The University of Idaho will buy one of the nation’s best-known for-profit colleges — even though the controversial purchase carries risks for the institution’s credit rating as well as its academic reputation.
Nevertheless, the Idaho State Board of Education on Thursday unanimously approved the $550-million purchase of the University of Phoenix. The approval came only one day after the potential deal was announced to the public, and with little input from Idaho’s faculty.
Adding to the drama, the University of Arkansas system had been considering for months a similar proposal to purchase the University of Phoenix. Arkansas administrators, faculty members, and trustees had debated Phoenix’s debt burden, the potential governance structure of the new entity, and academic quality.
Since the buyer would have been a nonprofit affiliate of the Arkansas system — and not the institution itself — the university’s board didn’t have to sign off on the deal. But the board took up the matter last month anyway and, in a symbolic vote, narrowly rejected the idea, with a top trustee complaining that the University of Phoenix had a “terrible reputation.”
After Arkansas seemed to shut the door, Phoenix found an eager partner in Idaho.
Further Reading
Under the deal, which still faces review by accreditors, the University of Phoenix will be converted to a nonprofit institution that Idaho officials referred to as “New U.”
The new college would pay the University of Idaho at least $10 million annually, and Idaho officials said those payments could add up to as much as $170 million by 2030.
But there is also a risk that the University of Idaho would have to contribute financially if the joint endeavor struggled to turn a profit.
The $550-million purchase price breaks down this way: The University of Phoenix will contribute $200 million to the new college, and the new institution will finance the remaining $350 million with bonds.
Brian Foisy, the University of Idaho’s vice president for finance, told the State Board of Education that the university’s credit rating might drop from A1 to A2 as a result of the purchase, although he added “that’s only one notch,” and the lowered rating “is still well within investment grade.”
Just before the board’s vote, the University of Idaho’s president, C. Scott Green, said that the sale negotiations had been subject to “pretty strict” nondisclosure agreements, which he said had prevented the university from disclosing information sooner.
Green said Faculty Senate leaders had been invited to help evaluate the proposal.
“I regret it, but there’s not a lot we could have done differently, so I just want our faculty to know that,” said Green. He added that an extensive FAQ page, posted by the university on Wednesday, showed that campus officials were still being “very transparent.”
A Blistering Attack
The Idaho Statesman newspaper did not agree: It blasted the secretive process in a blistering editorial, noting that “while the vote to create the entity to acquire the University of Phoenix had not yet taken place, the Q&A treated the matter as a fait accompli — giving us serious concerns about whether the outcome of the vote had been determined in nonpublic meetings beforehand.”
In a statement, University of Phoenix representatives expressed optimism about this new chapter.
“The university has focused on student outcomes, support, and upskilling, as well as understanding and reacting to marketplace trends from employers, and innovating ways to make online higher education more accessible and achievable,” said Chris Lynne, the president. “We are excited to build on the great legacy of our institution by working with University of Idaho, one of our nation’s leading public universities.”
Idaho’s announcement comes as colleges across the country feel increasing urgency to respond to the so-called demographic cliff, in which the number of college-going students is projected to decline in many states. A top University of Arkansas official said as much last month at a board meeting to discuss the Phoenix deal: “The enrollment cliff is coming.”
The University of Phoenix was once the largest university in the United States, with a staggering enrollment of nearly 470,000 in 2010. The university became a symbol of the for-profit college boom, which was fueled by online courses, slick marketing materials, and a surge of students who weren’t 18-year-old residential undergraduates but were working parents, military veterans, and immigrants.
Students are wary about taking a chance on universities that have had some reputational problems in the past.
But more recently, many students who attended for-profit colleges — including the University of Phoenix — alleged they had been deceived by admissions recruiters and lured into poor-quality degree programs that left them with a lot of student-loan debt and no meaningful job prospects.
Enrollment at the University of Phoenix declined in recent years, and now stands at about 85,000.
In 2019 the university agreed to pay a record $191 million to settle with the Federal Trade Commission after being accused of deceptive advertising.
The FTC alleged that the university’s ads had falsely implied its graduates would have future job opportunities with large companies such as AT&T, Microsoft, and Yahoo. As part of the settlement, the university did not admit wrongdoing.
That settlement, combined with other accusations of unethical business practices, took a toll on the University of Phoenix’s ability to attract new students.
“Students are wary about taking a chance on universities that have had some reputational problems in the past,” said Preston Cooper, a senior fellow at the Foundation for Research on Equal Opportunity, a think tank. “And so we’ll see if the University of Idaho can turn that around.”
Green, the Idaho president, told the state board that he was impressed with the upper managers at the University of Phoenix.
That management team is expected to stay on board at the new nonprofit.
“We found them,” Green said, “to be good, caring people who are focused on providing a quality educational experience to their students.”
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