Idaho legislators spent two hours Friday questioning University of Idaho officials about the university’s plans to form a new nonprofit organization to acquire the for-profit University of Phoenix for $550 million.
The Idaho State Board of Education voted unanimously to approve the deal on May 18, which caught many legislators and members of the public off guard because the deal had only come to light publicly 24 hours earlier, Idaho Education News reported.
The Idaho Legislature’s Joint Finance-Appropriations Committee met in an open, public meeting Friday at the Idaho State Capitol in Boise to allow legislators on the committee to seek additional information about the deal.
During Friday’s meeting, University of Idaho President C. Scott Green discussed the legal structure of how the two entities would operate moving forward, including transforming University of Phoenix into a not-for-profit and transferring $10 million annually in expected surpluses generated from the University of Phoenix to the University of Idaho. Green also shared a one-page spreadsheet with financial metrics and projections with legislators.
Green called the deal a bold and innovative step into the future of digital education that will allow the university to enroll a wider variety of nontraditional adult students.
“I truly believe this affiliation with the University of Phoenix is a catalyst for greater success in higher education in our state,” Green said Friday.
Idaho legislators question university president on financial risks of acquisition
Several legislators had questions about the financial risks involved with the deal and concerns about nondisclosure agreements signed during the negotiations. Other legislators had questions about University of Phoenix’s prior business practices and public reputation. In 2019, for instance, the University of Phoenix agreed to pay $191 million to settle a complaint from the Federal Trade Commission that alleged the University of Phoenix engaged in deceptive marketing practices to recruit students, NPR reported.
On Friday, Rep. Wendy Horman, an Idaho Falls Republican who serves as the co-chair of JFAC, told Green that nondisclosure agreements included in the deal raised some red flags for her because they prevent legislators and the public from understanding the financial risks of the deal.
“In a nutshell, this is the University of Idaho proposing to acquire an entire multi-state university system with something of little bit of a troubled history,” Horman told Green.
“What I have yet to appreciate is these strict nondisclosure agreements with anyone who seems to have this knowledge but is forbidden from disclosing, and so that raises some red flags for me, frankly,” Horman added. “If it is such a great deal, you would think people would be anxious to share the proof. … Without those financials, it is a big ask for me to trust that the downward trend in value won’t continue, candidly.”
University’s nondisclosure agreements on deal are still binding, Green says
Green told legislators the deal has not closed, and the nondisclosure agreements are still in place and binding in order to protect competitive trade secrets. The next steps for moving forward to close the deal include seeking approval from the University of Idaho and University of Phoenix’ accrediting organizations and then entering the bond market to reduce financing. The State Board of Education has previously announced that a new nonprofit organization will borrow $685 million to finance the deal to acquire University of Phoenix. The nonprofit, which is called Idaho Education Initiatives, Inc., will acquire the University of Phoenix’s assets and liabilities and then continue to operate the University of Phoenix under the University of Phoenix name.
“I fully recognize the way this transaction was conducted was not ideal,” Green told legislators at one point Friday.
However Green said financial and legal experts have vetted the deal closely, and Idaho taxpayers will not be on the hook for any payments.
As traditional enrollment dips, University of Phoenix deal could be financial lifeline, UI president says
Green told legislators that the deal is necessary because the university needs to change its business and educational models before running off an “enrollment cliff” with traditional students.
Green estimated that the entire higher education system could see enrollment decreases of more than 15% from 2025 to 2035. One strategy to offset that decline is to expand on the number of nontraditional adult learners that are being served by the university, he said.
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“One thing we will learn from the University of Phoenix is how best to serve online students, adult students and non degree-seeking students,” Green said.
Green said it made more sense to acquire the University of Phoenix rather than build a digital education system from the ground up.
Green told legislators that after the deal is closed, the University of Idaho will not own the University of Phoenix and the two will be separate, but affiliated entities.
“Saying that there is no risk, we have never said that,” Green told legislators.
JFAC co-chairman Sen. C. Scott Grow, R-Eagle, told reporters that he felt that Friday’s meeting was productive and helpful, but he still has unanswered questions and concerns about the deal.
“I still have serious concerns about the nondisclosure agreement,” Grow said. “I felt that, at least, legislative leadership should have been involved with that, if not the co-chairs of JFAC. I mean we are the appropriating body for all the universities. … We appropriate moneys for the University of Idaho.”
“We felt that we should have been involved earlier,” Grow added. ”They told us when it was kind of a done deal, when they’ve signed it and that’s one reason we are jumping into it now because this is about as soon as we could get a hearing together.”
Grow told the Idaho Capital Sun that he first found out about the deal on the day before the State Board of Education voted to approve the plan on May 18.
“The State Board (of Education) should consider having public hearings so that the public can be involved in sharing their feelings about this thing, and not just a few folks who are in on the nondisclosure agreement,” Green said.