February 29, 2024

Concerns Mount in Idaho Over U. of Phoenix Deal

Concerns Mount in Idaho Over U. of Phoenix Deal
Let them eat Phoenix.

When three U.S. senators — Dick Durbin (D-IL), Elizabeth Warren (D-MA), and Richard Blumenthal (D-CT) — wrote last fall to C. Scott Green, the president of the University of Idaho, to raise concerns about that state school’s plan to buy, for $685 million, the giant for-profit University of Phoenix, they received a hostile letter from Idaho governor Brad Little (R), who told the senators to mind their own business. “We are taking control of our future in Idaho,” he wrote, “and we urge the U.S. Senate not to interfere with efforts to make education more attainable in rural America.”

Governor Little ignored that Idaho’s purchase of the 80,000-student University of Phoenix, which would keep alive a school that has offered deceptive recruiting, high prices, and a dismal graduation rate, is the business of the whole country, because 99 percent of the school’s students come from outside Idaho, and most of the funding for the school — more than $685 million in the most recent reported year — comes from federal taxpayer dollars for student grants and loans sent from the Department of Education, the Department of Defense, and the VA

But as hearings held Wednesday and today in the Idaho legislature underscored, concerns about the Phoenix deal aren’t just coming from outside interlopers like the U.S. senators, or Moody’s Investors Service, which has placed the University of Idaho’s bond ratings under review for downgrade in light of the planned acquisition, or the advocates (including me) for students and veterans who have written to the Idaho State Board of Education about Phoenix’s predatory and deceptive practices.

Idahoans, notably multiple members of the state legislature, are raising serious issues about the logic and legality of the proposed acquisition.

The Idaho Statesman, in an editorial last week, wrote, “It’s becoming clearer every day that the officials who are supposed to be safeguarding Idaho taxpayer dollars are not considering the possible train wreck that could be coming with the purchase of the University of Phoenix.”

Wednesday’s hearing

On Wednesday, President Green faced legislators in Boise from the Joint Finance-Appropriations Committee.

They pressed him on a carefully-researched letter sent last week from the legislature’s legal counsel, Elizabeth Bowen, who concluded that the Board of Education lacked authority, under the state constitution and statutes, to create a non-profit corporation, as the board did when it set up Four Three Education as the vehicle to buy Phoenix. 

Green, an Idaho native whose university bio boasts of his years of experience working for Deloitte, Goldman Sachs, and in “leadership in global law firms,” seemed to sniff at Bowen’s qualifications. Noting that he had hired attorneys from two big firms, Hawley Troxell and Holland and Hart, Green said, “We rely on constitutional law experts.” He added, “This is too important and it’s too specialized an area to rely on a generalist.”

Representative Wendy Horman (R), a committee co-chair, didn’t like the insinuation. “You hired your own lawyer, and so did we,” Horman said, calling Green’s response “inexcusable.”

Senator Dave Lent (R) questioned Green about the disclosure Tuesday on the non-profit site Idaho Education News that the University of Idaho has paid at least $7.3 million to the international law firm Hogan Lovells, most of it for work on the Phoenix deal. Hogan Lovells was where Green worked as chief operating and financial officer until he took his current job in 2019.

Green told the lawmakers, as he told Idaho Education News, that he had no financial interest in Hogan Lovells, and that, although he had recommended the firm, it was the university’s special counsel, Kent Nelson, who actually made the decision to hire them. Green said Hogan Lovells was the right choice because “they’re the best of the best.”

Green called the Idaho Education News piece, authored by the skilled journalist Kevin Richert, “thinly veiled character assassination.” 

Green also dismissed the Moody’s bond notice as “premature.” And he minimized the risk that Four Three Education, and the university, could be on the hook for big costs from the U.S. Department of Education if it seeks to recoup losses from student loans cancelled for borrowers who were scammed by Phoenix. 

Green is fooling himself if he believes the risks are small. Last September the Department of Education announced $37 million in debt cancellation for 1200 students who filed claims after the Federal Trade Commission reached a $191 million settlement with Phoenix for running deceptive ads. The Department said it planned to try to recoup the funds from the school. Liability could be much higher, though — even into the billions — if more ripped-off borrowers file for loan relief, or if the Department provides more relief proactively — especially because, in the opinion of six U.S. senators who wrote to the Department, the VA, and the FTC, Phoenix was running another deceptive ad campaign last year. The Department of Education reported last year that as of August 2023 there were more than 73,000 pending borrower defense claims from former University of Phoenix students.  

Thursday’s hearing

On Thursday, Green and his team went back to the legislature for a hearing of the House State Affairs Committee, which is considering a resolution asking the State Board to reconsider the Phoenix deal and authorizing leaders of the legislature to sue to block it, if necessary.

Such a lawsuit would come in the wake of another suit, brought by the state’s attorney general, Raul Labrador, contending that the Board’s handling of the Phoenix deal violated the state’s open meetings law; Labrador recently lost that case in the trial court, but he has appealed. UPDATE 03-04-24: On March 1, the Idaho Supreme Court announced it would hear oral argument on Labrador’s appeal in June. 

At the House hearing, counsel Bowen made a presentation on her report finding that the Phoenix deal is unlawful, and she also addressed Green’s suggestion that her views weren’t worth much.

“President Green implied that he didn’t think it was fair for members of the legislature to ask for my opinion in an area where I am not an expert,” Bowen said. But, she said, members were entitled to seek her counsel on any legal issue.  She said it would be judges, not law firms, that would ultimately decide the issues. 

Bowen stressed that she was not opining on the merits of buying Phoenix. That isn’t her role, and, she added, “I do not have a business-y mind.” 

But she said that, under Idaho law, the creation of a corporation and the purchase of giant Phoenix should be one for elected lawmakers, not the unelected Board of Education members.

Bowen suggested that the Board of Education and the university had done everything possible to bypass the legislature. She said she hoped the Board would come back to the legislature “in a spirit of cooperation,” but meanwhile it would make sense to approve authorization to sue, before the legislature adjourns next month.

Bowen also told the committee that the University could indeed be liable for many millions in borrower defense claims by victims of Phoenix. “I don’t like the idea of U of I possibly being on the hook for that liability,” she said.

When asked what other liability risks might be out there, Bowen mentioned the similar acquisition by the University of Arizona of for-profit Ashford University from Zovio Education Corp.  A California court fined Ashford $22 million for deceiving students, and, with Zovio shut down, the non-profit created by Arizona to buy the school may be facing that liability — a danger that has helped fuel a showdown between Governor Katie Hobbs (D) and the cash-strapped university. 

President Green responded with a flourish of noblesse oblige. He told legislators that he had “the top legal minds in the country” assess the legal issues. As to educational product, Green said the purpose of obtaining Phoenix’s “world class” systems was “reaching the common people” in a rural state.

“Phoenix delivers highly-efficient, low-cost learning,” Green declared. “Phoenix brings best in class operations, compliance…”

But “reaching” people, “common” or not, doesn’t equate to helping people; the University of Phoenix has a 14 percent graduation rate, so most students end up with little to show for their expensive debts. 

Asked again to defend the decision to have the state university he runs pay millions to his former law firm, Green again referenced the excellence of all those involved. Hogan Lovells lawyers are “some of the best in the business.” To give lawmakers an idea how good they are, he mentioned that Chief Justice John Roberts of the U.S. Supreme Court was once a partner at Hogan Lovells. The Hogan lawyers, Green said, also have “relationships” that can help Idaho navigate the U.S. Department of Education’s various hurdles and “complex regulatory structure.”

“Don’t we want to use somebody we know is the best at what they do?” Green asked. 

Kent Nelson, the university lawyer added that he hired Hogan Lovells, at Green’s suggestion, because he knew that Apollo Global, their negotiations adversary, would “hire the best.”

OK, now I think I get it. In order for President Green to acquire the University of Phoenix — a company that has repeatedly been in trouble with law enforcement agencies including the U.S. Departments of Education, Defense, and Veterans Affairs, the FTC, and various state attorneys general; a company that faces growing risks of liability for years of predatory abuses; and a company that the current owners, the sharp operators at private equity giant Apollo Global Management, seem anxious to unload in a hurry — he needs to hire the kind of premium service providers he was accustomed to in his storied Wall Street career, the BMWs and Guccis of legal and strategic counselors. I wonder if the faculty, staff, and students at the University of Idaho campus feel that President Green is spending at that level of luxury for their academic programs.

Green said that he followed the guidance of the Board of Education in making the decision not to talk with the legislature earlier; the deal was disclosed to the legislature and the public on the same day last May, and the Board voted to approve it the next day. “We recognize and regret,” Green said, that his team and the Board didn’t inform lawmakers sooner. “We were focused on hitting our deadline and making sure we were negotiating the best deal that we could.”

Board member Kurt Liebich added that the board was “under enormous … what we believed what was important to the seller was hitting the timeline” – a May 19, 2023, deadline for getting the deal on the agenda of Phoenix’s accreditor.

But that doesn’t seems like a good enough reason for a state university to rush in to such a consequential arrangement. Liebich’s remark was reminiscent of what his counterpart in Arizona told Governor Hobbs about why the University of Arizona and state regents rushed through the deal to acquire Ashford University from for-profit Zovio: because Zovio “insisted on a very compressed timeline.”

Insistence that a deal be closed right away is how folks get played. In fact, that’s one technique that sophisticated recruitment operations at for-profit colleges like Phoenix use so effectively to pressure veterans, single parents, immigrants, and others to enroll in low-value programs. 

When committee chair Brent Crane (R) worried that Phoenix might become a “shiny object” that would distract Green from the University of Idaho’s main operations and students, Green said the deal to buy a school with 80,000 students spread across the country and the world would not occupy him. He would keep running U of I, while Chris Lynne will run the University of Phoenix.

Green didn’t mention that Chris Lynne, who now runs Phoenix as the school’s president under Apollo Global, was from 2003 to 2010 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.”

Board member Liebech also offered the legislators various predictions that the sky would fall if the legislature didn’t get out of the way quick. He said higher education was facing “an enormous demographic cliff” and hundreds of colleges would soon go out of business. Thus U of I needs to be “innovative” and grab adult, online learners. 

Liebech also warned that if the legislature sued, the Phoenix deal would be at “grave risk,” as the bond issue could fall through. 

The committee plans to meet again Friday to continue consideration of the resolution. 

If lawmakers want to make the right decision, I recommend that they reach out to some of the many American veterans and other students who have been deceived, and had their financial futures ruined, by the University of Phoenix.

Even if President Green were right, which he probably isn’t, that Phoenix will end up being a moneymaker for Idaho, most likely the only way that can happen is for the operation to keep running its predatory playbook — deceptive ads and recruiting, high prices, low spending on instruction. That’s how Phoenix makes money, not by offering “world class” teaching.

“If morals matter,” another Idaho Statesman editorial suggested last May, “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.” 

UPDATE 03-01-24: Idaho House Committee Votes Against U. of Phoenix Deal