U.S. battle with for-profit colleges flares over sale of University of Phoenix

The U.S. Department of Education slapped a set of tough conditions on a $1.1 billion private equity bid for the company that owns the University of Phoenix, the nation’s largest school, after years of trying to rein in the for-profit college industry.

The university’s owner, Apollo Education Group, won preliminary government approval Wednesday for a group of Wall Street investors including Apollo Global Management (no relation) to buy it. But the conditions of the approval, which the prospective owners must meet for the school to continue receiving federal student aid, are so exacting that they have a legal right to walk away from the agreement, deal documents show. For example, they must stump up a $385.6 million letter of credit and, in a serious obstacle to profitability, are barred from expanding the school’s enrollment.

“It feels like a punishment, and I can’t really understand the basis for what the punishment is,” other than that the Obama administration had “an opportunity” to crack down, said Trace Urdan, an analyst at Credit Suisse Group who follows the higher-education sector.

Michael Frola, an Education Department official, said in a letter to the university’s president that declining enrollment, government investigations, and the prospective buyers’ lack of experience running a college heighten the risk that the school would abruptly shut down and leave taxpayers holding the bag. Department spokeswoman Kelly Leon declined to offer additional comment.

Proprietary schools have been the object of widespread complaints by consumer advocacy organizations and state attorneys general that they engage in misleading marketing practices to enroll students, only to saddle them with taxpayer-backed debt they’re unable to repay. Urdan sees the tough conditions placed on the deal as a sort of “parting shot” by the outgoing administration.

The University of Phoenix has been mired in controversy for years. The Federal Trade Commission, California’s attorney general, and the Education Department’s inspector general are among the authorities investigating the school, according to Apollo Education’s most recent annual report.

More information: http://www.denverpost.com/2016/12/08/for-profit-college-battle-sale-university-of-phoenix/