University of Phoenix to affiliate with University of Idaho

The Idaho State Board of Education is expected at a special meeting Thursday to consider and approve the University of Idaho’s creation of a new nonprofit corporation that will buy and manage the University of Phoenix as a nonprofit university.

This arrangement appears to be plan B for Phoenix after a proposed deal between it and the University of Arkansas System fell apart last month amid sharp disagreement among the system’s board members and concerns expressed by critics of for-profit higher education.

The University of Idaho tweeted late Wednesday that “The U of I and the University of Phoenix intend, with proper approvals, to affiliate with the goal of increasing access to all learners, improving capacity for supporting all learners and helping all learners achieve their higher education goals.” The tweet linked to an extensive website with details about the proposed affiliation.

Spokespeople for both institutions confirmed the planned deal Wednesday afternoon.

Under the arrangement, the University of Idaho would create (and fully control) a new nonprofit corporation that would issue bonds to pay $550 million to buy Phoenix’s assets, which include about 85,000 students, significant technology, and roughly 3,000 full-time and adjunct faculty members.

Phoenix’s current owners would leave behind roughly $200 million in cash to give the new nonprofit entity “adequate working capital” to operate the nonprofit Phoenix going forward, Idaho president Scott Green said in an interview Wednesday. The nonprofit would pay the University of Idaho at least $10 million in supplemental funds per year under the arrangement, to use for joint initiatives and new programs.

Phoenix’s leadership and staff will continue to run the university, which will close its few remaining campuses and operate entirely online.

The arrangement will require approval of the Higher Learning Commission, Phoenix’s accreditor, and the Northwest Commission on Colleges and Universities, which accredits Idaho.

Green said that discussions between Idaho and Phoenix began in March, which was while the for-profit university was still pursuing an arrangement in Arkansas. He said that Idaho officials have kept in close contact with members of the state board “to keep them apprised,” but that the board has not yet granted the final approval, which could come as soon as tomorrow.

“We share a common mission, to illuminate and elevate students to be successful in their careers and lives,” the Idaho statement said in explaining the rationale for the deal. “Both institutions serve a significant number of first-generation students who benefit from robust support systems. We can learn from each other how to best serve all learners and ensure that address does not dictate access. We believe we are culturally aligned around student success.”

“These are two institutions that are very student-centric,” said Torrey Lawrence, provost and executive vice president at Idaho. “We’re looking at programs that complement each other, audiences that complement each other, and a great fit of mission.”

The Backstory

Phoenix was once the biggest university in the United States, and it was also the flag bearer of a for-profit higher education sector that burgeoned during the 2000s and early 2010s but has shrunk significantly in the last decade. Though Phoenix is far from its peak of nearly 470,000 students in 2010, documents from the University of Idaho list its enrollment as about 85,000 now, making it still one of the nation’s largest institutions.

Significant regulatory scrutiny from the Obama administration and consumer advocates and changes in the economy battered Phoenix’s reputation and drove down enrollment. Phoenix had been on the market for several years, and its name had cropped up in recent years as numerous public universities sought to absorb major online players, often for-profit ones, to jump-start or expand their own online operations, such as Purdue University’s 2017 purchase of Kaplan University and the University of Arizona’s 2020 purchase of Ashford University.

Those deals were controversial in part because they involved public institutions absorbing formerly troubled for-profit universities, but also because the newly created nonprofit institutions continued to be managed in part through services offered by the for-profit companies that sold them. Those entanglements troubled faculty leaders at both institutions.

Like the proposed Arkansas-Phoenix marriage, which disintegrated last month, the deal between Phoenix and Idaho would not feature such an arrangement. Under the plan, Phoenix’s owners, Apollo Global Management and Vistria Group, would sell the university outright to the nonprofit corporation that the University of Idaho creates. That entity—whose sole “member” would be the University of Idaho through the state board, which is also its Board of Regents—would operate Phoenix.

“This is a clean break,” said Green, Idaho’s president. “There will be no ongoing participation” by Phoenix’s owners in the new nonprofit university’s operation. Phoenix’s management team will continue to be involved, however—though Green was quick to point out that “it’s not the management team of the past that had trouble.”

Officials at Idaho, in the documents they made public about the arrangement and in interviews, did not shy away from discussing Phoenix’s past problems.

“The University of Phoenix’s reputation was tarnished by massive growth in the mid-2000s,” Idaho said in a Q&A on its website, in response to the question “University of Phoenix has been criticized, and sued, for business decisions leading to millions of dollars in fines and punitive actions by regulators. Is U of I aware or concerned?”

“A change in ownership refocused the university on its founding mission to serve working adult learners who did not have the ability to attend college in a traditional setting and found the need for credentials to advance in their careers. They required a career-relevant education, significant student support and flexible online learning … U of I leadership has done due diligence to assess the current state of University of Phoenix and believes University of Phoenix has strong academic operations and a robust compliance-oriented approach, and that the acquisition would benefit the U of I.”

Another question addressed potential risks to the University of Idaho. “Should the not-for-profit corporation miss payments on debt related to the acquisition, U of I is agreeing to guarantee up to $10 million annually to cover the payment,” the statement read. “However, cash modeling has been undertaken and University of Phoenix currently generates approximately $100 million of unrestricted cash flow annually.”

Faculty leaders at Idaho could not be reached for comment Wednesday afternoon, when the university held a campuswide town hall. But Lawrence said that Idaho officials had consulted the chair and vice chair of the Faculty Senate “earlier in the process” and that they had been “very supportive.”