[Editor's note: This article will be updated as we receive more information.]
US Department of Education (ED) sources have told the Higher Education Inquirer that the Pre-Acquisition Review for the Idaho-University of Phoenix deal was completed in November 2023 in response to a request from the University of Phoenix in June of the same year.
The University of Phoenix is currently owned by two powerful investment firms: Apollo Global Management and Vistria Partners. But those companies have been attempting to unload the for-profit college for more than two years. The latest potential owner is the University of Idaho's affiliate organization, Four Three Education--at an initial cost of $685 million.
ED will not require anyone to post a Letter of Credit--despite the fact that Four Three Education currently has no financial assets and will likely have to issue high-risk bonds to acquire the University of Phoenix.
Four Three Education, and the University of Idaho, may be responsible for compensating the Department of Education for successful Borrower Defense to Repayment (fraud) claims made by tens of thousands of consumers. While that could amount to more than a billion dollars, the University of Idaho affiliate expects to spend much less by using aggressive legal means.
Financing for the Phoenix project has been deliberately opaque. The University of Idaho, however, has acknowledged that it may be liable for some future losses, but only up to $10 million annually. And Idaho officials, including University of Idaho President C. Scott Green, seem undeterred by these potential problems.
The Most Recent Court Case
A court case to determine whether the University of Idaho violated open meeting laws was completed last week. Idaho District Judge Jason Scott ruled that the University of Idaho was not in violation for holding three secret meetings followed by a quick vote on May 18, 2023. The University of Idaho claimed that secrecy was essential for the deal to occur.
The State asserted that the Idaho Board of Education did not perform due diligence for the sale, relying on President Green and his word that this was a worthwhile deal for the University of Idaho. In turn, Green admitted he did not ask important questions about competition, for fear that he would be considered naive, and that he outbid the competition.
As Judge Scott remarked, the wisdom of the deal was not on trial. If it had, perhaps the ruling would have been different.
Information about the competition to buy the University of Phoenix continues to be sketchy. The University of Arkansas System rejected a deal from the University of Phoenix in April 2023, weeks before the last closed door meeting. UMass Global was mentioned in the court case, but with no
evidence that they were ever a serious suitor.
The Idaho-Phoenix Scheme
The University of Idaho spent a reported seven million dollars on consultants over two months to determine whether the deal would be profitable to the University of Idaho. But little is publicly known about how the funds were spent. Hogan Lovells, President Green's former employer, was one of the organizations involved in consulting the University of Idaho. A local law firm, Hawley Troxell was also involved.
Idaho also created a non-profit organization, Four Three Education,
to act as a firewall in the event the school loses money. The current
President of the University of Phoenix, Chris Lynne, will remain in
place and be a member of the Four Three Education Board.
The University of Idaho claims that the University of Phoenix will make a
$150 million annual profit but they have not produced evidence.
Information about Phoenix's assets are also limited, but Idaho claims
the for-profit college holds $200 million in cash. How liquid (or how restricted) the cash is has not been mentioned.
Funding for the sale will be through an initial debt of $685 million, which includes more than $100 million in transaction fees. When bond interest is included, the deal is likely to cost billions of dollars according to an industry source. In an opinion piece in the Idaho Statesman, Rod Lewis, a former attorney for Micron Technology and former president of the Idaho State Board of Education stated:
Phoenix will issue $685 million in corporate bonds anticipated to be “bb” rated (known as “high risk” or “speculative” bonds). Phoenix’s estimated debt service will be $60 million to $70 million per year. It sounds risky, and it is.
We will know more when the University of Idaho produces the bond contracts and names the bond underwriters.
Poisoning the Public Higher Ed Well
The University of Phoenix relies heavily on obfuscation, intimidation,
political lobbying, and lawsuits to reduce expenses related to fraud.
Given recent data on consumer complaints about the University of
Phoenix, University of Idaho officials say they are prepared for
contingencies related to the tens of thousands of Borrower Defense to
Repayment claims. But the school or its affiliated organizations could
also be liable for claims related to questionable business practices in
the present and future.
It's too early to tell whether Idaho will profit from its acquisition. But if the sale is consummated, the University of Phoenix will join a growing list of state-affiliated and non-profit robocolleges, one that includes Purdue University Global (formerly Kaplan University) and University of Arizona Global Campus (formerly Ashford University), two schools that have not lived up to their parent company names.
Related links:
Predatory Colleges, Converted To Non-Profit, Are Failing (David Halperin, Republic Report)
