University of Idaho intends to purchase University of Phoenix and transition it to nonprofit

The University of Idaho announced Wednesday that it intends to purchase the University of Phoenix as part of a $550 million deal that would keep both institutions separate and not roll that school’s mostly online 85,000 students into the system based in Moscow.

As part of the transaction, the Arizona-based University of Phoenix would convert from a for-profit institution to a not-for-profit school that will retain its administration, faculty and name.

The deal is not expected to allow students to attain degrees from both institutions, said John Woods, the provost and chief academic officer at the University of Phoenix.

“At least the initial idea is that we continue to do what we do quite well,” Woods said, “and Idaho can benefit from a 50-year-old institution that focuses on serving working adults.”

In turn, Idaho will potentially tap into a new revenue stream as enrollments of high school graduates are expected to continue to decline, he said.

Revenue generated by serving adult learners could benefit UI, Woods said.

“There are things we do particularly well that we can teach Idaho,” Woods said. “Just as they can teach us.”

Idaho officials announced the deal in a tweet that said the two universities “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.”

Idaho President C. Scott Green did not respond Wednesday to a request for comment. The Idaho State Board of Education is holding a special board meeting Thursday morning to discuss the acquisition.

UI spokeswoman Jodi Walker responded Wednesday afternoon that school officials were traveling to attend a graduation in Idaho Falls and would not be available until after the Thursday meeting.

According to Woods, the biggest benefit from the deal appears to come from new revenue streams.

In information posted by UI online, University of Idaho’s Board of Regents will become the “sole member of the new not-for-profit corporation that will operate University of Phoenix” after the deal is potentially completed by 2024.

If institutional and external regulators agree to the merger, Woods said that would mean that money generated from enrollment from the University of Phoenix’s students could then be spent more on their own programs rather than going to a for-profit ownership group.

The agreement also guarantees at least $10 million of revenue a year flowing from the University of Phoenix to the Idaho Board of Regents, which can then spend that money on programs benefiting Idaho students, he said.

“I think the road to becoming a nonprofit allows more funds to be directed toward students and academic mission,” Woods said. “And we are now affiliated with a 125-year-old state university that has been innovative, as well.”

The merger was announced four years after the owners of University of Phoenix agreed to pay $191 million to settle claims made by the Federal Trade Commission that it used “deceptive advertisements falsely touting their relationships and job opportunities with companies such as AT&T, Yahoo!, Microsoft, Twitter, and The American Red Cross.”

As part of that settlement, University of Phoenix’s parent company, Apollo Education Group, agreed to pay $50 million in cash to former students and cancel $141 million in debts owed by students to the school.

“The monetary judgment is the highest in an FTC case involving a for-profit school,” according to the commission’s website.

Responding to questions about why the university would purchase a school affiliated with that ruling, school officials wrote on their website that they took that FTC settlement into consideration.

“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,” the statement reads. “The potential financial risks have been factored into the transaction structure and terms.”

Woods, the provost, said the FTC settlement had to do with the ownership group’s marketing efforts and not its academics.

“Settling has given some folks, I would say, something to talk about because it was a significant amount of money,” Woods said. “I don’t really think that the settlement affected the institution from a quality situation.”

He noted that the owners made the settlement with federal regulators without admitting fault.

“It allows us to put it aside and continue to focus on our mission, as opposed to diverting our attention by fighting for a long time” in the courts, he said.

On its website, Idaho school officials noted that the Board of Regents will not use tax revenue as part of the deal.

“The purchase will be financed through non-taxable and taxable bonds issued by the non-for-profit entity,” the statement said. “This money is separate from any U of I budgets or funding lines.”

Rising Phoenix

The late John Sperling, a Cambridge-educated economist, professor and entrepreneur, founded the University of Phoenix in 1976 after realizing that working parents had few avenues to earn an education, Woods said.

The school, located a few blocks away from Arizona State University in Tempe, became an online pioneer, and its growth reflected that.

At one point, the school had more than 100 campuses and boasted an enrollment of 470,000 students.

“As one of the first online universities, there really wasn’t much competition,” Woods said. “And for starters, the institution offered a lot of associate degrees.”

Enrollment since then crashed over the years as school leaders focused on returning to Sperling’s initial target, which is providing a platform for working adults to further their education while working.

Woods said the school’s enrollment, which is about 85,000, has inched higher the past two years.

He also noted that working adults represent the largest growing potential for new students, which Idaho can tap as a resource.

He said most studies indicate a declining number of high school students entering college for the next decade, something they refer to as the “enrollment cliff.”

“It’s a significant variable that all institutions are talking about,” Woods said. “That forces institutions to think about diversification. Many, many working adults have no college, and with the dynamic changes we are seeing in the economy, they will need some.”

As part of the agreement, the University of Phoenix will retain its campus in Tempe, but plans are less certain for its eight campuses in California, and one each in Hawaii, Nevada and Texas.

“A few of University of Phoenix’s campuses remain open but are expected to migrate to a fully online modality,” according to the Idaho website.

Woods noted that his school in January underwent a comprehensive reaccreditation process and the Higher Learning Commission, which will have to sign off on Idaho’s acquisition, approved the school for another 10-year term.

“It was a real statement to the quality of the institution and strength of the institution from that last visit from the evaluators,” Woods said.