The State Board of Education has endorsed the University of Idaho’s $550 million plan to purchase the University of Phoenix, a for-profit, online behemoth serving some 85,000 students.
Voting unanimously, the State Board endorsed a resolution allowing the U of I to set up a nonprofit to take over the University of Phoenix’s operations, dubbed NewU Inc. The resolution also gives the go-ahead on a financing plan for the purchase, which the U of I hopes to complete by early 2024.
Thursday’s State Board vote represents an early milestone in a dizzying, complicated and costly process — one that came to light barely 24 hours earlier.
NewU would finance the purchase through $685 million in bonds — a figure roughly equivalent to next year’s budget for Idaho’s entire higher education system. The University of Phoenix, meanwhile, has pledged to transfer $200 million to NewU, giving the nonprofit an infusion of cash, and effectively knocking down the $550 million purchase price.
Taxpayers would not be on the hook to bankroll the bonds. Still, the purchase carries some risk, and potential reward, for the U of I.
The university says it will guarantee up to $10 million a year to backstop the purchase, if NewU is unable to make its annual payments. But the U of I also says the deal could bring in $10 million in initial “supplemental education funding” for the university, an amount that the university expects to see grow over time. By the 2029-30 budget year, the total payments to the U of I could total $170 million, university CFO Brian Foisy told the State Board.
‘The higher education landscape is changing’
Thursday’s 90-minute State Board meeting focused largely on the details of the deal — the governance, the finances, and the potential risk.
But U of I officials also said the purchase provides the unique potential for partnership. While the U of I and the University of Phoenix both serve a high percentage of first-generation students, the U of I is largely a residential university serving 18- to 22-year-old students. The University of Phoenix, meanwhile, primarily serves older, nontraditional learners — a growing cohort outside the U of I’s niche.
“The higher education landscape is changing,” U of I President C. Scott Green said.
Green acknowledged the “reputational risk” of partnering with a school with a checkered past, and one that has operated as a for-profit for nearly a half century. But he said the University of Phoenix’s new management team wants to focus on students, and the nonprofit status will help do that. “They’re on a very different path now.”
State Board members also seemed to view the partnership as a way of charting a new path for higher education in Idaho. And a way to build on the University of Phoenix’s Idaho enrollment, which Green pegged at about 600.
State Board President Linda Clark — who co-chaired a 2017 higher education task force formed by then-Gov. Butch Otter — noted that the state has talked for years about pushing higher education off campuses and into rural Idaho. “This allows us to move in quantum terms toward that goal, with a very well-established and refined platform.”
Board members Bill Gilbert and Kurt Liebich also said the time was right to make a move — with Liebich pointing to a declining birth rate and Idaho’s stagnant college go-on rates.
“We’re going to face an enrollment cliff. … all across the country,” Liebich said. “I think we’ve got to be bold and innovative.”
A fast-moving process goes public, and remains on a fast track
The U of I has been moving rapidly to position for the purchase. But until Thursday’s State Board meeting, all of the activity had taken place behind the scenes.
The U of I said it was first approached by the University of Phoenix in March. University and State Board members have discussed the transaction in three closed-door meetings since March, board staff said in a memo released Wednesday. The most recent closed-door executive session was held Monday.
It was only on Wednesday that the news of a U of I-University of Phoenix partnership went public, when the State Board issued an agenda announcing its Thursday meeting. News of the possible purchase traveled quickly. And on Thursday, Liebich said he had fielded complaints about a lack of input from U of I faculty and the public.
In a “frequently asked questions” webpage, posted Wednesday, the university said the University of Phoenix insisted on secrecy.
“Because of the sensitive nature of such a transaction, a very limited number of members of U of I leadership, supported by outside advisors who specialize in the nuances of such acquisitions, worked on the transaction pursuant to a seller-required non-disclosure agreement,” the university said.
On that same webpage, the U of I also said it was operating on a tight deadline.
A linchpin to closing the deal is getting signoff from the two universities’ accrediting bodies, including The Higher Learning Commission, which oversees the University of Phoenix. But in order to get a spot on the commission’s November meeting agenda, the U of I and the University of Phoenix must submit a joint application to the commission by Friday.
Thursday’s vote gives the universities the go-ahead to apply to The Higher Learning Commission.
Thursday’s State Board meeting marked the first public discussion of a U of I-University of Phoenix partnership. It was not a public hearing, and the board took no comments.
After attending the meeting in silence, Boise Democratic Rep. John Gannon criticized the process.
“After a review, maybe it’s the right way to go and there won’t be a problem,” Gannon said in a letter to State Board members. “However, the secrecy surrounding the deal and the ‘take it or leave it’ demands give me legitimate cause for concern as a legislator.”
‘This transaction is about more than money’
Elsewhere on its FAQ page, the U of I sought to allay other public concerns Wednesday:
- The university downplayed the chances that it would need to provide up to $10 million a year to help the nonprofit make its payments. “Cash modeling has been undertaken and University of Phoenix currently generates approximately $100 million of unrestricted cash flow annually.”
- The U of I also framed the purchase as a potential moneymaker, providing the public university a new funding stream. “This transaction is about more than revenue, but the revenue U of I does receive may be reinvested in strategic initiatives.”
- The U of I conceded that the University of Phoenix’s reputation was “tarnished” by meteoric growth in the 2000s, when enrollment surged to 470,000 students. With a current enrollment of 85,000, the U of I says, the University of Phoenix has “refocused and redoubled its efforts on returning to its founding mission of quality education for adult learners.” (The U of I memo did not mention the University of Phoenix’s $191 million settlement with the Federal Trade Commission, reached in 2019 after the agency accused the school of deceptive advertising.)
- The U of I also downplayed the impact on daily campus operations. The U of I’s online courses will remain intact, and the two universities will provide separate degree paths. The U of I, meanwhile, says it will continue to “invest” in its goal of becoming the state’s first Carnegie Classification-recognized “R1” research institution.
In a memo, prepared ahead of Thursday’s State Board meeting, board staff said the benefits of the purchase outweigh the potential financial risk.
“The acquisition would provide UI and the state of Idaho access to a turnkey platform for delivery of online education at scale,” staff wrote. “It would help address the need for access to postsecondary education in the rural and remote areas of Idaho. Given demographic trends, it will diversify UI’s enrollment and revenue portfolio.”
Other partnerships — and other negotiations
The potential partnership is not unprecedented.
Several other public universities have acquired online partners, the U of I noted Wednesday. And on Thursday, Green cited one such partnership, the pairing of digital for-profit Kaplan University and Purdue University.
“I don’t think Kaplan’s diminished the reputation of Purdue,” Green said Thursday. “I believe that will be the same for the University of Idaho.”
But the U of I was evidently not the University of Phoenix’s first choice.
The University of Phoenix and the University of Arkansas were discussing a partnership in January, the Arkansas Times reported. In April, a divided University of Arkansas board of trustees rejected the partnership.