Do you have questions about the University of Idaho’s proposal to purchase the University of Phoenix, but you were afraid to ask?
No problem. Let’s catch up.
What’s the skinny on the purchase?
The U of I wants to acquire Phoenix — a for-profit online education behemoth, which serves some 85,000 students nationally. The purchase price: $685 million.
Whoa, that’s a lot of money. What’s it going to cost taxpayers?
Nothing, if it goes according to the U of I’s plan. U of I officials have set up an affiliated nonprofit — now known, after a short-lived branding dispute, as Four Three Education, a nod to Idaho’s status as the 43rd state of the union. Four Three would finance the purchase and oversee Phoenix, which would continue to operate under its existing brand. The U of I expects Four Three to cover the bond payments on its own, from Phoenix’s operating revenues. But the U of I might offer $10 million a year as a taxpayer-funded backstop, in case Four Three can’t make payments.
So, the deal is a wash?
No, U of I officials are hoping it’s a moneymaker. They project that the U of I will collect $10 million a year in revenues from Phoenix’s operations, for starters, and they expect this number to grow over time. In its own “frequently asked questions” page on the purchase, the university says this money “may be reinvested in strategic initiatives.”
Is it all about the money?
Not according to U of I President C. Scott Green. He believes the Phoenix affiliation will reach beyond the U of I’s traditional student cohort — serving older students who are juggling work and family commitments, place-bound students who can’t or won’t move to a campus and rural students who live far from an Idaho college.
Meanwhile, demographics are changing, because of a declining birth rate dating back to the Great Recession. As colleges and universities compete for a shrinking number of 18- to 22-year-old students, Green says, they face an existential crisis. “Frankly, in my opinion, not all institutions in this country will survive,” Green told Idaho EdNews in June. (Click here to listen to this interview in podcast form.)
If Phoenix is doing so well, why is it on the auction block? And what’s in it for them?
Phoenix is owned by Apollo Global Management — and is part of a private equity fund that has reached its termination date. That makes Phoenix a motivated seller.
With only about 400 students in Idaho, Phoenix sees the rural stretches of the state as a potential growth market. Phoenix officials also say the nonprofit status will help them focus on academics. “You’re gonna see a very different University of Phoenix than you read about,” university President Chris Lynne said in an Idaho EdNews interview in August. (Click here to listen to this interview in podcast form.)
Doesn’t Phoenix come with a lot of baggage?
Well, yes. Founded in 1976, the university later went online and rapidly went viral, with enrollment swelling to 470,000 students by 2010. But problems accompanied the growth — culminating in 2019 with a $191 million settlement with the Federal Trade Commission, stemming from complaints of deceptive advertising.
And just in September, the Biden administration said it would write off $37 million of Phoenix student loan debts.
Green has acknowledged Phoenix’s spotty reputation, and the challenges that come with it. But he says most of Phoenix’s problems occurred under previous leadership.
The U of I has refused to release documents addressing its risks from loan writeoffs. But the U of I has downplayed the risk, partly because Phoenix would turn over $200 million in cash to Four Three if the purchase goes through.
Who signed off on this deal?
The State Board of Education, which serves as the U of I’s board of regents. In May 18, the board voted unanimously to give the deal the go-ahead — after a 90-minute discussion, and without taking any public comment. This was the board’s only public meeting on the proposal, which was disclosed only one day earlier.
“We’re going to face an enrollment cliff. … all across the country,” State Board member Kurt Liebich said during the meeting. “I think we’ve got to be bold and innovative.”
Really, one public meeting? How’d we get to this point?
The process was hush-hush — at Phoenix’s insistence. The for-profit university made U of I and State Board officials agree to keep negotiations under wraps.
With the secrecy came a sketchy timeline. At first, U of I officials said Phoenix had approached them in March — but this was contradicted by the university’s own internal documents, obtained by Idaho EdNews through a public records request. (The U of I later changed its story, and said the discussions began in February.)
This much is clear: the State Board held three closed-door meetings to talk about the purchase. Board members have said much about these “executive sessions” — including a May 15 meeting that came only three days before they approved the deal. It took a series of court depositions to shed some light on the details. (Click here for our in-depth coverage.)
The State Board is on board. But there are skeptics, right?
Absolutely. It’s a pretty long list, from across the political spectrum.
- State legislators — who weren’t briefed on the deal until May 17 — have openly grumbled about being cut out of the loop. A skeptical Joint Finance-Appropriations Committee peppered Green with questions during a probing hearing in June. “We feel we should have been involved in that process,” said Sen. C. Scott Grow, R-Eagle, the committee’s co-chair. “We see that this transaction has potential, but we also see that it has risk,” said Rep. Wendy Horman, R-Idaho Falls, Grow’s House counterpart. “We want to trust but we must verify.”
- Within about 24 hours — after the proposal went public, and before the May 18 State Board vote — board members received more than two dozen emails urging them to vote no or go slow. Some of these emails came from U of I faculty, staff or alumni. (The board received just one email in support, from a U of I professor.)
- Three Democratic U.S. senators — Richard Durbin of Illinois, Elizabeth Warren of Massachusetts and Richard Blumenthal of Connecticut — urged the U of I to walk away from the deal. The lawmakers decried Phoenix’s “long record of poor student outcomes, deception of veterans, and entanglements in federal investigations and enforcement actions.” A testy Gov. Brad Little fired off a letter telling the senators to butt out and focus on passing federal budgets and securing the border.
- Other state officials are more skeptical than Little. State Treasurer Julie Ellsworth, a Republican, has questioned whether the purchase could jeopardize the state’s lofty credit rating. And Attorney General Raúl Labrador, perhaps Little’s most prominent rival within the GOP, is trying to torpedo the purchase in court.
What are the grounds for the lawsuit?
It all goes back to the State Board’s three closed meetings. The board cited a section of state law, which allows closed-door discussions of negotiations that pits Idaho against public agencies from out of state.
It’s an open meetings lawsuit, a civil complaint. But Labrador has made no secret of his distaste for the Phoenix purchase. The June 20 lawsuit decries the state’s rush “to acquire a for-profit college beset with financial, moral and legal challenges.”
The political stakes also transcend the open meetings dispute itself. Both sides agree that the lawsuit could stymie the Phoenix deal. If Labrador wins, the State Board’s May 18 vote will be voided. Not surprisingly, the State Board and its hired attorney are launching an all-out and spendy defense against Labrador’s lawsuit.
What are the lawyers arguing over?
Competition.
The lawsuit challenges an underpinning of the closed meetings: the assertion that the U of I was in competition with other would-be Phoenix buyers.
U of I and State Board officials have stood by their narrative, but they have never offered any specifics.
Labrador’s team is skeptical — especially because the University of Arkansas’ board of trustees voted in April to walk away from a Phoenix purchase.
Ada County District Judge Jason Scott has rejected several of Labrador’s legal arguments, except for the competition question. A trial is scheduled for Jan. 22.
Is this the only obstacle facing the purchase?
No. The lawsuit is definitely a hurdle, but not the final one.
Financing is a big obstacle. Four Three will have to go into the market to secure bonds for Phoenix financing. Green has said he hopes Four Three can sell bonds early next year, but the lawsuit more or less puts financing on hold.
The U of I also needs signoff from its accrediting body, the Northwest Commission on Colleges and Universities.
Phoenix’s accreditor, the Higher Learning Commission, endorsed the deal earlier this month.
What’s the timeline for all of this to happen?
The U of I and Phoenix hope to close the deal early next year.
If that doesn’t happen, there is an opt-out date. Either party could walk away from the table after May 31.
