U. of Arizona Bought a For-Profit U. for $1? Actually, the For-Profit...

Higher Education

U. of Arizona Bought a For-Profit U. for $1? Actually, the For-Profit Paid Millions to Be Acquired.

By Jeffrey R. Young     Aug 6, 2020

U. of Arizona Bought a For-Profit U. for $1? Actually, the For-Profit Paid Millions to Be Acquired.

The University of Arizona announced this week that it plans to buy the for-profit Ashford University for $1. Well, it’s sort of a sale. Except that Ashford’s parent company will end up paying millions to Arizona to make it happen, leading New America’s Kevin Carey, the group’s director of education policy programs, to argue in a widely shared Tweet that “it’s not really a purchase at all.”

So we spent the week trying to figure out how the arrangement works.

First of all, this is a big deal. In one sweep of a pen, a new non-profit institution will be created, called the University of Arizona Global Campus, bringing with it 35,000 online students who will suddenly be under a University of Arizona banner. That will make the University of Arizona a player in a market that is far bigger than just traditional-age students willing to live on a campus in the sun belt.

Second, as odd as it is for a public university to buy a for-profit one, it is not unprecedented. In 2017, Purdue University bought Kaplan University, also for $1. Kaplan University suddenly changed its name to Purdue University Global, and Kaplan, Inc. became a software-and-services company that provided key infrastructure and marketing to Purdue Global. So the result was that a for-profit university suddenly became a nonprofit, but one that was locked into a long-term contract with Kaplan and shares tuition revenue.

The thing is, though, that Purdue’s deal hasn’t led to the rush of new students that was hoped. In fact, it’s been more of a money pit. As consultant Phil Hill notes, “Purdue Global spent more than $132 million on marketing and student recruitment alone in fiscal year 2019 while losing $43 million, in its efforts to stop the Kaplan-inherited enrollment decline.”

Also importantly, many current professors at the University of Arizona think this deal is a terrible idea. Six professors from the university’s Eller College of Management wrote a public letter to university leaders arguing they had just bought a “lemon,” and that the affiliation with Ashford (now the University of Arizona Global Campus) will drag down the reputation of a flagship research university.

The professors cited longstanding complaints against how Ashford University has operated in recent years. They note ongoing lawsuits charging that the for-profit university has been misleading students about its admissions costs and leaving them buried in debt. They reference other bad news about Ashford that a simple web search pulls up. (One article we found includes an NBC News investigation that alleges Ashford used high-pressure and misleading marketing tactics with veterans and other potential students.)

In conclusion, the professors said the project would be a “catastrophic mistake for the University of Arizona.”

The university has fired back in a statement, saying those professors are not fully briefed on the arrangements and that “their letter does not reflect the reality of the deal.”

So what is the reality?

To try to sort that out, EdSurge talked with Brent White, the University of Arizona administrator who is leading the transition to this Global Campus.

He agrees that the arrangement is similar to the one Purdue and Kaplan did. The new University of Arizona Global Campus is committing to a 15-year deal to share 19.5 percent of the revenue from the campus with Zovio, the company that owned Ashford. Zovio has rebranded itself as a software-and-services company, and will continue to run many services for Arizona’s new Global Campus.

But White argues that the University of Arizona has learned from Purdue’s experience, and that there are key differences in its financial arrangements. “We structured this so that a residual amount is guaranteed to Global Campus before Zovio would get any fee—or get reimbursement for its costs,” said Brent. In other words, no money goes to Zovio unless the new campus can pay its bills first.

“Everything for Zovio is at risk because we put our priority into making sure Global Campus has operating income to deliver” its courses, he added.

Meanwhile, Zovio will also pay Global Campus $37.5 million—“millions” of which will go back to the University of Arizona, says White—for what is effectively an affiliation and trademark licensing agreement.

Will this money help save faculty positions that are now at risk because of financial challenges of the COVID pandemic? “I wouldn’t characterize it in this regard,” said White. Though he added: “It certainly could be helpful.”

And will the University of Arizona now be on the hook for the lawsuits against Ashford as it becomes the Global Campus?

No, says White, because technically the university is not buying Ashford. Instead, it is buying its assets—it just turns out that means most everything, like curriculum and its professors and gets its students. And it’s not the University of Arizona buying those assets, but the nonprofit University of Arizona Global Campus, which is a separate legal entity. That means Zovio is the one liable for anything that happened back when it was operating at Ashford University, he said.

The professors criticizing the deal pointed out, though, that Arizona’s new Global Campus will be responsible for any new lawsuits. So what will the university do to address complaints about things like aggressive marketing that its previous owner has been known for?

“We will operate the university according to the values of a public land-grant university,” said White. “And that, of course, includes ethical recurring practices and management of the university.”

He pointed to a recent report from Ashford University’s accreditor as proof that Ashford’s practices already met industry best practices. “Part of its accreditation review examined the recruiting practice at Ashford,” he said. “All calls are monitored and recorded by a third party. They reviewed a large random sample of those calls and found ... honest and clear communication and didn’t find problems.”

Entering a Crowded Market

Demographic changes mean that the number of traditional college-aged students is declining in the U.S., which is why many colleges see online education as the future. White highlighted a growing audience for online education all around the world.

“By 2040 there will be 800 million people in the world of college age, but there is nowhere near the capacity to serve those students,” he said. “And most of those students will be in south or west Africa. We can’t build enough universities to serve these students, so it has to be online.”

Sean Gallagher, founder and executive director of Northeastern University’s Center for the Future of Higher Education and Talent Strategy, told EdSurge it might be an uphill battle for Arizona’s new Global Campus. “The bet here is that the University of Arizona brand and quality assurance will attract more students and with better outcomes. But the online market is becoming hyper-competitive, and we already have a case study in this with Purdue and Kaplan, so growth is not a sure thing,” he argued.

In fact, Ashford has seen enrollment declines in recent years.

Arizona has been ground zero for for-profit universities, being the birthplace of the University of Phoenix, which reached a peak of more than 470,000 students in 2010 by pioneering online education to a mass audience.

“For-profit universities—many of them publicly traded companies—had a first-mover advantage but have been losing market share for a decade,” said Gallagher. University of Phoenix, for instance, now serves about 100,000 students.

“Standalone online universities without a campus today have only 10 percent of the online degree market,” he added. “Their time has passed, and the market long ago swung to favor traditional, campus-based institutions’ online offerings—and the opportunity for edtech companies to support the offering. This novel transaction and partnership, which going forward is about a non-profit university working with a for-profit technology and services provider, is just another example in that direction.”

Zovio, which used to be called Bridgepoint Education until a name change in 2019, has been trying to turn Ashford into a nonprofit, or sell it, for about two years, said Hill, the consultant, in an interview. It is traded on the NASDAQ stock exchange, and its shares rose on news of the deal.

Guilbert Hentschke, editor of the book “For-Profit Colleges and Universities: Their Markets, Regulation, Performance, and Place in Higher Education,” said Arizona’s decision to subsume a for-profit online university’s operations is part of a larger trend in higher education.

Traditionally, winning in higher education has been equated with being elite—which meant serving small and exclusive sets of students. But the bet by folks at U of Arizona, and at others like Arizona State University that now serves 30,000 students online, is that the market leaders will be those that serve the largest numbers (even if that education is a bit more mediocre than gold plated).

“It’s a mental shift of what constitutes getting ahead,” Hentschke told EdSurge. While the Harvards of the world sell access to a small exclusive tribe, he said, proponents of online education believe that “to be part of a bigger gang is better, all things being equal, than being part of a smaller gang.”

Getting Students Across the Finish Line

One challenge with serving a broader population of students, however, is getting students across the finish line to a degree.

That’s something that many for-profit students have been lousy at, including Ashford University, where the six-year graduation rate is about 9 percent.

Does White worry that completion is so low at the university it is bringing under the University of Arizona umbrella?

Ashford, and now the Global Campus, aims to serve nontraditional students who may be left out by traditional higher education. “The graduation rate for working adults who go back to school is not high anywhere in the country—I believe it’s at 11 percent,” he said. “Working adults are often fitting in university along with living their lives and taking care of their children. It’s important to contextualize it.” He added that well-respected nonprofit providers have similar challenges, noting that the University of Maryland’s Global Campus has about an 8 percent six-year graduation rate.

The 2019 accreditation report on Ashford University by the Western Association of Schools and Colleges noted that graduation rates at Ashford have been declining, and called that trend “worrisome, even though these decreases are at a lower rate than peer institutions.”

That report is an interesting read. Skeptics of for-profit colleges often paint them as villainous players trying to extract as much profit from students as possible. The report, though, paints the picture of college leaders in a hurry to try as many new high-tech ways to help students as they can to keep students enrolled and help them succeed. In fact, one warning in the report is to make sure that they don’t try too many new ideas at once, causing “initiative fatigue” and put the institution “at risk of trying to do too much at once. ”

The accreditors had plenty of positive things to say about the college’s programs. Yet, that grad rate lingered.

One of the report’s conclusions: “Despite the current, ongoing efforts and the amount of energy invested in these initiatives [to improve graduation rates,] Ashford has yet to discover—in its own words—the ‘secret sauce’ or effective approaches to enhance student accomplishment.”

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