[Editor's Note: The Higher Education Inquirer will continue to update this story as more information comes in.]
The University of Phoenix (or at least its name) may soon enter the ash heap of US higher education history--and rise again as a state-run robocollege. But it shouldn't--at least not yet. Once hailed as the leader in affordable adult education for workers entering middle management, it is a shell of its former self--in an economy less certain for workers and consumers.
With the school's wreckage are approximately one million people buried alive in an estimated $14B-$35B in student loan debt.
Pattern of Fraud
As of January 2023, more than 69,000 of these student loan debtors have filed Borrower Defense to Repayment fraud claims with the US Department of Education against the University of Phoenix (UoPX). Many more could file claims when they become aware of their rights to debt relief. In the partial FOIA response below, the US Department of Education reported that 69,180 Borrower Defense claims had been made against the school.
In a recent federal case, Sweet v Cardona, most if not all of the 19,860 "denied" cases were overturned in favor of the student loan debtors. We estimate the smaller number of fraud claims alone to amount to hundreds of millions of dollars.
Through a FOIA request, we also discovered 6,265 consumer complaints in the FTC database. In 2019, the FTC and the University of Phoenix settled a claim for $191M for deceptive employment claims. Based on the consumer complaints, we have no reason to believe that Phoenix has changed its behavior as a bad actor.
On May 3, 2023, six US Senators (Warren, Brown, Blumenthal, Durbin, Merkley, Hassan) called for the US Department of Education, Department of Veterans Affairs, and Department of Defense to investigate the University of Phoenix for launching a new program suggesting that it was a public university. The letter stated that the school "has long preyed on veterans, low-income students, and students of color."
Wolves in Sheep's Clothing
University of Phoenix's owners could potentially be liable for refunding the US government for the fraud. But as a state-related organization, it may be more politically difficult to claw back funds, no matter how predatory the school is.
Purdue University Global and University of Arizona Global set a precedence in state-related organizations acquiring subprime schools (Kaplan University and Ashford University) and rebranding them as something better. Whether they are better for consumers is questionable. Phoenix will have to cut costs, largely by reducing labor. Using Indian labor (like Purdue Global) and AI could be profitable strategies. It's likely that this deal, even if profitable, will add fuel to the growing skepticism of higher education in the US.
University of Phoenix's Finances
Apollo Global Management and Vistria Group currently own University of Phoenix but have been trying (unsuccessfully) to unload the subprime college for more than two years. Little is publicly known about the school's finances. What is known is that UoPX gets about $800M every year from the federal government, through federal student loans, Pell Grants, GI Bill funds, and DOD Tuition Assistance.
Despite this government funding, US Department of Education data show the school's equity value for the Arizona segment declined significantly, from $361M in FY 2018 to $187M in FY 2021.
$347M of the University of Phoenix's $518M in assets are intangible assets. Intangible assets typically include intellectual property and brand reputation. The school has $348M in liabilities.
The University of Phoenix has been reducing expenses by cutting instructional costs, from $70M in FY 2020 to $60M in FY 2021. UoPX spends about 8 percent of its revenues on instruction.
Attempts to Sell UoPX
There have been two known potential buyers for the University of Phoenix: the University of Arkansas System and the University of Idaho. In both cases, the owners required the potential buyers to keep the deal secret until the sale was imminent.
Fear of the impending higher education enrollment cliff appears to be an important pitch to potential buyers.
Arkansas, the first target, was in the process of making the deal, and it might have gone through if nit for the voice of one whistleblower and one outstanding investigative reporter, Debra Hale Shelton of the Arkansas Times.
In the case of Idaho, news of the potential deal was publicly noted just one day before the preliminary agreement was made with the Idaho Board of Education. Two other secret meetings were held before that.
A number of journalists including Kevin Richert (Idaho EdNews), Laura Guido (The Idaho Press), Troy Oppie (Boise State Public Radio), and Noble Brigham (Idaho Statesman) have exposed some of the problems and potential problems with the deal. In June, Idaho legislators began questioning the acquisition.
More recently, the opinion editor at the Idaho Statesman argued that the deal may actually be worthwhile.
Particulars about the finances are sketchy at best and misleading at worst. The University of Phoenix is said to include $200M in cash in the deal, but they have not said how much of that sum is required by law as "restricted cash"--money the school needs if the Department of Education needs to claw back funds. Phoenix also claims to be highly profitable, but without showing any evidence.
What is known about the deal is that the University of Idaho will have to borrow $685M and put its (bond) credit rating at risk. The school has not identified important information how the bonds would be sold (underwriters, bond raters, date to maturity, interest rate).
The University of Idaho has created an FAQ to answer questions about the sale, but HEI has identified a number of misleading statements about University of Phoenix's present finances (failure to report the school's equity), potential liability (cost of tens of thousands of Borrower Defense claims), and leadership (lack of background information about Chris Lynne, the President of the University of Phoenix). These deficiencies have been reported to the University of Idaho and to the Representative Horman.
On June 20, Idaho Attorney General Raul Labrador filed a lawsuit to halt, or at least slow down the deal.
The University of Idaho submitted a Pre-Acquisition Review from the US Department of Education, and it may take up to three months before the application is completed.
As of September 2023, the deal is far from done. Since this article was first published there have been a number of developments:
On September 11, US Senators Elizabeth Warren, Dick Durbin, and Richard Blumenthal called on University of Idaho President Green to abandon the sale. The Senators also asked Green if he had a plan to pay for the Borrower Defense claims, noting that University of Arizona may be on the hook for thousands of claims against Ashford University (aka University of Arizona Global campus).
In November, the Joint Finance-Appropriations Committee of the Idaho Legislature is expected to discuss the issue again.
*The Higher Education Inquirer has made a FOIA request for more up-to-date numbers from the US Department of Education. We have also filed FOIA requests with the FTC.
Related link:
The Growth of "RoboColleges" and "Robostudents"More Transparency About the Student Debt Portfolio Is Needed: Student Debt By Institution
Borrower Defense Claims Surpass 750,000. Consumers Empowered. Subprime Colleges and Programs Threatened.
