit for-profit Grantham University, which also had engaged in deceptive practices, was a bad idea.

What exactly would the Arkansas system be buying in the deal for Phoenix, beyond an aggressive and deceptive recruiting playbook, employees steeped in that training, and courses and degrees that often leave students worse off than when they started? 

The University of Phoenix, which has received as much as $4 billion in a single year from federal student aid and still gets close to a billion a year, has a graduation rate, for its largest campus, of 14 percent. The school also has a long history of deceiving, abusing, and overcharging students, and, in doing so, sometimes violating the law.

In December 2019, the University of Phoenix and its parent company, Apollo Education Group, agreed to pay a record $191 million to resolve Federal Trade Commission charges that the company engaged in deceptive acts when it ran ads giving the false impression that the school worked 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.

Despite a commitment to the FTC to stop misleading prospective students, the University of Phoenix is, right now, as we reported last week, engaged in yet another deceptive campaign, with ads that falsely suggest the school is already a state-run institution. 

The FTC has received 6,265 consumer complaints regarding the University of Phoenix in the past six years. 

The University of Phoenix has so little regard for students and their success that it announced as its president a year ago 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.

Depending on the terms of the deal, the University of Arkansas, and thus the state’s taxpayers, could also end up on the hook for millions of dollars the that Department of Education might be able to recoup for federal loan obligations cancelled if former students showed evidence that the University of Phoenix misled them. 

In order for the transferred University of Phoenix to keep getting federal aid, the proposed acquisition by Arkansas would need approval from the Biden administration, as well as by Higher Learning Commission, the Chicago-based accrediting agency for both institutions. The Biden administration should make clear, if it hasn’t already, that it would require extensive conditions that would protect students before any deal goes forward. Frankly, minimal protection of students would require conditions from the Department that likely would be strong enough that Arkansas officials would realize that they cannot be effectively met through acquisition of the predatory University of Phoenix, and that there are more cost-effective and productive ways for the state university system to provide career education to online learners. 

As for the University of Phoenix, if the sale to Arkansas falls through, its repeated deceptions should lead the Department of Education to cut off federal aid for good.

UPDATE 02-01-23:

The Arkansas Times reports today that a non-profit organization, Transformative Education Services Inc. (TES), was created in Arkansas last August to potentially purchase the University of Phoenix with the intent of affiliating the for-profit with the University of Arkansas.

Cliff Gibson III, who is the board chair of the University of Arkansas until the end of February, told the publication that he has “a lot of unanswered questions” about the proposed deal, including the lack of information given to board members. On January 27, Gibson sent a lengthy email to UA System President Donald Bobbitt seeking answers and relevant documents, the Arkansas Times, which obtained a copy, further reports.

The publication further reveals that incorporation records at the Arkansas secretary of state office show that the registered agent for TES is CT Corporation System, located in Little Rock. CT Corporation is owned by Wolters Kluwer, a company based in the Netherlands. CT Corporation’s organizer is, according to the filing, Amanda Orcutt, an education attorney at Husch Blackwell in Little Rock. In an email  reply to Gibson, Bobbitt discloses that Stephens Inc., the Arkansas-based investment company that serves as the university system’s mergers and acquisition partner, and an attorney from Husch Blackwell had provided a report on the Phoenix deal.

Husch Blackwell, a large firm with offices in more than 20 U.S. cities, has in the past, in other matters, represented Higher Learning Commission, the accreditor for both the University of Arkansas and the University of Phoenix. 

UPDATE 02-08-23:

Paul Basken reports for Times Higher Education that the University of Phoenix “has been trying without luck for two years to sell itself to a traditional higher education system. Phoenix has been telling state universities in a marketing brochure (released by the University of Arkansas in connection with the recent disclosures), “The number of scaled institutions with the technology infrastructure and experience to thrive in online education is limited, and the space will only continue to further consolidate.” The materials further state, “Universities with scaled and effective online platforms like ASU, SNHU and the University of Phoenix will remain leaders in the market, while smaller and newer online programs will struggle to differentiate and gain traction.”

UPDATE 02-13-23:

In this Arkansas Democrat Gazette article, the money paragraph from University of Arkansas President Donald Bobbitt: He wants to buy the for-profit University of Phoenix, with its record of deceiving low-income students and violating the law, and use its revenue to subsidize the flagship state university:

“You can’t imagine what that [money] would mean for our system,” Bobbitt added. For example, he said, salaries could rise for faculty and staff, endowed professorships could be created to attract and retain high-quality faculty, more scholarships for students could be created, and campuses could address deferred maintenance needs on infrastructure.

Bobbitt’s thesis — that money from recruiting new Phoenix students (low-income single moms, veterans, immigrants, etc.) into poor-quality programs will subsidize the University of Arkansas’s central operations and its more affluent students — is not only morally troubling, it’s dubious financially, because (as discussed above) Phoenix’s predatory practices may end up costing its new owner billions in the long run.

UPDATE 02-15-23:

Letter from organizations (and me) to the University of Arkansas Trustees regarding the potential purchase of the University of Phoenix. 

UPDATE 03-22-23:

KUAF radio, “University of Arkansas System Moves Closer to Deal with University of Phoenix

UPDATE 03-30-23:

Arkansas Times, “UA-Fayetteville faculty senate opposes acquisition of University of Phoenix

UPDATE 04-18-23:

Arkansas Times, “Financing on effort in Arkansas to buy University of Phoenix remains unresolved

UPDATE 4-20-23:

Arkansas Democrat Gazette, “University of Arkansas System board split on University of Phoenix deal

Arkansas Times, “UA System trustee Kelly Eichler’s husband works for Stephens Inc. It stands to make millions from a Phoenix buyout.”