Risks are too great in the University of Idaho-Phoenix deal. Time to pull the plug | Opinion

Pressure is mounting over the University of Idaho’s planned purchase of the University of Phoenix, and rightly so.

This week, Idaho Attorney General Raúl Labrador and attorneys with Givens Pursley, who were hired by the Legislature, submitted a memorandum to legislative leaders arguing that the university’s board does not have the authority to acquire or create other entities, as the State Board voted to do in creating Four Three Education, a nonprofit that would purchase the University of Phoenix.

Further, the Legislature’s attorney filed a legal opinion arguing that the deal is void and recommended court action.

All of these issues hinge on the question of whether the University of Idaho and the State Board of Education can buy the University of Phoenix.

But an equally important question is whether the University of Idaho and the State Board should buy the University of Phoenix.

With the clock ticking on a May 31 deadline to finalize the deal, we’re still not convinced that the deal should happen. There are still too many risks that have been unaddressed and too many questions about taxpayer liability that have not been adequately answered.

University of Idaho officials have maintained that the maximum downside risk is a promise of $10 million annual payment over a maximum of five years if U of I isn’t able to make loan repayments.

But that assertion remains in question and likely would be subject to legal dispute — a costly endeavor in itself — if bondholders come looking for their money.

Further, University of Idaho President Scott Green has maintained that the University of Phoenix’s healthy bottom line of $800 million in annual revenues and $150 million of net operating income would be “more than enough” to keep making payments.

But, as we’ve seen with the University of Arizona’s purchase of online for-profit Ashford University, converting from a for-profit to a nonprofit isn’t a glide path to success. Ashford lost nearly a third of its students, its parent operating company, Zovio, went under, and the University of Arizona is left holding a $177 million bag.

In addition, a judge in 2022 fined Ashford $22 million for luring students with false promises and illegal tactics, something that the University of Phoenix has in its past as well.

In the University of Idaho deal, still not discussed is the likelihood that the University of Phoenix — converting from a private, profit-driven business to a student-centered nonprofit — would see a decline in enrollment and finances. What happens then?

A slide presentation from May 2021 pitching the purchase of the University of Phoenix by Tuskegee University showed that the deal wasn’t likely to add revenue to either entity. To the contrary, each university was projected to add tens of millions of dollars in expenses to convert the University of Phoenix to improve student access and forgo tens of millions in revenues to reduce the cost of tuition.

Questions still remain about exposure to future liabilities from student loans that might be discharged over past deceptive practices by the University of Phoenix.

Green said $200 million in cash reserves will be left on the University of Phoenix books in the deal, but what other liabilities are there to tie up that cash?

We acknowledge that the purchase of the University of Phoenix offers tremendous potential benefits, including adding an established student pipeline in the face of future declining college enrollment.

But while the upsides have been expounded upon, the downsides haven’t been discussed nearly enough. State Board of Education members approved the deal one day after it was publicly announced — after a 90-minute presentation, with very few questions and no public testimony.

The State Board is an executive branch agency, but Idaho legislators are justifiably jittery about the financial implications of the deal.

The Idaho Senate has before it a House-passed resolution that demands legislative involvement and leaves open the possibility of a lawsuit.

We hope it doesn’t come to that, but it might be the only way to slow this freight train.

It would have been preferable if the State Board had done a better job of vetting the deal and addressing the risks from the beginning. But if the University of Idaho and board can’t address the risks now, they clearly won’t be able to handle those risks if they come to fruition.

At this point, it would be better to pull the plug on this whole deal while we can still get out.

The University of Idaho will be out the $12 million it’s already put into the deal, but that’s a whole heck of a lot better than being out $685 million.

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, newsroom editors Dana Oland and Jim Keyser and community members Mary Rohlfing and Patricia Nilsson.