Northwest Arkansas Democrat-Gazette
UA looks at tie with for-profit Phoenix
Board chair calls deal problematic
An affiliation with the University of Phoenix would not only bring roughly $20 million in revenue annually to the University of Arkansas System, but also UA System schools could benefit from Phoenix’s advanced technology, innovative strategies for recruitment and retention of students, and extensive relationships with employers, UA System President Donald Bobbitt said last week.
He made the remarks during an interview Thursday in which he explained why he is interested in the UA System becoming affiliated with the nationally known University of Phoenix, should an agreement be reached. Bobbitt favors the potential deal, although several details are still being worked out. The outgoing chairman of the UA System board of trustees has concerns.
Michael Moore, the UA System’s vice president for academic affairs, said it’s become apparent in recent years that while there’s still a market for the on-campus experience for traditional students, there’s a growing need for online education for nontraditional students — those who may be seeking micro-credentials, certificates, or other degrees — but who have jobs and family obligations that prevent them from living on a campus.
Those students, Moore said, haven’t been served as well as the former group by colleges and universities. Phoenix’s degrees are particularly career-focused, and the school adroitly provides skilled workers for the modern workforce, he added.
More than 300,000 Arkansans started college but departed without a credential — roughly 10% of the state’s population — and online education is a way to reach not only them, but
also the millions across the U.S. who likewise have some college but no degree, Bobbitt said. Phoenix has “a national brand” — with more than 1 million alumni and more than 1,600 corporate partners — and their “goal is to get students jobs, [which] appeals to some students.”
As of 2021, 35% of Americans have at least a bachelor’s degree, but that’s the case for only 25% of Arkansans, which puts Arkansas ahead of only Mississippi and West Virginia, according to USA Facts, a not-for-profit, nonpartisan, civic initiative that analyzes government data.
The University of Phoenix, one of the nation’s largest for-profit colleges, would transition to nonprofit status through acquisition by Arkansas nonprofit Transformative Education Services Inc. if the proposed deal comes to fruition. TES Inc. registered as a nonprofit with the Arkansas secretary of state’s office in August and is based in Little Rock.
It is a “public benefit corporation” and all assets of TES “from whatever source derived shall be used exclusively for charitable educational purposes,” according to the filing. It “shall provide access to educational opportunities through teaching, research, outreach, and other supporting activities that enables students to develop knowledge and skills necessary to achieve their individual professional goals, and to provide leadership and service to their communities.”
The UA System has not used any public funds for this endeavor and would not in the future, said Nate Hinkel, director of communications for the UA System. Phoenix would only be “affiliated” with the UA System, not a member of the UA System — Phoenix would likely keep its name — and “operate through [the] nonprofit.”
An affiliation with Phoenix would bring national attention to the UA System, and the UA System could take advantage of Phoenix’s corporate partnerships to help graduates find jobs, Bobbitt said. “It’s a very exciting opportunity,” and the licensing agreement could add $ 20 million annually to the UA System, which “could do real good for UA System students and the system.”
“You can’t imagine what that [ money] would mean for our system,” Bobbitt added. For example, he said, salaries could rise for faculty and staff, endowed professorships could be created to attract and retain high-quality faculty, more scholarships for students could be created, and campuses could address deferred maintenance needs on infrastructure.
The University of Phoenix offers associate, bachelor’s, master’s and doctoral degrees and a variety of certificate programs, according to the university. The university has 10 locations in California and one each in Nevada, Texas and Hawaii, but is currently enrolling students only at its Phoenix headquarters, and courses are online.
TALKS ONGOING FOR MONTHS
The UA System has been in discussions with the University of Phoenix about a potential acquisition for 18 months, but that is “not unusual” for a deal of this magnitude involving hundreds of millions of dollars, Bobbitt said. No agreement is finalized, and doing so could take several more months, as there are still “some important issues we are working through, and we want to get it right.”
The University of Phoenix has discussed similar agreements with other entities beyond the UA System, but the UA System shares a similar vision of contemporary and future college education with the University of Phoenix, said Andrea Smiley, vice president of public relations for the University of Phoenix.
The UA System “recognizes that, as the marketplace changes, the education system must evolve to meet students where they are. We look forward to our continued conversation with the University of Arkansas System and what bringing University of Phoenix formally into the UA ecosystem could mean for our students, their students, and the future of higher education.”
The best current example of the proposed affiliation between Phoenix and the UA System would be UMass Global, a nonprofit affiliate of the University of Massachusetts System, Moore said Thursday. Formerly Brandman University, it separated from the Chapman University system in 2021 and formed a new affiliation with the University of Massachusetts.
“We’ve looked to what they’ve done,” Moore said. “It’s working very well for them, and [our possible deal] would be structured very similarly.”
The University of Phoenix lists total enrollment near 79,000 students, 81% of whom are employed while attending school, and 60% of whom are first-generation college students, but enrollment has been falling since peaking more than a decade ago.
“Since our founding nearly 50 years ago, University of Phoenix has been focused on serving working adult learners who are historically overlooked and underrepresented in higher education; this mission is even more important today as technology continues to rapidly change the way we approach our jobs and careers, and workers must, therefore, continually up-skill and re-skill to remain relevant in the workplace,” Smiley said.
“As we plan for the longterm future and longevity of our university, we are continuously exploring opportunities with others who share our commitment to adult learners seeking to enhance their careers and lives through accessible, affordable and career-relevant higher education, which has been our mission since our inception.”
For Phoenix, there are benefits to moving from for-profit to nonprofit status, including fewer restrictions under federal law, but doing so isn’t an attempt to “circumvent” rules and regulations, Moore said. They still need to be accredited, which is the “gold standard,” and Phoenix is, with all “indications they are doing well.”
In 2017, Apollo Group sold Phoenix to Apollo Global Management, an investment company, according to the Higher Education Inquirer.
CONCERNS ABOUT AFFILIATION
The University of Phoenix, founded in 1976, agreed in December 2019 to a $191 million settlement with the Federal Trade Commission, which claimed the college had lured students with fraudulent claims about partnerships with major companies, according to The New York Times.
C.C. “Cliff ” Gibson III, who remains chairman of the UA System board of trustees until March 1, is “concerned” about a possible affiliation with the University of Phoenix, he said Wednesday. Gibson, whose 10-year term is setting and will likely be replaced on the board by Gov. Sarah Huckabee Sanders in the next month, wrote an email to Bobbitt on Wednesday outlining his qualms, but that will “probably be the last thing I have to say about this.”
In that email, Gibson notes University of Phoenix has continued to be the subject of complaints since being acquired by Apollo Global Management.
The Federal Trade Commission has received 6,265 complaints against Phoenix over the past handful of years, “an astounding number, especially since most students don’t have a clue what the FTC is, much less how to contact and file a complaint with the FTC about how Phoenix mistreated them,” Gibson wrote.
As a private university, Phoenix “exists only on revenue from students,” so each student who drops out is not only an “ethical” problem, but a financial one, Bobbitt said Thursday. Consequently, “they have state-of-the-art retention strategies we could learn from, and they’ve made huge financial investments” in creating a blueprint for students to find gainful employment.
Phoenix runs “very efficiently, does a good job, and is in excellent financial shape,” he added. “We’ve studied this for 18 months, and I’m much more comfortable with my knowledge of Phoenix than someone who has only spent a little time studying it.”
Gibson is also worried about the UA System’s reputation in associating with Phoenix, because it “seems beyond reasonable dispute that the name Phoenix carries a high negative connotation among universities and just about anyone else in higher education.”
“I would submit that Phoenix’s national recognition is not the kind of recognition that most folks would want for their beloved University of Arkansas. In my mind, the name Phoenix would run off more folks than it would gather,” Gibson wrote. “I have to add that, although anecdotal, I have yet to find anyone” other than Bobbitt and “those in [his] circle supporting this Phoenix deal” who have “any respect for Phoenix and any degrees it hands out.”
Under prior management, Phoenix “had a different focus that was not necessarily congruent with a top-quality institution, but they’ve since made considerable investments in personnel and student supports to turn it around,” Bobbitt said. “We have no concerns, and we’re very confident with the way they’re doing business right now.”
Because Phoenix was a leader in the for-profit online education space, they were “unfairly labeled as a standard-bearer for the entire system,” and tarnished when some unscrupulous institutions in that space misled — or defrauded — students, Moore said. They’ve just been accredited for the maximum time of 10 years by the Higher Learning Commission, and if the Higher Learning Commission had concerns about Phoenix, “they wouldn’t have done that.”
The 10-year accreditation was a “thumbs-up” for Phoenix from the Higher Learning Commission, which also accredits all of the higher education institutions in Arkansas, Moore added. “I hope we can get across the final hurdles to the finish line” on this agreement, because “it’s exactly what we ought to be doing.”
The exact length of an agreement between Phoenix and the UA System has also yet to be finalized, but “for a deal like this, we’d likely be looking at 10 years, minimum, and 25 years wouldn’t be unreasonable,” Bobbitt said. The UMass Global deal functioning as a model for this proposed agreement is a 10-year deal with the possibility of renewals if both sides agree to them.
Gibson also wrote that he was “stunned” Bobbitt has not consulted any of the UA System’s chancellors about this potential deal.
“I cannot imagine how you could undertake the several-hundred-million-dollar Phoenix deal without at least talking to these highest leaders in the [UA] System and listening to their thoughts and concerns,” he wrote. They are “all highly accomplished educators who have been fully vetted and selected by both you and our board. I’m sure they would provide valuable input and insight into whether” this deal is something the UA System ought to do, “especially in light of the adverse impact a University of Arkansas-Phoenix entity would likely have on their online course offerings.”
Bobbitt said consulting chancellors was always part of his plan, but he wanted to have more details on a potential deal before doing so. He had a meeting scheduled in Little Rock on Feb. 2 to discuss the subject with all the chancellors, but that meeting was postponed because of a winter storm.
The meeting will be rescheduled, but he’s invited chancellors to share their thoughts with him and has offered them details on the potential deal, he said. “You can’t negotiate in a fish bowl, so we weren’t putting up billboards” about the discussions with Phoenix, but it was never “our intent to do this in secret.”
Gibson also said bringing Phoenix into the fold would be deleterious to the online efforts of current UA System institutions.
“You are creating an institution that will undoubtedly take away their shot at keeping their present online students and at attracting additional online students, [which] has the real potential to hurt our existing campuses,” he wrote. “For example, UA- Fayetteville presently has online education offering revenues in excess of $35 million per year,” while UA-Monticello — Gibson is from Monticello — has online education revenue of $8.6 million per year. “That’s big money in my book, particularly at [ the latter],” which is already contending with “dropping population and student numbers in its primary market area.”
Moore doesn’t view Phoenix in “competition” with the online programs of UA System institutions, he said. “We’ll be able to make our existing programs more competitive in the marketplace” with the expertise Phoenix can provide.
It would also be quixotic for UA System schools to attempt to truly “compete” with Phoenix and other online entities — such as Western Governors University — who are long established, Bobbitt wrote in an email to Gibson on Monday. “To try to compete against these well- established online brands now is simply not possible without a huge influx of funds. Perhaps you know of a source for that investment, but I do not.”
Bobbitt added in that email that “we have spoken with many representatives at the state and federal level [who] have asked excellent questions, and we have received nothing but encouragement” regarding a potential affiliation with Phoenix.
Phoenix also won’t cannibalize traditional students from UA System campuses, Bobbitt said Thursday. “Phoenix is already here,” and that hasn’t been the case so far, as Phoenix has only about 1,200 Arkansas students currently, so “that argument holds no water.”
Bobbitt and Moore also believe Phoenix can co-exist with UA-Grantham, the UA System’s exclusively online school.
Grantham serves a high percentage of military and first responders, and it has some different programs — engineering, for example — from Phoenix, Bobbitt said. “We see a purpose and a need for both institutions.”
NTEXT STEPS
Though current board policy allows the president of the UA System to make a deal such as this one without a vote of approval by the board, “I strongly urge you to seek authority from the” board before moving forward on a deal with Phoenix, Gibson wrote. He also requested that a due diligence study on the deal performed by Stephens Inc. be shared with the board of trustees.
Stephens Inc. would be paid up to $ 1.65 million — perhaps more, depending on the final value of the deal — for its work on the proposed purchase of Phoenix, according to the draft contract. The UA System’s contract with Stephens — which began in Sept of 2021 and concludes this Sept. 17, but could be terminated early or extended — is being financed with private funds.
“A deal of this magnitude is outside of our expertise, so we brought in experts, and I can’t say enough about the counseling Stephens Inc. has provided,” Bobbitt said. “I’m thrilled that an Arkansas firm” — based in Little Rock — “saw the value of this and has been with us since day one.”
Bobbitt said it was always his intent to bring any potential deal with Phoenix before the trustees, but he wanted to be able to provide a full picture so “they could understand all the facets, and I could hear their questions and answer them.”
However, news of this potential deal leaked out early because of “an unethical person,” Bobbitt said. That “breach of information” has forced Bobbitt to move up his timeline for communicating about the deal with trustees and chancellors.