Over the last decade, students have left for-profit colleges in droves, driven away by the industry’s reputation for poor quality, fraud and crushing debt. By contrast, enrollment in four-year public universities has increased as students gravitate toward lower prices and trusted brands. What they may not know is that the colleges they’re running from and those they’re running to are increasingly one and the same.
Take the University of Arizona, a 135-year-old public institution with a strong reputation for academic research. Last week, it announced plans to acquire a for-profit online college called Ashford University.
Administrators at Arizona said the deal would advance the university’s land-grant mission to serve adult students, with a bold step toward a technology-driven future. It would also, they said, yield new revenue in a time when the coronavirus pandemic has severely strained university budgets.
But the details of the transaction reveal something more complicated. It is less an acquisition than a long-term partnership.
The current owner of Ashford University is a publicly traded corporation called Zovio. Until its rebranding last year, Zovio was known as Bridgepoint Education. While the company recently acquired a few small start-up firms, Ashford is Zovio’s only major business. They are essentially one and the same.
Two weeks ago, the market valued Zovio (ZVO on the Nasdaq) at about $120 million. The University of Arizona could have paid Zovio’s shareholders that amount and bought Ashford outright. But that’s not what happened.
Instead of making Ashford part of the University of Arizona proper, university officials set up a separate nonprofit organization called the University of Arizona Global Campus. Legally, nonprofits are required to be independently managed by a board of trustees. But the University of Arizona will appoint the initial members of the board, as well as the first president of the University of Arizona Global Campus. Essentially, the university will control the nonprofit.
The nonprofit will take over the academic assets of Ashford, in exchange for $1. Because Ashford is an online college, those assets consist mainly of the intellectual property underlying its degree programs and relationships with several thousand part-time instructors. Tuition revenue will flow in to cover the University of Arizona Global Campus’s academic costs, like instructor salaries. Zovio will also guarantee additional annual payments of $25 million for five years and $10 million for the next 10. It is even giving the new nonprofit the first year and a half up front, in cash: $37.5 million.
That’s right: Zovio is paying the University of Arizona tens of millions of dollars to buy the academic assets of the only really valuable thing Zovio owns. Why? Because of what comes next.
Zovio is entering into a 15-year contract with the University of Arizona Global Campus to provide recruiting, marketing, information technology, instructional design and other services. In exchange, once the University of Arizona Global Campus has covered its academic costs and received its guaranteed annual payments of $25 million or $10 million, Zovio will be reimbursed its costs for recruiting, marketing and other services. And then, it will get an additional payment of 19.5 percent of tuition revenues.
How much money could that be? In 2019, Zovio brought in $418 million in revenue, the large majority of which came from federally financed student grants and loans. It spent $171 million on marketing, recruiting and advertising, not an unusual amount in the highly competitive world of online higher education. That amount in addition to 19.5 percent of revenue equals $253 million.
In other words, it’s very possible that the majority of all tuition revenue paid by students to attend the University of Arizona Global Campus will go to a private corporation that no longer has any obligation to pay or manage professors. This may be why the stock market reacted favorably to the news. Zovio’s share price increased over 40 percent during the week after the deal was announced.
The contract also solves Zovio’s biggest problem: a bad reputation.
In 2017, the California attorney general sued Zovio, then named Bridgepoint Education, accusing Ashford University of employing “salespeople working in toxic boiler-room conditions” who “preyed on veterans and people of modest means” and then “used illegal debt collection practices when students struggled to pay their bills.”
In 2016, the Consumer Financial Protection Bureau fined Bridgepoint $8 million and ordered it to discharge $23.5 million in student loans, citing deceptive practices. Other investigations of Bridgepoint have involved multiple state attorneys general, the U.S. Department of Education, and the Securities and Exchange Commission.
Bridgepoint itself was a pioneer in blurring the distinction between profit and nonprofit. In 2005, the company purchased a struggling nonprofit college called the Franciscan University of the Prairies from a small order of Iowa nuns. Bridgepoint renamed it Ashford University and used its accreditation to start a huge for-profit online college out of an office building in San Diego. The Iowa campus was permanently closed in 2016.
If replacing Ashford’s tainted brand with the University of Arizona’s logo helps increase enrollment, the university also stands to benefit. Because the University of Arizona Global Campus is technically a separate nonprofit organization, it won’t have to comply with University of Arizona policies on hiring and paying faculty. Currently, about 75 percent of the University of Arizona’s roughly 3,200 professors are full time, most tenured or on the tenure track. Ashford, by contrast, employs about 100 full-time professors and administrators, as well as 2,590 part-time faculty.
The part-timers earn less and are easier to hire and fire. Compared with tenured professors, they lack latitude to speak freely — for instance, to criticize their employers. But if University of Arizona professors want to learn more about this arrangement, they’re out of luck. The University of Arizona Global Campus’s status as a separate nonprofit organization means it does not have to comply with public-records requests for information about things like who, exactly, gives them money or the terms of any contracts they enter into. Nor will it have to pay corporate taxes.
Additional profits that accrue after Zovio is paid will stay with the University of Arizona Global Campus, above and beyond the guaranteed $25 million. It can then funnel that money back to the University of Arizona proper, through a licensing agreement in which the independent nonprofit that the University of Arizona controls will pay the University of Arizona millions of dollars for use of the name “University of Arizona.” (Ashford notes that the new entity is distinct and that students will be given degrees from the University of Arizona Global Campus, but also promises that leaders will seek “collaborative opportunities” with the better known university.)
The Department of Education will have to approve the deal. Officials there might be expected to give the arrangement scrutiny after giving the go-ahead to the acquisition of another troubled for-profit college called the Education Management Corporation, only to see it collapse in scandal and bankruptcy. A former executive at Bridgepoint Education, Robert Eitel, is a senior aide to Education Secretary Betsy DeVos.
In 2017, Purdue entered into a merger with for-profit Kaplan University similar to the one the University of Arizona and Zovio are proposing now. Moreover, hundreds of public and private nonprofit colleges — including Harvard, Yale, Georgetown and N.Y.U. — have struck deals with private companies to provide marketing, recruitment and technology services for university-branded online programs, in exchange for a cut of revenues as high as 70 percent.
This deliberate, complex blurring of entities makes it harder for students to know what they’re getting into when they enroll in an online college. And students who think they’re enrolling in trusted public universities may encounter an arrangement that obscures the lines between public and private interests.
Kevin Carey directs the education policy program at New America. You can follow him on Twitter at @kevincarey1.
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