U of I Purchases University of Phoenix: Good Deal or Bad Deal?

What’s the Rush: Why is there such a hurry by the State Board of Education and the U of I to purchase this for-profit university with a very checkered history? In the past, we have found that when secretive transactions such as this one take place it is not always in the best interest of the citizens of our state. Attorney General Raul Labrador has challenged this purchase as it was a deal made during an executive session with no public or legislative input.

University of Phoenix’s History: This is one of the largest universities of its kind offering primarily online classes for profit. The University of Phoenix was founded in 1976 as a brick-and-mortar institution by John Sperling to make higher education for working adults more accessible. It was accredited in 1978, and two years later it opened a campus in San Jose, California. In 1989, Phoenix began offering an online program, which became the school’s main focus. It entered a period of expansion in 1994, when the parent company Apollo Education Group, also founded by Sperling went public and brought a large influx of money into the university. Phoenix continued to grow and in 2000 enrollment reached 100,000 students and by 2010 it claimed to have 450,000 students enrolled to became the largest nonprofit school in the U.S. Their success spurred the growth of nonprofit schools in the late 1990’s, becoming a major factor in post-secondary education. It was then that the U.S. government began to scrutinize Phoenix as they were providing up to 85% of its revenues from government-sponsored loan programs. The university’s students were often poor or veterans and not only carried more debt than with nonprofit schools but also were more likely to default on loan payments and had extremely high dropout rates. Enrollment declined steadily from 2010 to 2015 to about 200,000 students.

FTC Investigates Phoenix in 2015 for deceptive and marketing business practices: No investigation by the government is ever good for an organization and this one was no different as enrollment continued to fall till it reached 140,000 in 2017 when Apollo Education Group was sold to a private investment group. Enter the FTC which claimed the University of Phoenix’s ads sought to mislead prospective students by suggesting the school had close ties to Twitter, MGM and other large companies and successfully targeted minorities, military veterans, service members and their spouses for enrollment. The FTC investigation ended in 2019 after Phoenix agreed to pay a $50 million fine and cancel more than $140 million in student debts as enrollment continued to fall even after the settlement. As part of the deal, the university did not admit or deny any wrongdoing alleged in the federal complaint. It’s the largest settlement the FTC has obtained against a for-profit school, The University of Phoenix has had most of its physical campuses closed since the start of the pandemic and according to the 2020 academic report the latest available when its enrollment was 83,800. It has cut its program offerings dramatically over the past four years reducing its complexity and trying to get back to its roots.

University of Phoenix sold in 2016 to Apollo Global Management for 1.14 billion: Apollo was the leader of a consortium that included The Vistria Group and Najafi Companies purchasing Phoenix from Apollo Education for $1.14 billion. It is interesting to note that Tony Miller, COO and partner at The Vistria Group was a former deputy education secretary at the US Department of Education and soon after was named chairman of Apollo Education Group’s board of directors. (here is where the smell of political influence enters the arena). You almost have to ask the question did the addition of Tony Miller as chairman of the new owner of the University of Phoenix have any influence in the FTC’s settlement? No longer publicly traded, its operations were kept under wraps Its owners began to groom it with the same brush they use for all their distressed assets.

What’s the Deal with U of I: Under the deal, Apollo Global Management and other current owners of the University of Phoenix would transfer $200 million to the new not-for-profit corporation. The University of Idaho pledged to pay up to $10 million a year should the not-for-profit corporation miss payments on its bonds. Conversely, the University of Idaho stands to receive $10 million in annual funding from the affiliation. Idaho University president is citing the reason for this purchase is that the U.S. is facing a looming college enrollment cliff. By 2025 the number of traditional college-age students is predicted to decline by 15%. This is because the Great Recession of 2008 resulted in a sharp decline in the birth rate stretching on for years, meaning there will be fewer children who will reach college age by 2025. There is also the thought that a growing number of career alternatives are drawing people from the working world directly from High School or to online alternatives to a traditional college education.

Good Deal or Bad Deal: In my many years as an investment advisor and risk manager on Wall Street I would have to say, “When a deal sounds too good to be true it usually is”. This is one time I would definitely apply that saying. Keep in mind that Apollo bought Phoenix in 2016 for 1.14 billion and is now willing to sell it for half that price and throw in an additional $200 million for good measure. One has to ask themselves is there a faint scent of Horse Manure in the room? There are many high risks associated with this deal including the possibility of future federal government action. The federal government is funding a huge portion of loans given to veterans who attend this online university, and these funds could be subject to future withdrawal. This was a recent news article on a possible investigation into the University of Phoenix. https://arktimes.com/arkansas-blog/2023/05/09/six-u-s-senators-request-investigation-of-university-of-phoenix

The least our University of Idaho’s president and our State Board of Education should have done is to open this up to a public debate. We are talking about more than a half billion dollars at stake here and NDA or no NDA this whole deal was handled improperly. Does anyone remember the State Land Board’s foray into Commercial Enterprises? It’s high time our government bureaucracies opened the blinds on their windows and let the light of public scrutiny shine in. There are too many under the table deals done in this state and it is high time the citizens took their public officials to task.

As I always say: “We Get the Government We Deserve”.