Analysis: The U of I’s Phoenix purchase is a federal case — and a complicated one
The University of Idaho-University of Phoenix alliance didn’t suddenly become a federal case this week.
It’s been one all along.
Three out-of-state U.S. senators wrote U of I President C. Scott Green Monday, urging him to walk away from a Phoenix purchase, and their stinging letter sent an important message. For-profit schools in general — and Phoenix in particular — have piled up years of baggage with the feds. That baggage is part of what the U of I buys, if the $685 million Phoenix purchase goes through.
If that wasn’t already clear, Monday’s letter from Democratic Sens. Richard Durbin of Illinois, Elizabeth Warren of Massachusetts and Richard Blumenthal of Connecticut wiped out all doubt.
“Given Phoenix’s long record of poor student outcomes, deception of veterans, and entanglements in federal investigations and enforcement actions, we urge you to reconsider the implications of acquiring Phoenix, which could cause great harm to students and taxpayers not only in Idaho but also across the country,” they wrote in the first paragraph of a three-page letter, one that minced no words the rest of the way.
Durbin, the Senate’s majority whip, has been a vocal critic of Phoenix for more than a decade. In 2010 — in the aftermath of the nation’s mortgage crisis — he said the flow of federal loans to poor-performing for-profit schools represented another subprime fiasco in the making. In 2015, he pushed the Defense Department to put Phoenix on probation, over marketing strategies aimed at veterans. In the wake of Phoenix’s $191 million settlement with the Federal Trade Commission in 2019, he joined other lawmakers in urging the Department of Veterans Affairs “to protect student veterans.” And for the past decade, Durbin has sent an annual open letter to Illinois educators, urging them to sound the alarm about the pitfalls of for-profit universities.
So, no, Durbin is no newbie to this debate. If anything, it’s surprising it took him almost four months to weigh in on the prospective Phoenix sale.
Monday’s letter revisits some chronic criticisms of for-profit schools: runaway student debt, and marketing efforts aimed at veterans.
Here are two important issues the letter raises:
Loan writeoffs. The senators say the U of I could be on the hook for millions of dollars of student loans, if the U.S. Department of Education writes off the bad debts. They point to another public institution that acquired a for-profit school: the University of Arizona, which could now be liable for up to $72 million. “UI similarly could face Phoenix’s potential liability for discharged federal loans, including thousands of pending borrower defense claims.”
In a written response to the senators Wednesday, U of I President C. Scott Green didn’t address Arizona, and said Phoenix is “well-prepared for any potential contingent liabilities.” But even at that, this is one of the risks of the acquisition — and Phoenix and the U of I have pegged the potential exposure at anywhere from $1.5 million a year to $7 million, or more.
Targeting veterans. For years, for-profit schools have aggressively recruited veterans, tapping into a reliable revenue stream from the GI Bill. From 2013 to 2021, Phoenix collected $1.6 billion of GI bill revenues, topping any university in the nation, USA Today reported in March. In their letter, the senators say a sale and move to nonprofit status would allow Phoenix to dodge a federal law, requiring for-profit schools to collect no more than 90% of their revenue from Uncle Sam. “How would UI ensure that veterans aren’t targeted through predatory recruiting?”
Even as a nonprofit, Phoenix would have to adhere to the so-called federal 90/10 funding rule for some “period of time,” Green said in his response Wednesday. Saying a new management team has instilled “a strong compliance culture,” Green said he believes Phoenix has no intention of trying to evade the law or allow “improper recruiting practices.”
Federal loans — and a potential U.S. Department of Education debt writeoff.
The GI Bill — and the flow of this federal financial student aid.
These sound a bit like federal issues.
Which makes the response from Idaho’s two Republican senators sound, at best, simplistic. Sen. Mike Crapo deferred to state leaders and the U of I on the Phoenix decision. Sen. Jim Risch said likewise, throwing in a little parochial snark for good measure.
“The senators from Massachusetts, Connecticut, and Illinois have no connection or interest in this,” said Risch. “As a result, they should respect Idaho’s ability to make this determination in the best interest of our state.”
Crapo and Risch have a point. This is ultimately going to be an Idaho decision.
But the debate isn’t confined to Idaho, and the implications stretch well beyond the state line. If Risch doesn’t get that, then Green clearly does.
No, Green doesn’t need to win over Durbin and his allies to get the Phoenix deal through, and that’s good news for Green. And no, he probably won’t change the senators’ minds with his response — even a detailed five-page letter, turned around within a 48-hour timespan.
Green’s letter instead seems to be an acknowledgement that the U of I still has to win over a lot of skeptics, on campus and in the Idaho Statehouse. It’s also a recognition of reality: a Phoenix acquisition would entangle U of I in a host of gnarly federal education issues.
Supporters of the Phoenix purchase say the deal would thrust U of I into a national education spotlight. But as we saw this week, that spotlight comes with scrutiny, and skepticism.
Kevin Richert writes a weekly analysis on education policy and education politics. Look for his stories each Thursday.