What the potential acquisition of University of Phoenix says about the for-profit sector
The University of Arkansas System confirmed this week that officials are in talks about potentially acquiring the University of Phoenix, making it the latest example of a public institution considering buying an online for-profit college to expand its reach.
A nonprofit entity affiliated with the system has been in discussions with University of Phoenix about potentially purchasing the institution and transforming it into an independent nonprofit, according to Nathan Hinkel, a system spokesperson. Under the structure being considered, there would be no ongoing relationship with the current owners of the university.
Hinkel said the system has been exploring ways to expand its online footprint and further its mission of providing an affordable education. The discussions follow the system’s move in 2021 to purchase Grantham University, then a for-profit, to build out its online operations.
“As the state’s leader in postsecondary education, we feel an obligation to consider any opportunity that has the potential to both improve educational attainment and secure new resources to support our campuses, divisions and units,” Hinkel said in an email.
A University of Phoenix spokesperson also confirmed the discussions. Neither the university nor the system said how much the potential acquisition would cost, but an anonymous source told the Arkansas Times, which first reported the news, that one estimate was between $500 million and $700 million.
The potential deal illuminates how much the for-profit sector has changed over the past decade as it’s dealt with a regulatory crackdown, sudden closures of several high-profile colleges and increasing competition from nonprofit colleges. The University of Phoenix has also faced numerous charges that it misled students.
These events have vastly reduced the institution’s profile. The University of Phoenix once dominated the online college market, with enrollment peaking at more than 470,000 students. Today, the college enrolls fewer than 100,000 students.
“University of Phoenix is the poster child for the for-profit higher education industry,” said Michael Horn, author of “Choosing College” and other books about education. “To see them potentially not just sell the university part of the business — but the entire enterprise — I think is quite a summary for the fortunes of for-profit higher ed.”
What led to the talks?
Some higher education experts are skeptical of the potential acquisition, raising doubts about whether system officials could reform a university that’s frequently been accused of deceiving students, using aggressive recruiting tactics, and violating federal and state law.
In one of the biggest cases, the University of Phoenix agreed to pay $191 million in 2019 to settle a complaint made by the Federal Trade Commission. It accused the university of enticing students to enroll through misleading ads promising them job opportunities with high-profile companies such as Twitter and Microsoft.
In recent years, University of Phoenix has been attempting to rebuild its reputation and streamline operations, according to higher education experts. That’s included plans to shutter all of but one of its physical campuses, in Phoenix.
“University of Phoenix is not the same university today that it was 10 years ago,” Andrea Smiley, the institution’s vice president for public relations, said in an email. “UOPX has redoubled its commitment to innovation in delivering career-relevant education to working adults and nontraditional students.”
While the university has touted recent gains in the share of first-time, full-time students enrolled in bachelor’s programs who return the next year, it’s seen graduation rates decline for certain groups of students. According to federal data, its eight-year graduation rate hovers between 27% and 51%.
Moreover, the University of Phoenix will likely face more scrutiny down the road. The Biden administration has pledged to crack down on for-profits and has tightened a slew of policies and regulations governing the sector — and more changes are looming.
“This is just a nasty, difficult business that is likely to get even more difficult as a for profit,” said Phil Hill, partner at ed tech consultancy MindWires. That may be pushing the firm that owns University of Phoenix to hand off the institution to someone else.
Acquiring the for-profit would give the University of Arkansas System access to the sophisticated infrastructure it has built over the years. But it also would come at a cost, said Barmak Nassirian, vice president for higher education policy at Veterans Education Success, an advocacy group.
“You’re also acquiring a lot of baggage, both in terms of administrative practices that used to be and should be abhorrent to a legitimate higher ed entity, such as over-the-top sales tactics and lesser admissions requirements and setting people up for obtaining a worthless degree,” Nassirian said.
Taking a page from other public playbooks?
The University of Arkansas System isn’t the only public institution that’s considered these types of deals.
In late 2020, the University of Arizona acquired Ashford University, an online for-profit, and rebranded it as University of Arizona Global Campus, or UAGC. The university initially set up a nonprofit entity to acquire the university and have it operate independently, but it has since said it is taking steps to combine its operations with UAGC.
Some University of Arizona faculty have resisted the acquisition since the beginning. Initially, they pointed to a lawsuit that accused Ashford of misleading students — a case that Ashford and its former owners lost after the deal was completed.
Faculty also balked at the transaction’s terms, which had Zovio, the former owners of Ashford, providing educational services such as marketing and recruitment in exchange for a share of the university’s revenue. UAGC ended up cutting ties with Zovio less than two years after the acquisition closed, with officials citing the desire to have more say over their own institution’s operations.
The UAGC deal mirrored Purdue University’s acquisition of Kaplan University in 2018. The public university bought the university for $1 but entered a long-term contract with the institution’s former owners. The university, now known as Purdue University Global, pays its former owner a share of its revenue in exchange for educational services.
These types of contracts have drawn concern from policymakers, who argue that they incentivize the former owners to use aggressive marketing tactics to boost institutions’ enrollment.
The Biden administration has also taken note, issuing regulations that say the U.S. Department of Education isn’t likely to allow a for-profit college to become a nonprofit if it has a revenue-sharing relationship or owes a debt to its former owners.
The University of Arkansas’ affiliated entity doesn’t appear to be considering that approach. But that also means that it probably won’t be able to strike a deal for $1.
“Presumably that means University of Arkansas, the nonprofit, would be paying a much deeper price upfront,” Horn said. “The financing for this has to look very different as well for that to be attractive for University of Phoenix’s owners.
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