Feds write off $37 million in Phoenix student loans. Will U of I end up on the hook?

The Biden administration is writing off $37 million of University of Phoenix student loans — and it’s unclear whether that move would leave the University of Idaho on the hook.

U of I and State Board of Education officials downplayed Wednesday’s news, and said it doesn’t change U of I’s plans to purchase Phoenix.

“These allegations do not reflect (the) University of Phoenix we know today,” U of I spokeswoman Jodi Walker said Wednesday. “We value the student focus and vision University of Phoenix has today and stand by our commitment to affiliate.”

The writeoffs — known more officially as borrower defense discharges — will affect 1,200 students who attended Phoenix between Sept. 21, 2012 and Dec. 31, 2014. And the decision stems from an unsavory chapter in the for-profit online university’s history: a $191 million settlement with the Federal Trade Commission, which accused Phoenix of deceptive advertising.

The writeoffs stem partly from the FTC’s 2019 investigation.

“A national ad campaign from Phoenix misled prospective students by falsely representing that its partnerships with thousands of corporations, including Fortune 500 companies, would benefit students by, for example, giving them hiring preferences at those companies,” the U.S. Department of Education said in a Wednesday news release. “In fact, Phoenix’s corporate partnerships provided no such benefits to students.”

The next steps — and the possible impacts on the U of I — are uncertain.

In October, the U.S. Department of Education will begin contacting affected borrowers, letting them know their loan balances have been zeroed out, and telling them to expect refunds on any loan payments they did make.

“The department also intends to initiate a recoupment proceeding against Phoenix to seek repayment of the liabilities associated with these approved claims at a later date,” the department said Wednesday.

But if U of I and Phoenix officials have their way, the $685 million Phoenix sale could be a done deal by early next year. The move would turn over Phoenix to Four Three Education, a nonprofit affiliated with the U of I, which would assume ownership of Phoenix.

Since announcing the proposed purchase in May, U of I and State Board officials have touted the assets Four Three would acquire — including an online education apparatus built over a half century. But as Wednesday’s news illustrates, Four Three also stands to acquire Phoenix’s liabilities.

Phoenix and U of I officials have acknowledged Four Three could be liable for loan writeoffs. Phoenix has pegged the exposure at $1.5 million a year, while U of I has said the number could hit $5 million to $7 million, or more.

Meanwhile, the federal government appears to be stepping up its efforts to write off student loans connected to for-profit schools. In August, the feds wrote off $72 million in Ashford University student loans — a move that could affect Ashford’s public higher ed partner, the University of Arizona.

In a statement Wednesday, State Board President Linda Clark did not address the issue of financial liability, and suggested Phoenix’s problems were behind them.

“University of Idaho President Scott Green and his team have gone to great lengths to ensure due diligence throughout this transaction including evaluating potential reputational issues associated with the University of Phoenix’s past practices,” she said. “Those practices are indeed in the past, and I am confident in the vision President Green has for this affiliation moving forward.”

Saying Phoenix remains committed to partnering with the U of I, spokeswoman Andrea Smiley said Phoenix officials “adamantly disagree” with the Education Department’s latest accusations.

“While the university is not against relief for borrowers who have valid claims, we intend to vigorously challenge each frivolous allegation and suspicious claim through every available legal avenue,” she said.


Kevin Richert

Kevin Richert

Senior reporter and blogger Kevin Richert specializes in education politics and education policy. He has more than 30 years of experience in Idaho journalism. He is a frequent guest on "Idaho Reports" on Idaho Public Television and "Idaho Matters" on Boise State Public Radio. Follow Kevin on Twitter: @KevinRichert. He can be reached at [email protected]

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