University of Arizona debacle should serve as a warning for Idaho-Phoenix deal | Opinion

Four years after the University of Arizona bought Ashford University, a for-profit online university, that decision is not looking like such a good move.

The U.S. Department of Education said last week that it has started the process of asking Arizona to pay back as much as $72 million in loans for students of Ashford University, which the Department of Education says “cheated” its customers, according to a story by KPNX 12 News.

That’s on top of a $177 million budget deficit, in part, according to an Arizona Republic investigation, because Ashford’s parent company, Zovio, dissolved, leaving the University of Arizona with $250 million in expenses running the Global Campus operations.

Amid a scathing rebuke from Arizona Gov. Katie Hobbs over the debacle, Arizona Board of Regents Chair Fred DuVal resigned as chair last month, and Regents executive director John Arnold took a leave of absence.

So what lessons does the University of Arizona experience hold for the University of Idaho?

“When you’re buying a property with toxic waste involved, you can’t just buy it and say, ‘Well, that was the prior property owner’s problems, we’re a new owner,’” Robert Shireman, senior fellow at the Century Foundation think tank and former deputy undersecretary at the U.S. Department of Education in the Obama administration, told me in a phone interview.

“You’re taking on the entire institution, and it’s not just up to you whether you have that liability.”

University of Idaho President Scott Green told the Statesman in a video interview in December that there’s “more than enough” to cover student loan losses, pointing to $200 million in cash left on the books with a purchase.

But questions remain as to whether the University of Idaho — and the state of Idaho — would be insulated if the University of Phoenix couldn’t make bond payments. U of I officials and Idaho Gov. Brad Little believe their maximum risk exposure is an agreement to pay up to $10 million per year for five years if the University of Phoenix can’t meet its loan obligations.

Others — notably former Micron general counsel and former Idaho State Board of Education member Rod Lewis — have suggested that Idaho taxpayers would be on the hook if a lawsuit were filed if the bonds went into default.

That’s a real concern, because a bigger question, I believe, is whether the University of Phoenix could continue to make its finances pencil out as a nonprofit, education-centered model.

“A major lesson (from the Ashford situation) should be the extent to which the university views the purchase as a money-making opportunity as opposed to an educational operation,” Shireman said. “If they see it as a money-making opportunity, there is a large danger that they will end up falling into some of the same consumer-unfriendly practices that the University of Phoenix has been involved in in the past.”

Ashford University past

Like Phoenix, Ashford had a history of fraudulent sales practices that landed it in hot water with regulators. A judge in 2022 fined Ashford $22 million for luring students with false promises and illegal tactics. Both universities have been accused of misleading advertising campaigns, preying on military veterans and using aggressive recruiting tactics to make their bottom line.

Consider what happened to Ashford after it was purchased by the University of Arizona: Student enrollment dropped 30%, from 35,000 to 24,500. That would be the equivalent of the University of Phoenix going from 85,000 students down to fewer than 60,000.

Would the University of Phoenix, under the Four Three Education nonprofit umbrella, be able to maintain its $800 million of annual revenue and reported $140 million of net operating income without aggressive recruiting and misleading advertising campaigns?

“The for-profit approach has typically meant that in recruiting new students, they are taking a sales mentality rather than a student-advising mentality that is more typical and appropriate for a public and nonprofit institution,” Shireman said. “It is one of the really important and good aspects of a nonprofit that it is not as cutthroat and aggressive in its marketing to students.”

University purchase secrecy

The run-up to the University of Arizona’s purchase of Ashford should also provide lessons for the University of Idaho.

Public records obtained by the Arizona Republic showed that University of Arizona President Robert Robbins and top university officials were aware of Ashford’s downward enrollment trajectory, and poor graduation and retention rates, yet spent more time crafting a public relations campaign to obscure the deal’s risks to make the deal more palatable to faculty members, according to the article.

Like University of Idaho officials, University of Arizona officials signed nondisclosure agreements and conducted secret internal communications, using the code word “antelope” to refer to Ashford.

Shireman said there’s nothing wrong with requiring nondisclosure agreements in negotiating a deal, but the university could have — and should have — brought in other experts, even with a nondisclosure agreement.

“A smarter way to do it would have been for the university to have brought in … additional experts, even likely opponents, on an NDA basis to at least gain the benefit of their counsel and experience,” Shireman said. “Even on tough questions like, ‘How hard will the U.S. Department of Education push for repayment of liabilities from from past treatment of students?’”

Given the fact that the University of Idaho announced the Phoenix deal one day before a State Board of Education meeting at which, after just 90 minutes of a presentation, board members voted unanimously with little debate and few questions to buy the school, it’s clear there wasn’t a lot of healthy skepticism about the purchase.

The University of Idaho and State Board of Education’s secrecy is the subject of a lawsuit filed by the Idaho attorney general’s office — against its own client — claiming a violation of open meeting laws.

“Consumer protection concerns from the outside as well as legislative concerns about the impact on the state and on the reputation of the institution are legitimate concerns,” Shireman said. “And those concerns should have been brought up in that period of secrecy, but it appears they were not because the right people were not involved.”