University of Arkansas System board split on University of Phoenix deal

A billboard for the University of Phoenix (top) and a snow-covered sign for the University of Arkansas, Fayetteville are shown in these file photos. The billboard is shown in Chandler, Ariz., on Nov. 24, 2009, while the Arkansas sign is shown at the Fred W. Smith Football Center on the school's Fayetteville campus on Dec. 6, 2013. (Top, AP/Matt York; bottom, NWA Democrat-Gazette/David Gottschalk)

University of Arkansas System board of trustees members appeared split on a potential affiliation with the University of Phoenix during a special meeting Wednesday, and they plan to vote on a proposed agreement during a meeting Monday.

Several members expressed reservations about the deal, but multiple board members also spoke in favor of it, while one member asked for more time to consider it.

"This is the first day I've received a lot of important information, [and] on a deal this big, I need time to digest it," said trustee Steve Cox. "Let us consider this, [because] I hate to be rushed."

Trustee Ted Dickey said passing on such a deal at this time might be akin to Blockbuster declining to purchase Netflix when it had the opportunity a couple of decades ago.

"If we're not willing to disrupt our own business, someone else" will, Dickey said. An affiliation with Phoenix would help the UA System appeal to a new audience and create cash flow, the latter of which could address deferred maintenance needs and possibly avoid tuition increases.

"This is a sustainable model," Dickey said. "Raising tuition every year is a broken, non-sustainable model."

Trustee Jeremy Wilson said he agreed with Dickey.

"This is a conversation about growth," Wilson said. A healthy organism "has to grow over time," and this deal is a "well-thought-out, reasoned approach to allow our system as a whole to continue to grow."

Trustee Kelly Eichler values the $20 million annually such an affiliation would bring to the system.

"We are looking at a real funding issue coming up" as traditional, face-to-face enrollment declines, and "the state is not going to give us any more money," she said. "Online education is here to stay, and we're going to have to get into this realm."

Though Phoenix has made mistakes in the past, particularly with recruiting and marketing, new leadership has instilled a new culture and attitude, she added. An affiliation with Phoenix "seems like a lifeline to us."

That lackluster "reputation" Phoenix has to some is "hard to shake," however, said trustee Sheffield Nelson. "I think the best thing to do is stay clear of it."

It's "hard for me to understand why this is an outstanding deal for" the system, as it feels as though "we're losing focus on the state of Arkansas," said board chairman Morril Harriman. He'd prefer the UA System have control over Phoenix, but that wouldn't be the case.

Instead, Transformative Education Services (TES) Inc., an Arkansas nonprofit created to acquire Phoenix, would own Phoenix, said attorney Julie Miceli, managing partner at the Chicago office of Husch Blackwell. The UA System, "as a legal concept, does not oversee TES and doesn't control it."

Phoenix would be affiliated with the UA System, but a TES-run Phoenix would be "wholly independent," said Miceli, who has been deputy general counsel for higher education and federal student aid at the U.S. Department of Education and associate general counsel at Northwestern University. Should the UA System decide to move forward with this arrangement, an acquisition of Phoenix by TES could close by the end of this calendar year.

It's a "gut feeling, but something just doesn't seem right about this project to me," Harriman said. It may be like "trying to fit a square peg in a round hole."

Trustee Kevin Crass said he's conflicted about the deal and -- like Cox -- needs more time to study it.

"I am completely torn," Crass said. "I see good reasons to vote for and against it."

Like Harriman, he'd prefer it if the system controlled Phoenix, but he understands that's not possible both because the system doesn't have the capital for such an acquisition -- which would include assuming debt -- and because the state constitution prevents public institutions from using public money for private financing.

He also rebuked those who have attacked UA System President Donald Bobbitt for exploring such an affiliation with Phoenix.

"Those critical of [Bobbitt] are unfair, he said. "This is what he should be doing."

Phoenix reached out to the UA System roughly two years ago, starting this exploration process, said Bobbitt. For millions of Americans -- 300,000 in Arkansas -- with some college but no degree, the traditional college model "won't cut it, [so] you need a university specifically designed" for them, like Phoenix, he said.

There'd be several benefits to both parties, Bobbitt said. The UA System would receive $20 million annually that the board of trustees would control and acquire a national brand with "world-class course designers."

Phoenix also builds exceptional "student information and content management systems," Bobbit said. "We want the best -- state-of-the-art -- and if TES is able to offer that through Phoenix, we want first shot at it."

This would be a "mutually beneficial operation," said Michael Moore, the UA System's vice president for academic affairs. "We'd help them with [certain things] and vice versa."

For example, the UA System's Division of Agriculture could share food safety expertise, which Phoenix could then build a food safety certificate around, said trustee Ed Fryar. Or, Phoenix could partner with UA-Fort Smith's acclaimed drone program to give everyone, anywhere access to drone courses.

The University of Phoenix offers associate, bachelor's, master's and doctoral degrees and a variety of certificate programs, according to the university. The university has 10 locations in California and one each in Nevada, Texas and Hawaii, but is currently enrolling students only at its Phoenix headquarters, and courses are online.

In recent years, Phoenix has generated revenue increases without raising tuition for students, Moore said. "Face-to-face enrollment is declining -- there just aren't more face-to-face students out there" -- so being affiliated with Phoenix would be "a smart strategic move."

Phoenix has the ability to develop and market online degree programs quickly and cost-effectively, "which is not easy," said Matthew Waller, dean of the University of Arkansas, Fayetteville's Sam. M. Walton College of Business. The technology and processes Phoenix boasts to collect data on skills desired by employees and in-demand in the job market -- then incorporate those skills into courses -- is "very powerful and useful."

Phoenix boasts roughly 1,600 corporate partners and has "built good relationships with industry, [which is] valuable," Waller said. They excel at helping adult learners acquire abilities necessary for the labor market, and instructors have an average of 14 years of teaching experience -- and average nearly three decades of professional experience.

The UA System has experience with an online school transitioning from private to not-for-profit status with what is now the University of Arkansas Grantham, and "it's doing very well," Bobbitt said. Currently, only about 1,300 Arkansans take classes from the University of Phoenix, so they are not a competitor for the UA System's schools.

Grantham serves a high percentage of military and first responders, and it has some different programs -- engineering, for example -- from Phoenix, Bobbitt said. "We see a purpose and a need for both institutions."

The University of Phoenix lists total enrollment near 79,000 students, 81% of whom are employed while attending school, and 60% of whom are first-generation college students, but enrollment has been falling since peaking more than a decade ago.

The main reason Phoenix has lost enrollment since its early days is that there are "far more people playing in the online market," Moore said. "Phoenix quite literally built the market in online education," which is now "an extremely crowded marketplace."

In 2017, Apollo Group sold Phoenix to Apollo Global Management, an investment company, according to the Higher Education Inquirer.

The University of Phoenix, founded in 1976, agreed in December 2019 to a $191 million settlement with the Federal Trade Commission, which claimed the college had lured students with fraudulent claims about partnerships with major companies, according to The New York Times.

Due to the Federal Trade Commission action, the Department of Veterans Affairs threatened to cut off funding for Phoenix the following year, but ultimately declined to do so.

The ads Phoenix was maligned for were "not highly deceptive, and there was no intent to mislead," Moore said. Those errors won't be repeated, either, because of the new administration at Phoenix.

The University of Phoenix has been scrutinized for its outreach and service to veterans and use of GI Bill funds.

From 2013-2021, Phoenix received more GI Bill funding than any other higher learning institution, receiving $1.6 billion from the Veterans Affairs Department, according to USA Today. For-profit colleges like Phoenix have proved popular with veterans due to flexibility of classes and early adoption of online education.

A 2015 investigation by the nonprofit newsroom Reveal discovered Phoenix had sidestepped federal bans on recruiting on military bases and used military insignias in marketing materials without military approval. Subsequently, the Department of Defense briefly banned Phoenix from receiving tuition assistance funds.

Veterans Education Success, a nonpartisan organization with a mission to advance higher education success for veterans, service members, and military families, and to protect the integrity and promise of the GI Bill and other federal education programs, has publicly denounced Phoenix and urged the UA System not to affiliate with the college due to "evidence of unfair and deceptive practices by the University of Phoenix, potential liability for hundreds of millions of dollars in federal loans, and poor outcomes for students."

The faculty senate at UA-Fayetteville also cautioned against an affiliation with Phoenix in a letter, although Bobbitt said that letter mischaracterized the potential parameters of the deal and unfairly criticized Phoenix.

"The characterization of the proposed transaction mentioned several times in your letter is not factual," Bobbitt wrote in a response. "The UA System would not be making any investment in Phoenix. It is very important that everyone understands that no public or university funds would be involved in this project."

He also accused the UA-Fayetteville faculty senate of minimizing the financial benefits to the system of such an agreement.

While $20 million might seem minor to UA-Fayetteville, that university is the "best-funded in the state and has been largely buffeted by the stagnant growth of the in-state high-school-aged population by its large pipeline of out-of-state students," Bobbitt wrote. This is not the case for other campuses, and $20 million "could be game-changing for our other institutions."

The faculty senate also expressed qualms about Phoenix's graduation and retention rates, but Bobbitt noted those figures are "not appropriate for judging outcomes of an online university where students take one eight-week course at a time and proceed through their degree program at a pace that fits their demanding life circumstances." Because Phoenix primarily serves non-traditional students -- part-time students balancing academics with other life demands -- their metrics for success look different from those of traditional universities, and "the large majority" of Phoenix alumni are "very happy with their experience with the institution," he said.

Several Phoenix alumni wrote a letter to the UA System fully endorsing Phoenix, and the college has "righted" past wrongs under new administration, Bobbitt said. "False arguments" against Phoenix by some opposed to an affiliation with the UA System "are not supported by the facts," he said.

The best current example of the proposed affiliation between Phoenix and the UA System would be UMass Global, a nonprofit affiliate of the University of Massachusetts System, according to Moore. Formerly Brandman University, it separated from the Chapman University system in 2021 and formed a new affiliation with the University of Massachusetts.

In addition to UMass, Purdue University and the University of Arizona have each acquired -- partially or completely -- various online institutions in recent years without suffering reputational hits, Moore said. "I have zero reservations about the quality of a Phoenix education and what they do for their students."

C.C. "Cliff " Gibson III, who was chairman of the UA System board of trustees until his term on the board expired March 1, also was "concerned" about an affiliation with Phoenix and expressed those reservations in multiple emails to Bobbitt.

The "due diligence" on this potential affiliation not only by those with the UA System, but by Stephens, Inc., bankers and attorneys from Husch Blackwell has been "staggering," Bobbitt said. "I have great confidence" in the viability of this relationship, he said.

Phoenix provides significant cash flow and high returns on invested capital, said Marshall McKissack, leader of mergers and acquisitions at Stephens. This is "a very attractive financial model," he said.

The board scheduled a Zoom meeting for 1 p.m. Monday to vote on the proposed Phoenix affiliation.

"Time is of the essence," said Miceli.

"I've heard there are four other schools talking to Phoenix right now," Fryar said. "I really believe that."

Bobbitt would be within his authority to affiliate with Phoenix without board approval, according to board policy, but "I and others felt it important the board weigh in," he said. "This is a very viable" plan with an entity "that is extremely well managed," he said.