President Green: U of Phoenix purchase is vital to U of I’s long-term viability

The $685 million plan to buy the University of Phoenix carries limited financial risk for the University of Idaho, President C. Scott Green said Thursday.

But standing pat carries a big risk, he said. If the U of I doesn’t expand — and tap into a growing population of nontraditional, online adult learners — the university will be left to compete in a shrinking market, for a limited number of college-bound 18- to 22-year-olds. A declining birth rate, dating back to the Great Recession, puts traditional colleges in peril.

“Frankly, in my opinion, not all institutions in this country will survive,” Green told Idaho Education News in an interview Thursday. “Any president who’s not taking this seriously is truly failing their institution.”

On May 17, the U of I abruptly announced its plan to acquire the University of Phoenix, sending shockwaves through the state’s education and political circles. The State Board of Education endorsed the deal a day later — bringing the U of I one step closer to acquiring a for-profit online giant with an enrollment of 85,000 students and a checkered history.

During the interview — available in full, in podcast format — Green addressed a number of recurring questions about the proposed acquisition, and touted the upside of the purchase.

Here are some key talking points, and some new details that came out of Thursday’s interview:

What’s in it for students? Green said there is little overlap between Phoenix’s online courses and the U of I’s programs — and little overlap with Online Idaho, the state’s nascent portal designed to allow remote students to tap into digital courses from all of the state’s colleges and universities. Phoenix will provide another pathway, especially for rural Idahoans and students pursuing in-demand careers. “Students throughout the state are going to be the huge beneficiaries of this. They’re going to have another choice.”

What’s in it for the U of I? Green again said the U of I would receive $10 million in annual revenues from Phoenix operations — before payments on the purchase. Initially, the U of I would probably have to use those profits to defray the costs of making the deal. In time, the U of I could be able to plow this new money into scholarships and new programs: “The faculty are coming up with new opportunities every day.”

The U of I’s financial risk. Meanwhile, the U of I would be on the hook for up to $10 million a year, if the nonprofit taking over Phoenix cannot make its payments. Green said that’s extremely unlikely — and would only happen if Phoenix essentially went out of business and burned through $60 million in debt reserves. The U of I could cover its payments from budget reserves. “I wouldn’t like it, but we can do it,” Green said. “We wouldn’t have to go to the Legislature to do it. And we wouldn’t have to ask the taxpayers to do it.”

The possible bond downgrade. The U of I would not bond for the Phoenix purchase — that would be done through the nonprofit, dubbed NewU. But during the State Board’s May 18 meeting, U of I officials said the purchase could still affect the university’s bond rating. This could drive up financing costs for future U of I projects, Green said, but only slightly, since the U of I would retain an “investment grade” bond rating.

Is it all constitutional? The Idaho Freedom Foundation, a libertarian-leaning lobbying group, says the financing plan is unconstitutional, since NewU has no authority to use the state’s bonding authority. Calling this claim a “red herring,” Green said the U of I looked into the mechanics of the plan early on. Attorneys from Hawley Troxell, a Boise law firm, gave the U of I the go-ahead.

The multimillion-dollar purchase price. Green has likened the U of I-Phoenix deal to other partnerships between traditional universities and for-profit partners, such as Purdue University’s acquisition of Kaplan University. But Purdue acquired Kaplan for $1; the U of I would essentially pay $350 million for Phoenix. But Green emphasized that the U of I would acquire all of Phoenix’s assets, and none of Phoenix’s revenues would have to go back to investors. “Ours is a clean break, we’re buying everything.”

Phoenix’s assets. The Phoenix purchase would provide the U of I access to a first-rate, user-friendly online education delivery system, Green said. And Phoenix’s course catalog already includes 560 classes recognized by the U of I. Green also said the U of I could also tap Phoenix’s systems for tracking students who are struggling in class, or taking classes that don’t fit their major.  “The University of Phoenix has some of the best persistence systems we’ve seen.”

Phoenix’s reputation. Green said it is “fair” to question Phoenix track record — which includes a $191 million settlement with the Federal Trade Commission over deceptive advertising. But Green also noted that Phoenix’s enrollment has increased by 4.7% over the past year. “I think that the decisions made in the past were poor business decisions. It doesn’t mean that they’ve got bad technology or bad programs.”

‘I think we’re being very responsive:’ U of I outlines purchase to lawmakers

On Thursday afternoon, Green said the Phoenix purchase will better serve rural, place-bound students and remake Idaho higher education — as lawmakers have wanted for years.

“I think we’re being very responsive to you,” Green said in a Zoom meeting with legislators.

It was unclear how many legislators were on the call. Only two lawmakers asked questions: Senate GOP caucus chairman Mark Harris of Soda Springs and House GOP caucus chairman Dustin Manwaring of Pocatello. U of I officials also fielded a battery of written questions, possibly from other legislators.

The questions covered a wide range of topics — from the details of the bonding arrangement to the State Board’s role in approving the Phoenix purchase.

Harris asked about the deal’s timing, from the standpoint of the for-profit seller. “Why is the University of Phoenix selling when the profitability is there?”

Green said a private equity fund owns Phoenix — and since the fund is closing, its managers are under a deadline to sell.

Manwaring asked if Phoenix would be nimble enough to quickly meet Idaho’s needs. U of I officials noted that Phoenix routinely starts up classes on a four- to six-week cycle, unlike the U of I, which operates on a semester calendar. To me, that’s a plus,” Provost Torrey Lawrence said of Phoenix’s calendar.

Lawmakers also heard from two State Board members, who explained their support of the move.

Board member Cally Roach said the Phoenix revenue stream will take some pressure off legislators, by providing another funding source for U of I. As the board reviewed the proposal, Roach said she grew more and more comfortable with the mechanics of the deal.

“I hope you will start to feel this way too,” Roach told lawmakers.

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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