A national coalition of veterans, students and faculty, civil-rights advocates and others has urged the University of Arkansas System of the reputational and financial risks should a private affiliate of the school buy the University of Phoenix.
A UA System spokesman countered that the coalition’s allegations “show a misunderstanding of the potential acquisition structure and the affiliation being considered.” Further, the system’s president said the proposed acquisition might bring in $20 million annually to the UA System.
The proposed buyer would be Transformative Education Services Inc., or TES Inc., a nonprofit created in August and affiliated with the UA System. Officials with the UA System have said that the purchase — estimated by a source to cost $500 million to $700 million — would be with private, not public, funds and that Phoenix would not become a part of the UA System.
That said, the publicly paid UA System President Donald Bobbitt is working to make the purchase happen and believes the UA System would profit financially because of a licensing agreement, which would to some degree link the two institutions’ images.
In a letter dated Feb. 15, addressed to UA System trustees and posted online, the coalition warned of Phoenix’s “and its successor’s potential liability for hundreds of millions of dollars in federal student loans.”
Further, a federal lawsuit that appears to be nearing a resolution in California may well have an adverse impact on the University of Phoenix’s financial status by effectively canceling much of the student debt owed to the mostly online college. The lawsuit, known as Sweet vs. Cardona, is not related to President’s Biden’s plan to forgive student debt, a matter before the U.S. Supreme Court.
The coalition’s letter also warned of a potentially negative impact on the UA System’s academic reputation.
“The most recent Department of Education data, for instance, show a [UA System] retention rate for first-time students returning for a second year of 87% and a graduation rate of 70%. The most recent data for University of Phoenix, in contrast, show only a 39% retention rate and just a 14% graduation rate. Only 48% of University of Phoenix former students earn more than a high school graduate,” the coalition wrote.
“If the deal to add University of Phoenix as an affiliate of the UA System is finalized, the UA System will need to ensure that the outcomes associated with the new institution are substantially improved or it could risk reputational damage to the University of Arkansas System, as well as potential consequences with the U.S. Department of Education and other regulators,” the coalition added.
UA System spokesman Nate Hinkel said the coalition’s “allegations … are speculative and the concerns do not contemplate the specifics of this proposed transaction. It is also worth noting that the University of Phoenix is accredited by the Higher Learning Commission, the same organization that accredits more than 500 colleges and universities in the United States, including those in Arkansas.
“There would be no state or university funds at risk, and campuses would operate as efficiently and routinely as they currently do, but with the added benefits and resources of this potential affiliation,” Hinkel said.
Outgoing UA System board member Cliff Gibson III, who opposes the Phoenix proposal, however, said in a Feb. 8 email to Bobbitt that in reviewing the Higher Learning Commission’s website, he noticed a January entry that says, “Reaffirm Accreditation with Monitoring.”
Indeed, a Jan. 23 letter from the commission’s Institutional Actions Council to Phoenix’s interim president says in part that an interim report is due April 20. At that time, Phoenix representatives are “required to provide evidence … that they are disclosing their standing with other accreditors to the public.”
The UA System’s negotiations with Phoenix began about 18 months ago and are ongoing.
The UA System has not said who or what might provide financial backing for TES Inc. Bobbitt said in a recent email that “a number of financing options are still being considered with the goal of securing the most attractive financing possible to support the potential deal.”
Bobbitt estimated that a licensing agreement being negotiated could yield roughly $20 million annually for use by the UA System. Licensing agreements allow approved usage of certain brand names and images.
“This additional revenue is not an insignificant amount, and could be used to support system-wide needs such as student scholarships, staff and faculty salaries or critical deferred maintenance needs on our campuses, among many other potential projects,” Bobbitt said.
“In an era of limited state funding for higher education, we feel obligated to consider opportunities such as this that both align with our mission to educate more students and have the potential to bring in new resources for the system and its campuses,” he added.
Bobbitt said the UA System and the University of Phoenix “have tremendous brand recognization, and we believe an affiliation could be mutually beneficial for each entity without confusing any of the great work already being done within the System.”
Further, Bobbitt said Phoenix has more than “1 million alumni, including many highly successful business and industry leaders.” He said it also has “a long history of innovation in distance and career education and a number of other discipline-specific accreditations.”
Gibson, a Monticello attorney, takes a different view. “I would submit that the Phoenix’s national recognition is not the kind of recognition that most folks would want for their beloved University of Arkansas. In my mind, the name Phoenix would run off more folks than it would gather,” he told Bobbitt.
Gibson has previously said Bobbitt told him that a Japanese bank would provide financing for the nonprofit affiliate. Gibson’s term as chairman ends today, and his term on the board will end once Gov. Sarah Sanders has appointed a successor.
Hinkel dismissed what he called the coalition’s “false concerns” about “overwhelming the UA System.” He said such “would not be the case and thus is not an issue.”
Yet some observers, including the coalition and Gibson, have concerns about Phoenix’s reputation largely because of its recent history.
In 2019, Phoenix, one of the nation’s largest for-profit colleges, agreed to a $191 million settlement with the Federal Trade Commission, which said the college had lured students with fraudulent claims. Under that settlement, Phoenix agreed to pay $50 million in cash and to cancel $141 million in debts owed to the school by students who were harmed by deceptive ads, according to the FTC.
The coalition, for example, noted that the FTC alleged that Phoenix had “targeted active duty service members, veterans, and military spouses” with deceptive advertising.
“While the FTC’s settlement provided relief to certain students for institutional debt, it did not resolve the students’ federal loan obligations, nor, importantly, the school’s potential liability to the Department of Education for any approved Borrower Defense to Repayment loan discharge applications,” the coalition wrote. “The Department has the authority under federal regulations to recoup funds from the University of Phoenix for any such approved loan discharges.”
Dahn Shaulis, editor of the New Jersey-based Higher Education Inquirer blog, has followed the University of Phoenix closely for years. “An important part of the story is that we don’t know the total number of Borrower Defense claims [that] have been made against the University of Phoenix,” Shaulis said in an email.
From January 2015 through Jan. 1, 2022, there were 32,040 claims against Apollo Group Inc., which has since sold the University of Phoenix to Apollo Global Management. Of those, 20,140 were denied, according to records shared by the Inquirer with the Arkansas Times.
The Inquirer has made a federal Freedom of Information Act request seeking more current data up to Jan. 1 of this year, but the U.S. Department of Education can take several months to reply.
Coalition members include the Center for American Progress, New America Higher Education Program, Project on Predatory Student Lending, The Institute for College Access & Success, Veterans Education Success, attorney David Halperin, and Robert Shireman, a senior fellow with The Century Foundation. Halperin’s credentials include his time as a special assistant during Bill Clinton‘s presidential administration. Shireman has previously worked for the U.S. Senate and the Clinton administration.
Stephens Inc., a Little Rock-based financial services company, has contracted with the UA System to help analyze, structure, plan, negotiate and bring about the proposed acquisition of Phoenix. Bobbitt said, however, that while Stephens “is providing guidance, “Stephens is not negotiating the purchase price.”
As the Times has previously reported, the contract provides that Stephens would be paid $25,000 upon an acquisition and up to $1.65 million once a transaction is completed. The amount could be higher, depending on the transaction’s value.
It remains unclear if the UA System’s Board of Trustees will be given an opportunity to vote on the proposal should it get to that stage. Gibson said Monday that, despite his request, Bobbitt still has not shared a report by Stephens on the proposal.
If the board does consider the plan, there could be another issue — whether a board member with ties to Stephens votes or recuses. Brad Eichler, whose wife Kelly Eichler is a trustee, was just promoted to Stephens’ chief operating officer effective May 1. Kelly Eichler did not respond to a request for comment.
On whether the board must approve such an acquisition, Bobbitt said that “it is still unclear precisely what approvals would be required on many levels. Regardless, as has been the case from the outset, we are fully committed to informing the Board and seeking its support if and when we have a finalized proposal.”
Board Policy No. 340.1 says in part: “A separate legal entity owned or controlled, in whole or in part, by the University, and any other entity that may otherwise be reflected in the financial statements of the University under applicable accounting rules, may only be created or dissolved with the consent of the President, who may exercise the discretion to bring the matter to the Board of Trustees for approval. If the matter is not presented to the Board for approval, the President must report the matter to the Board at its next regularly scheduled meeting. In all such instances, prior to submitting the matter to the President, the proposal and all relevant documents must be reviewed by the General Counsel.”
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