The University of Idaho is proposing to acquire the University of Phoenix for $550 million. (Photo ... [+]
The University of Idaho wants to acquire the University of Phoenix and is offering to pay $550 million for the private, for-profit university.
The proposal, which is scheduled to be considered at a special May 18 meeting of the Idaho State Board of Education, which would need to give its approval, comes less than a month after a similar bid by the University of Arkansas (UA) to take over the University of Phoenix was narrowly rejected by UA’s board.
According to the University of Idaho’s website, which posted a lengthy series of questions and answers about the proposed deal, the University of Idaho would create a new nonprofit corporation that would issue bonds to pay the $550 million for the University of Phoenix’s assets, including its substantial digital education platform and its remaining leases for physical locations.
Ownership of the University of Phoenix, in turn, would contribute about $200 million in cash, providing “adequate working capital” to operate the non-profit University of Phoenix going forward. The entire transaction is expected to be completed by early 2024.
Initially, the University of Phoenix would operate as a separate 501(c)(3) organization affiliated with the University of Idaho. The plan calls for a few of the University of Phoenix’s campuses to remain open at the start, but eventually they would all move to fully online delivery.
In addition, the University of Phoenix’s leadership and staff would stay in place to run the university, and the Phoenix campus, which houses the administrative offices of the university and offers space for the in-person components of some degree programs, would remain open.
The University of Idaho explained what it saw as the benefits of the deal this way on its website: “U of I executive leadership has met with University of Phoenix leadership. Our programs are complementary and our goals for serving students are similar. We share a mutual desire to reach first-generation and underserved students. U of I has 52% first-generation students. University of Phoenix has 80%.”
The statement continued, “our student populations are different – U of I focuses primarily on traditional, residential students and University of Phoenix focuses primarily on adult learners who are working. U of I excels at delivering courses in person and University of Phoenix excels at delivering courses online. Together, we can meet the needs of all learners and complement each other.”
Begun in 1976, the University of Phoenix’s peak enrollment was almost 470,000 students in the early 201os, making it the largest university in the U.S at the time and for years the most influential institution in the for-profit higher education sector. Its bread and butter has been to offer online education to nontraditional students, although over the years it has also operated physical campuses in several U.S. cities.
In recent years, however, it has suffered a series of regulatory and legal setbacks that have caused its enrollment to plunge to about 80,000 students and its reputation to suffer significantly in the process. Those losses mirror the downward slide of the for-profit sector overall during the past decade.
In 2019, the institution settled a Federal Trade Commission lawsuit over deceptive advertising totaling $191 million. As part of that settlement, the University of Phoenix and its owner, the Apollo Education Group, paid back $50 million in cash to former students, and cancelled $141 million in debts owed to the school.
As part of the financing, the University of Idaho website indicated that “should the not-for-profit corporation miss payments on debt related to the acquisition, U of I is agreeing to guarantee up to $10 million annually to cover the payment. However, cash modeling has been undertaken and University of Phoenix currently generates approximately $100 million of unrestricted cash flow annually.”
The University of Idaho projected that it will receive $10 million annually in supplemental education funding as part of the deal, but expects “that amount will grow over time.”
As to governance of the University of Phoenix under the new arrangement, the University of Idaho through its Board of Regents would “be the sole member of the new not-for-profit corporation that will operate University of Phoenix after the transaction is consummated. The not-for-profit corporation will be governed by a fiduciary board of trustees. The U of I Board of Regents will appoint the trustees consistent with accreditor expectations regarding an independent board”.
In addition to needing final approval from the Idaho State Board of Education, the deal will also need the blessing of the University of Idaho’s accreditor, the Northwest Commission on Colleges and Universities, and the University of Phoenix’s accreditor, the Higher Learning Commission.
