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Idaho Board of Education approves purchase of University of Phoenix

May 18, 2023 Updated Thu., May 18, 2023 at 9:10 p.m.

The University of Idaho announced Wednesday that it intends to purchase University of Phoenix and transition the mostly online college into a nonprofit.  (Courtesy of University of Idaho)
The University of Idaho announced Wednesday that it intends to purchase University of Phoenix and transition the mostly online college into a nonprofit. (Courtesy of University of Idaho)

The Idaho State Board of Education voted on Thursday to approve the University of Idaho’s $550 million purchase of the for-profit University of Phoenix that would merge the state institution with a school built on offering online degrees.

Idaho President C. Scott Green and lawyers presented the deal, which has been part of detailed negotiations. Green acknowledged that it was made known neither to professors nor the public until it was announced via tweet on Wednesday.

“Just understand,” Green told regents before the vote, “we want what is best for the state of Idaho and the education of our students in Idaho. Everything we are doing is through that lens.”

As part of the transaction, the University of Phoenix would become a not-for-profit entity that would answer to the UI board of regents.

Green confirmed the universities will remain separate, and students from one will not be earning degrees from the other.

However, the transaction must be approved by accrediting bodies and regulators. If those approvals are obtained, the deal wouldn’t conclude until next year.

Green told the board that officials from the University of Phoenix approached Idaho about making a deal this past March, and a team of advisors began looking at whether the deal made sense.

“The University of Idaho differentiates itself by making bold moves, leading innovation and committing itself to high-value education,” Green said. “The higher education landscape is changing.

“The way we engage and support students is changing. As a land grant institution, it is imperative that we meet the mission that has shaped us for nearly 140 years as well as embrace new ways to learn and meet the needs of our students for the next 140 years.”

To complete the deal, the board of regents would create a new not-for-profit called NewU, that would essentially serve as the new owner of the University of Phoenix.

Plans call for retaining all of that schools administration and faculty and sharing the revenues generated from its 85,000 students, most of whom attend classes online.

Paying for change

Brian Foisy, the UI’s vice president for finance and administration, said the purchase price of $550 million will require the university to cover $685 million worth of municipal debt.

In addition to the purchase price, the university will have to set aside about $69 million in a reserve fund, create a liquidity fund of $26 million and cover the transaction costs of buying the University of Phoenix, which are estimated to run about $40 million.

What Idaho gets out of the deal is a guaranteed payment of $10 million a year from the University of Phoenix, which is separate from the costs associated with repaying the debt; and between 25-30% of the remaining free cash flows that Phoenix generates.

Instead of funneling its money to shareholders, a not-for-profit University of Phoenix would then retain between 70-75% of its free cash flow to pay its staff and enhance its programs, Foisy said.

Through modeling of potential revenues, Foisy estimated that Idaho would receive more than $153 million by fiscal year 2030; and Phoenix would receive between more than $320 million under the arrangement.

However, if things start to go south, Foisy said the University of Idaho would be there to help.

“If necessary, the university has represented a willingness to provide financial support to the new entity of up to $9.99 million per year that could support debt service or other payment obligations of Phoenix,” Foisy said.

Regent David Hill, of Boise, asked Green about the “reputational risk” surrounding student loans.

In 2019, the owners of University of Phoenix agreed to pay $191 million to the Federal Trade Commission for “deceptive advertisements” to lure students to the school based on relationships with large employers.

“Convince me that the potential future liabilities … won’t bleed over into your university and how that is managed,” Hill said.

Green said that would be covered by insurance.

“We’ve negotiated insurance that we believe can be placed that would be more than sufficient to cover anything that came through,” he said.

One of the regents noted that response to the news of the merger could be narrowed to concerns regarding Idaho taking on reputational risk because of University of Phoenix missteps, that faculty were not consulted and the public had no opportunity to comment about proposal.

Green said there is some reputational risk, but said the school is “prepared to deal with that.”

“We understand there were problems in the past and people were rightly upset with them for past behaviors,” Green said. “But it is our opinion, in dealing with them and by going through our due diligence, that they are on a very different path now.”

As for the Idaho faculty, Green said the school leaders were under a nondisclosure agreement as they negotiated with the University of Phoenix.

“We want our faculty to have input in pretty much everything we do. This one was harder because of the NDAs in place,” he said. “Often times if they do go public, people who have a political point of view, for or against, start lining up and it becomes a battle ground.

“I regret it, but there was not a lot we could have done differently. I just want our faculty to know that.”

The university on Wednesday first mentioned the proposed deal in a tweet that directed people to a webpage of frequently asked questions.

“The public input is a difficult one,” Green said responding to the board member. “But again, we have been very transparent.

“In fact, other than one local newspaper there, everyone’s really kind of taken a look at our frequently asked questions and … couldn’t believe the degree of transparency that we have out there,” he said. “We want feedback. We welcome it.”

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