February 21, 2024

Appeals Court Affirms $21M Penalty for Scams by Ashford U (aka UAGC)

Appeals Court Affirms M Penalty for Scams by Ashford U (aka UAGC)

The California Court of Appeal on Tuesday upheld $21 million in penalties against for-profit Ashford University, after a state judge found in 2022, following a trial, that the school had systematically deceived prospective students about matters including the costs of attendance, the value of Ashford degrees, and the transferability of credits.

The appeals court affirmed the trial verdict in all respects, except that it reduced the original $22 million award by $933,000 that it found was barred by the relevant statute of limitations. 

The Court of Appeal noted that the trial court found that Ashford “created a high-pressure, fear-based culture in the Ashford admissions department—a fact known to defendants’ executives— which prioritized enrollment numbers over providing accurate information.” Faced with Ashford’s complaint about the size of the fine, the appeals court concluded that the penalty was “reasonably related to the substantial harm caused by defendants’ deceptive conduct. The total assessment works out to just $9 per violation, a conservative, even lenient, punishment considering the nature of the deceptions perpetrated and risks created by each misleading [phone] call.” 

California Attorney General Rob Bonta, whose office prosecuted the civil case, said in a statement late Tuesday that Ashford “made false promises to students about the value of an Ashford degree, leaving students with mounting debt, broken promises, and searching for a job. This is unacceptable and illegal, and today we got justice.”

The appeals court decision adds to the peril for Ashford University, whose corporate owner, Zovio, sold the school in 2020 to the public University of Arizona. The decision to buy the school, now rebranded University of Arizona Global Campus (UAGC), is facing new scrutiny from the state’s governor, Katie Hobbs (D).

Under federal law, the California judgment should, in fact, compel the U.S. Department of Education to terminate the school’s eligibility for student grants and loans. The Department took that step against for-profit Globe University in 2016 after a similar verdict in Minnesota. 

The Department hasn’t taken that action, at least not yet, but the University of Arizona still has much to be concerned about, including that it continues to operate a poor quality school with a history of predatory practices, and that its decision to buy and run the school may end up costing it a lot, in reputation and money.

Seeking to escape the increased regulations and stigma that bad behavior had created for Ashford and other for-profit colleges, Zovio at the end of the last decade pursued several different schemes to convert its school to non-profit status. It finally sold the college to a non-profit entity affiliated with the University of Arizona, over strong opposition from some Arizona faculty, advocates for students, and United States senators. Arizona’s  president, Robert Robbins, had been pressured by the state Board of Regents to expand its online offerings. Zovio’s scheme was to hide behind the prestige and political power of a big state university and yet keep getting for itself hundreds of millions off the school, through a long-term contract with the state school to provide recruiting, academic, and other services.

A couple years into the arrangement, however, that plan was thwarted after the California trial judge found that the school had engaged in blatant deceptions. Although Zovio pursued its appeal, it was discredited, bowed out of its contract to serve UAGC, transferred its infrastructure to the University of Arizona, and shut down.

But, with Zovio out of the picture, what was obvious to some even before the deal closed seems to have played out: Most of what Arizona had purchased, most of what made money, was not some supercharged high tech education platform but instead a predatory playbook and a staff trained to execute it.  UAGC may not be able to pay its bills even if it keeps up with Ashford’s old predatory practices, but it almost certainly can’t do so if it tries to go straight.

In November, President Robbins admitted that the University of Arizona’s overall financial situation is fragile, with cash reserves below minimum levels. Robbins said the school had “overinvested,” and a school document revealed that one such exertion was the deal to buy Ashford, which “added $265.5 million in operating costs” — although U of A has subsequently denied that UAGC is draining funds. 

Arizona’s financial risks from the Ashford deal may soon grow. Former Ashford students say they were ripped off and, as a result, have applied to have their federal student loans cancelled under a provision of law called borrower defense to repayment. In August, the U.S. Department of Education said it would cancel $72 million worth of  loans because of Ashford’s deceptions. The Department also said it would use its legal powers to recoup those funds — and potentially much more, if more ex-students seek relief — from Ashford’s owner, which, it seems, is UAGC Corporation, the non-profit tied to the University of Arizona. “When a school acquires another school, they agree to accept the liabilities from the school they are acquiring,” a senior department official said on a call with reporters last August. 

UA said in response it had “absolutely no involvement in, and is not directly or indirectly responsible for, the actions of Ashford and its parent company” and would be “assessing its options.” But, reading the school’s agreement with Zovio, Arizona may be out of luck on that score.

Governor Hobbs, who took office last year, is certainly concerned. In a January 25 letter to the Board of Regents, Hobbs criticized the Regents for “a lack of accountability, transparency, and, at the end of the day, leadership” in dealing with the school’s finances. She added, “In addition to the financial concerns raised during the process, significant ethical problems with Ashford University’s business model appear to have been brushed aside by university leadership during the acquisition.” The governor requested a report “that details the rationale and process that were used to assess the purchase of Ashford” and “information detailing the steps taken to ensure the Global Campus provides the same high-quality education given to students in the university’s other divisions.”

The Regents sent their response on Tuesday — a letter from John Arnold, the Board’s executive director, and Fred DuVal, the Board chair.  The letter defends the process undertaken when UA negotiated and completed the deal with Zovio to purchase the school. The Regents say that UA officials were well aware of the California case and other law enforcement actions and investigations related to Ashford, but also saw advantages including Ashford’s supposed “[h]igh-quality online platform, with 35,000 students,””[f]lexible operations and a lower cost structure, permitting responsive innovation and growth,” and “[p]otential positive revenue generation for UArizona.”

The Regents write that UA was prompted to move quickly, because Zovio “insisted on a very compressed timeline.”

Zovio “insisted,” and they were — what? — in charge? 

The Regents say that once UAGC Corp. bought Ashford, UA officials took steps to guard against abuses, including regular meetings with Zovio officials and listening to phone calls between Zovio recruiters and prospective students. Such policies, however, didn’t stop whistleblowers from contacting me in 2021 to say 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. 

The Regents also say that once UAGC ended its service agreement with Zovio, it prohibited itself from hiring sixteen key Zovio employees — “any present or former C-suite employees of Zovio, as well as any present or former senior level compliance officers at Zovio” — but it did make job offers to 817 of the 909 Zovio employees who had been servicing the school, and 791 accepted. UAGC Corp., the Regents further affirm, “established a policy that all student-facing functions, including financial aid advising, enrollment, and student advising, would be supervised by a newly recruited individual from an unrelated nonprofit university who would report directly to UAGC Corporation’s President.” In addition, “UAGC Corporation conducted due diligence on each employee to ensure that the employee did not have a history of compliance violations on his/her/their record.” And, “UAGC Corporation rejected (did not hire) any Zovio employee who was found to have engaged in communications with students that were inconsistent with the regulatory standards applied to UAGC and the ethical standards set by UAGC Corporation’s Board and the expectations of UArizona…”

The Regents also insist in their letter to Governor Hobbs that they adequately protected themselves against borrower defense claims and recoupment risks incurred by Ashford’s predatory behavior.  “In assessing the risks associated with the past bad acts of Zovio and Ashford,” they write, “the UArizona team took some comfort in the fact that, as of that time (mid-2020), the U.S. Department of Education (the “Department”) had never previously sought recoupment for asserted and approved [borrower defense] claims other than against universities that had shut down their operations, becoming ‘closed schools’ under the Department’s regulations and policies.”

Cold comfort now, because they Department has since launched a recoupment effort against one big for-profit school, DeVry University, and said it would proceed to do so against Ashford and its owner.

“Nonetheless,” the Regents’ letter continues, “given the breadth of the allegations and the pending actions by the California Attorney General and other regulators, the UArizona team carefully negotiated provisions of the Asset Purchase and Sale Agreement specifying that Zovio and Ashford would retain all liabilities associated with operation of the university prior to the Closing.”

Note that the Regents’ letter says, “Zovio and Ashford,” not just Zovio, is on the hook for past liabilities. “Ashford” is now UAGC, owned by UAGC Corporation, the creation of UA.  I think either the Regents are deluding themselves into believing potential liabilities aren’t a problem, or they are trying to spin Governor Hobbs, who needs to ask the Regents some more questions.

UPDATE 02-26-24:

Governor Hobbs responded to the Arizona Board of Regents (ABOR) letter with a sharply-worded public statement demanding an in-person meeting with the Regents’ leadership and President Robbins. The governor writes in part, “In the past days, instead of addressing their failure of leadership, ABOR has told conflicting stories to me, the press, and the public about the purchase of Ashford University.”

UPDATE 03-05-24:

A U.S. Department of Education spokesperson told Axios Phoenix that the Department is, in Axios’s words, “in the process of initiating a recoupment action” against UAGC for Ashford loan cancellation. Axios reported that the Department didn’t say whether it would ask UA to repay the entire $72 million that the Department cancelled. Axios further reported that UA President Robbins met in Washington last fall with members of Arizona’s congressional delegation to express concerns a recoupment effort.

UPDATE 03-12-24:

Moody’s Investors Service last week downgraded the University of Arizona’s bond rating from stable to negative and cited risks associated with UAGC. “The revision of the outlook to negative is driven by uncertainty around the pace of the university’s operating performance recovery following identification of a structural imbalance along with continued integration risk associated with University of Arizona Global Campus (UAGC),” Moody’s wrote in a statement. “Inability to right size operations in a relatively short period of time would further narrow the university’s already thin liquidity profile.”