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Daily Briefing: Are online for-profit colleges worth buying? [1]
['Rick Is A Senior Writer At']
Date: 2023-04-17
Good morning, and welcome to Monday, April 17. Today’s Briefing was written by Rick Seltzer, with contributions from Julia Piper. Write to me:
[email protected].
Are online for-profit colleges worth buying?
New details emerged about the University of Arkansas system’s controversial move toward acquiring the for-profit University of Phoenix. Here are a few, courtesy of an interview Arkansas Business conducted recently with Donald Bobbitt, the system’s president.
The payoff: Bobbitt thinks the system would net $20 million per year for unrestricted spending.
Why it matters: Bobbitt bemoaned falling state support for higher ed, suggesting the extra money could prevent tuition hikes and enable investment in campuses.
The intangibles: The president touted national exposure offered by the for-profit’s brand, suggesting marketing it as the “University of Phoenix, in affiliation with the University of Arkansas System.” And system leaders say they’d gain connections with employers.
Why it matters: It’s debatable how much the University of Phoenix’s brand and workplace connections are actually worth amid persistent concerns about its graduation rates and after it agreed to spend $191 million in 2019 to settle a lawsuit accusing it of marketing employer partnerships that didn’t exist.
The deal’s structure: Stifle any yawns because this is important. The structure under consideration looks like a leveraged buyout. A nonprofit subsidiary the university system created would acquire the University of Phoenix, using its assets and expected future cash flow to secure a loan.
Why it matters: This deal has a big price tag, reportedly upwards of $500 million. Minimizing risk — both financial and reputational — is a key consideration in acquisitions and partnerships, but paying off debt used to fund a deal can cut into potential returns.
The internal politics: Bobbitt wants board approval for the move, even though he says he doesn’t technically need it.
Why it matters: The president took heat for not formally telling chancellors and the system’s full board before reports of the potential deal showed up in the press a few months ago. And the proposed arrangement is controversial, with the University of Arkansas at Fayetteville Faculty Senate and veteran, student, and consumer groups opposing it.
The bigger picture: Colleges broadly face demographic pressures eating away at their pipelines of nontraditional students even as state support is expected to be constrained and enrollment at many noncompetitive institutions lags. For some major public universities, tapping the operations built out by for-profit colleges was an effort to leapfrog into big new pools — online education and nontraditional students.
The University of Phoenix would be one of the last major for-profit dominoes to fall after Purdue University announced in 2017 it was acquiring Kaplan University. But these deals have a mixed record. Purdue University Global struggled to grow out of the gates. The University of Arizona ended up scrapping a management agreement with Zovio, the company that sold it the for-profit Ashford University in order to form the University of Arizona Global Campus.
Even so, the University of Arkansas system is clearly invested in growing online. Since Bobbitt arrived in 2011, it’s started its own eVersity and acquired the for-profit online Grantham University. The way this system — located in a rural state with little funding to spare — pursues the deal tells us a lot about the state of the market and available options for many similarly situated colleges.
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[1] Url:
https://www.chronicle.com/newsletter/daily-briefing/2023-04-17
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