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UA System Says Deal with University of Phoenix Could Bring $20M AnnuallyLock Icon

9 min read

University of Arkansas System President Donald Bobbitt said a proposed affiliation deal with the University of Phoenix would bring the system $20 million annually and nationwide exposure. Critics of the proposal said it’s not the kind of exposure the UA System needs.

“The choices are really very simple,” Bobbitt told Arkansas Business last week. “We either … find ways to generate resources and keep students in school using our resources, or we’re going to have to raise tuition. And I opted for the option to find resources.”

The benefits to the UA System, he said, include a licensing agreement that will result in $20 million annually that the UA System board could use for any purpose.  

That money would come at a time when colleges and universities are facing a drop in enrollment and state appropriations are flat while expenses are soaring. And deferred maintenance costs for the system, which includes seven universities and seven two-year colleges, are estimated at $1 billion. 

“It is a very, very significant amount of money,” Bobbitt said of the revenue stream. “The main beneficiaries of it, of course, are going to be the institutions, probably most likely in the rural areas, which have an even more difficult time raising capital for the needs of those campuses.” 

In August, the UA System created a nonprofit called Transformative Education Services Inc. TES would buy the for-profit University of Phoenix, possibly by the fourth quarter, Bobbitt said. No public money or UA System funds will be used to purchase the university, which offers online classes and caters to working adults seeking to earn degrees. 

The money for the transaction would come from a lender, who hasn’t been determined, Bobbitt said. The University of Phoenix’s assets and the cash it generates could be used to secure the loan for the purchase. No UA System assets would be put at risk, he said. 

The proposed deal was first reported by the Arkansas Times in January and quickly drew objections from faculty of the system’s flagship university and C.C. “Cliff” Gibson III, an attorney in Monticello who was the chairman of the UA System board at the time. His term ended March 1.

“The name Phoenix carries a high negative connotation among Universities and just about anybody else in higher education,” Gibson wrote in an email to Bobbitt on Feb. 8.  “I would submit that the 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.”

In December 2019, the University of Phoenix reached a record $191 million settlement with the Federal Trade Commission to end charges that it used deceptive advertising to attract prospective students. 

The Faculty Senate of the University of Arkansas at Fayetteville recently sent Bobbitt and the board an open letter saying it doesn’t support the deal. 

“We feel the reputation of Phoenix’s history will linger for years to come, and our campus is at the most risk for association with it,” the letter said. 

Bobbitt declined to comment on the letter. 

A coalition that includes veteran, student and consumer groups also sent Bobbitt and the board a letter in February and urged them to reject the transaction.

In addition to citing Phoenix’s reputation, the coalition fears that the University of Phoenix “faces significant potential liability” to the U.S. Department of Education after thousands of students asked that their federal student loans be discharged, according to the letter from the group, which includes the Center for American Progress, New America Higher Education Program and Veterans Education Success.

If the loans are forgiven, the Education Department could seek to recover the money from the school.
Bobbitt said the deal on the table ensures that no public money or UA System money will be at risk as a result of the transaction.

Bobbitt said the system’s board doesn’t have to vote to approve the affiliation, but he thinks there needs to be a vote. “It would be good for the board to go on record as supporting this, because it’s such a big deal and so high profile,” Bobbitt said. 

But if the board doesn’t approve it, Bobbitt said, he hasn’t decided whether he will go forward with the transaction. “I don’t have an answer I’m comfortable commenting on at this point,” he said. “But … my own personal opinion is it makes it difficult for me to go forward” with it.

The deal will also have to be approved by the U.S. Department of Education and the Higher Learning Commission, the accreditation organization for colleges. 

Difference in Old and New

Bobbitt said there’s a difference between the reputations of the old University of Phoenix and the one that was acquired by the Apollo Education Group Inc. of Phoenix in 2017. 

The University of Phoenix has just completed its 10-year reaccreditation affirmation from the Higher Learning Commission, “the same review process with the same rigor that is used to evaluate everything from the University of Arkansas [at] Fayetteville to our two-year schools,” Bobbitt said. “And it passed. And so I think people need to get over the past and take an honest look at what’s going on right now with the institution.”

He said the new owners have done “a tremendous job” and downsized the university. “And they’re now poised to grow, but they’re going to do so in a very measured and structured way to avoid some of the pitfalls that have plagued them in the past,” he said.

A spokeswoman for the University of Phoenix said in an email that its leadership’s focus was, and continues to be, on modest growth, innovation in instruction, and student and alumni support. It has about 75,000 students and more than 1 million alumni. 

“Since our founding, University of Phoenix has been, and continues to be, deeply committed to successfully serving working adult learners who have been historically overlooked and underrepresented in higher education,” wrote spokeswoman Andrea Smiley. “We are heartened that the University of Arkansas System shares a similar vision and recognizes that as careers and the economic marketplace change, so must the education system evolve in order to meet adult learners where they are.”

About two years ago, a group representing the University of Phoenix “approached us and asked us if we were interested in looking at this university in more detail,” Bobbitt said. 

And he was.

Expanding the UA System’s online offerings was part of Bobbitt’s pitch when he was hired in 2011. 

In 2015, the University of Arkansas System eVersity, the state’s first online-only university, began. The goal was to reach the more than 300,000 Arkansans who started college but never graduated.

In 2021, the UA System acquired the for-profit online Grantham University of  Lenexa, Kansas. Grantham was renamed University of Arkansas-Grantham, and joined with eVersity. The arrangement with the University of Phoenix wouldn’t affect UA Grantham, Bobbitt said. 

In August 2021, the UA System hired Stephens Inc., the Little Rock financial services firm, to provide merger and acquisition advice on the deal with the University of Phoenix. A UA System spokesman said a due diligence report by Stephens, which might reflect details of negotiations, would be exempt under the competitive advantage exemption in the Arkansas Freedom of Information Act. 

Because of the various state laws and policies that the UA System needs to follow, “we looked at a large number of potential structures,” Bobbitt said. “We always felt that  whatever structure we decided upon, it has to allow for the transfer of expertise and information.

“We decided upon a separate not-for-profit” that would hold the physical and intellectual assets of the University of Phoenix, Bobbitt said. 

The cost of the transaction, which the Arkansas Times estimated was at least $500 million, would be borne by TES. Bobbitt declined to reveal the transaction cost.

The number of TES board members hasn’t been determined. But the UA System would appoint a minority of members, Bobbitt said. 

Bobbitt said he was planning on sharing the news with the system’s chancellors, but then the Arkansas Times broke the news about the proposed deal. 

Gibson, the former chairman, criticized Bobbitt for not informing the entire board and chancellors about the potential transaction earlier. Gibson said he had heard about the proposal in “bits and pieces in hallway conversations, never in a meeting. We had never been provided with any documents of any kind. 

“And I was concerned about that,” he said. “I thought it was, you know, a deal —  particularly given what appears to be the magnitude of the deal — that we needed to have a formal presentation to us.” 

Bobbitt said there was a “well-developed, very comprehensive communications plan” that was going to be rolled out. But that was rendered useless by the leak of the news. 

“That meant that within a couple hour period, we had to scramble, and contact members of the board of trustees that the information was going to become public and also contact elected officials,” he said. 

Bobbitt said he’s received support for the move. “The rigor and career-relevant instruction we receive from top-notch faculty demand recognition,” a group of veterans and alumni of the University of Phoenix said in a March 28 letter to the UA System board.

“We see in this debate a renewed smear campaign with lies about the University of Phoenix accreditation and academic quality.” 

Spreading the Word 

Bobbitt said the licensing agreement will help spread the word about the UA System. 

The University of Arkansas “has a great reputation within the borders of the state, but it’s not known like the University of Phoenix across the nation,” he said. “The University of Phoenix is a national brand.” 

The licensing agreement might include having the tagline “University of Phoenix, in affiliation with the University of Arkansas System” included in Phoenix’s advertising campaigns. But there won’t be any licensing trademarks or logos, such as the Arkansas Razorbacks.

The UA System also will gain access to the University of Phoenix’s technology tools that help identify students who might be struggling in class, said Michael Moore, vice president for academic affairs at the UA System.

“So we would leapfrog our competition … at our brick-and-mortar institutions by having access to the state-of-the-art tools to identify at-risk learners, which we think will be tremendous help eventually to improving graduation retention rates across the entire system,” Moore said. 

The UA System also would be able to tap into the University of Phoenix’s employer networks.  

“That offers … some real opportunities for us to expand the reach of our brand, with these corporate partners, which we don’t currently have right now,” Moore said. 

But a key benefit will be the much-needed revenue source for the UA System, Bobbitt said.

The state’s appropriation for the UA System “has been a decreasing proportion of the total cost of education for some time,” Bobbitt said. “And I don’t see that changing.”

For the fiscal year that ended June 30, the UA System reported an eye-popping operating loss of $812.5 million. The operating loss doesn’t include revenue from sources such as state appropriations, grants or gifts. With that additional revenue, the UA System’s bottom line number was a positive $99.9 million.

For the fiscal year that ended June 30, 2021, it had an operating loss of $680.4 million and a $222.9 million increase in its net position. 

The revenue from the licensing agreement would allow the board “for the first time really to have resources to be able to enhance our institutions and enhance the student experience,” Bobbitt said. “And that has never happened before.”

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