Before the University of Idaho finalizes its purchase of the University of Phoenix, U of I still has a number of hoops that it must jump through, a process that the university said will take at least six months.
After securing the State Board of Education’s approval, U of I must also run the deal past the U.S. Department of Education and accreditors for both schools, according to the university. College accreditors are organizations that evaluate schools to ensure academic quality.
U of I declined to make anyone available for an interview, but in an emailed statement and responses to questions, a spokesperson said the university is focused on getting accreditor approval and anticipates the pre-closing process for the sale to be done in January, though it hasn’t set a closing date. U of I’s accreditor told the Idaho Statesman it hasn’t received anything in writing about the transaction.
U of I accreditor says it’s still in the dark about deal
Accreditation acts as a form of oversight to ensure an institution provides a good education to its students. Without accreditation, students at a school cannot receive federal financial aid, according to the U.S. Department of Education. Universities are assessed by accrediting agencies that set standards and periodically review schools. U of I has an evaluation set for spring 2025 and subsequent reviews in 2028 and 2029.
For a deal like this, accreditors may look at the impact on educational programs, infrastructure and finances, said Sonny Ramaswamy, president of the Northwest Commission on Colleges and Universities, which is the accreditor for U of I.
“We are actively working in collaboration with the University of Phoenix on the accreditation requirements of this transaction,” U of I spokesperson Jodi Walker said in an email to the Statesman. “That is the priority on deadlines and approvals.”
But the day after she sent that statement, Ramaswamy said accreditors hadn’t started the process, though they have had Zoom conversations with U of I’s provost and accreditation liaison officer. “We’re still waiting to see information in writing,” he told the Statesman in a July 14 email.
Walker said U of I had made “initial submissions” to its accreditor and expects that process to be completed in January or “possibly sooner.” Ramaswamy said that it would be difficult to predict a completion date.
Heather Berg, a spokesperson for the Higher Learning Commission, which accredits University of Phoenix, declined to comment on the status of the sale, but Walker said she anticipates the commission will review it at its November meeting.
The accreditor’s role is to make sure that the quality of the institution will remain the same, and that a school will continue to follow the same mission, said Mark DeFusco, a consultant for higher education deals and a former University of Phoenix director.
U of I plans to buy the University of Phoenix through a nonprofit, Four Three Education. DeFusco said he doesn’t think U of I’s accreditor will allow them to operate Phoenix through a new entity, because the separate organization could make it unclear who’s responsible if there’s a compliance issue.
U of I will need to get federal sign-off
The Internal Revenue Service still needs to sign off on the charitable, tax-exempt status of the nonprofit, Walker said.
In addition, the U.S. Department of Education will review the transaction after the closing to decide whether the University of Phoenix can continue to participate in federal financial aid programs, she said.
Bob Shireman, deputy under secretary of education under former President Barack Obama, told the Statesman the Department of Education would likely ask U of I or the Idaho State Department of Education to co-sign a program participation agreement. That’s a contract between a school and the federal government that lets them obtain federal financial aid for students.
A promise from the state or U of I to back the nonprofit would likely be enough to assure the federal government that it would be repaid if something went wrong, Shireman said.
If U of I officials aren’t willing to either promise to back the University of Phoenix or secure a letter of credit from a bank, they will have to operate the new entity without federal financial aid for two years, Shireman said.
Walker said there’s no plan for the state to co-sign the program participation agreement, but that it “remains to be determined” whether U of I will.
“We believe it is possible that the department will not require a letter of credit based on the affiliation between the University of Idaho and University of Phoenix through the sole member relationship,” meaning the U of I board is the only owner of Four Three Education, Walker said. “If a letter of credit is required, we anticipate that it will be in the name of Four Three Education, Inc. and treated as an expense of University of Phoenix operations.”
That could create additional complications, Shireman said. It would probably be more costly for a “brand new nonprofit with no track record” to obtain a letter of credit, he said.
The Department of Education will also want to make sure there isn’t “inappropriate” continued influence by the former for-profit owner, he said. “They are not supposed to have any financial interest in the institution,” Shireman added.
The federal process will take at least 90 days, he said, but could drag out for years. Deals tend to end in stalemate with the department rather than in outright denial, he said.
Walker said the department is already evaluating a pre-acquisition review application for the deal. That review generally determines whether the new owner of a school will have to provide a letter of credit if it can’t produce two years of audited financial statements, according to the Department of Education.
U.S. Department of Education spokesperson Jim Bradshaw declined to comment on this specific transaction.
Will the sale get approved?
Ricardo Azziz, a higher education mergers consultant who led the consolidation of two universities in Georgia in 2012, told the Statesman he thinks the deal will probably be approved. But for that to happen, it’s essential that U of I’s board remain supportive of the transaction, he said. When boards “waffle,” sales like this fall apart, he said.
Shireman said the Department of Education is likely eager for the ownership change to happen.
“Venture capital firms don’t have a great track record of running for-profit schools,” he said, referring to the University of Phoenix’s current ownership. “So I think they’d like to see University of Phoenix go in a different direction. They just need to make sure that it’s done according to the rules.”