U of I’s purchase of University of Phoenix fraught with red flags. Here are ones we know | Opinion

The Editorial Board
·4 min read
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On Thursday, a day after the public learned of the proposed deal, the Idaho State Board of Education authorized the creation of a not-for-profit to purchase the for-profit University of Phoenix on behalf of the University of Idaho.

Moving this quickly from idea to action — after State Board executive sessions that are closed to the public and a “very strict” nondisclosure agreement, in U of I President Scott Green’s words — is bad government. There are major risks associated with this deal that the public had no time to consider.

  • The University of Idaho will provide an annual guarantee of $10 million, should the entity set up to run the University of Phoenix be unable to service the $685 million in sub-investment-grade bonds that will be issued to finance the purchase for $550 million.

  • U of I will extend a $25 million line of credit to ensure the University of Phoenix remains liquid.

  • U of I will carry insurance with a $40 million deductible in case the University of Phoenix tanks.

  • U of I expects its credit rating to be downgraded, likely increasing its future borrowing costs.

These are the known risks, which are significant, and which the public should have had time to weigh. There are also many questions that remain unanswered.

For example: If this is a great investment, why does the group of private equity investors that owns the University of Phoenix now want it off its books? (Just last month, the investors attempted to sell to the University of Arkansas, but the deal was blocked.)

The private equity firms, which generally specialize in business turnarounds, purchased the University of Phoenix’s parent company in 2016 for $1.1 billion ($1.4 billion in 2023 dollars), as Reuters reported. Now they want to sell for $550 million and are willing to kick in $200 million in cash to unload it.

So this has not been a good investment for them.

One enormous and highly unclear risk is future action by the federal government to either further pursue penalties against the University of Phoenix or restrict its access to revenue.

As USA Today reported in March, “The University of Phoenix has continued to receive more GI Bill funding than any other institution of higher learning, despite its history of government scrutiny for misleading military veterans.”

As Reveal reported in 2015, the University of Phoenix has a history of aggressively marketing itself to active duty service members and veterans.

That could come back to bite Idaho in the pocketbook. Whether or not the University of Phoenix is misleading veterans now, it is highly dependent on federal education funding infrastructure — including the GI Bill and federal student loans — for its financial viability. So are there any regulatory risks on the horizon?

There are.

Earlier this month, six U.S. senators wrote to the U.S. secretaries of education, defense and veterans affairs alleging that the school had again engaged in misleading advertising to prospective students, based on a report from David Halperin, a lawyer and longtime critic of the university.

The University of Phoenix settled its last case with the feds for $191 million — a third of the current proposed purchase price. Could this letter be the beginning of another massive federal investigation that could lead to a loss of tens of millions? Could it be the beginning of a push to cut off GI Bill funding, which came close to happening in 2020? Hard to say. But either could be financially catastrophic.

A letter sent to the State Board of Education by Halperin, the American Federation of Teachers and others points out another risk. Thousands of former University of Phoenix students have filed claims to have their student debt relieved, alleging they were deceived.

In August, the U.S. Department of Education decided to go after for-profit DeVry University to recoup similar debt relief claims. Could it do the same to the University of Phoenix? And what assurances are there that liability for that debt would stop with the new not-for-profit entity formed to own it, and not fall onto the University of Idaho?

It may be the case that all these concerns are overblown. It takes time to investigate things like this fully, and we, along with the rest of the public in Idaho, learned of this massive deal only a day before the State Board acted.

It may also be the case that this does not even scratch the surface, that there are many worse devils in the details. That takes time to investigate.

And this is the central problem. Public institutions are supposed to be accountable to the people. The people cannot hold government to account when it develops plans in secret for months, only to spring them and act in one day. This kind of thing would be illegal for a city or a county to do.

Idahoans — and especially the thousands of people closely associated with the Moscow university — should have the right to give input on a major decision like this, not simply be led around by the nose.

Statesman editorials are the unsigned opinion of the Idaho Statesman’s editorial board. Board members are opinion editor Scott McIntosh, opinion writer Bryan Clark, editor Chadd Cripe and newsroom editors Dana Oland and Jim Keyser.