In December 2020, the University of Arizona closed a controversial deal to acquire Ashford University, a large for-profit online institution, for $1 in a bid to add working adult students.
The deal was similar to other recent transactions meant to convert for-profit colleges to nonprofits under new owners. The U of Arizona’s foundation became the owner of a new nonprofit corporation to hold Ashford’s educational operations, which were rebranded as the University of Arizona Global Campus, or UAGC. The renamed university purchased services — including marketing and recruitment — from its old owner, Zovio, which remained a publicly traded for-profit company. Under the purchase agreement, Zovio was set to provide services to UAGC for 15 years in exchange for a cut of the online college’s revenue.
The agreement was designed to keep UAGC and U of Arizona as separate institutions with their own governing boards and chief executives for at least three years. However, they shared an affiliation agreement that gave U of Arizona certain ties to UAGC, including the power to appoint three members of its nine-person board of directors, and the ability receive payments for UAGC’s use of the public university’s branding.
Those arrangements are changing just over a year later. The U of Arizona informed the campus that it is taking steps to coordinate the two institutions’ operations after the online college was threatened with losing access to federal financial aid.
U of Arizona also recently signed an agreement that will hold it jointly responsible for ensuring UAGC meets federal financial aid requirements. And leaders suggested Zovio may not remain part of the online college’s operation.
Officials do not yet know the specific corporate structure they will use to bring UAGC into the U of Arizona, raising concerns among the flagship university’s faculty members that the final relationship will siphon off their school’s financial resources and undermine its credibility.
“There’s really no plan about the integration yet. And so this is all very concerning.”
Chemistry, biochemistry and astronomy professor, U of Arizona
U of Arizona leaders said in a Feb.7 faculty senate meeting that the costs associated with bringing UAGC into the flagship are unknown.
“We have to develop the plan,” Liesl Folks, the university’s provost, said during the virtual meeting. “There is no budget because we’re developing what the final entity will look like. The costs associated with both the transition and operating model will absolutely depend on what we collectively decide is the right structure for our combined entity.”
In recent faculty senate meetings, faculty members also expressed concerns about a still-active lawsuit filed against Ashford in 2017 by the state of California. While the lawsuit initially accused the institution of misleading students when the school was still owned by Zovio, prosecutors said in late 2021 that the company has continued problematic practices when providing marketing and enrollment services to UAGC.
In a Q&A shared with the campus, the U of Arizona said it will not be responsible for any liabilities arising from the lawsuit. But faculty members are still worried about reputational damage.
U of Arizona President Robert Robbins suggested that UAGC’s relationship with Zovio may not continue during the February faculty senate meeting.
“It is very unclear to us now whether Zovio will remain part of this service agreement,” Robbins said.
Gail Burd, the U of Arizona’s senior vice provost and a member of UAGC’s board of directors, has been tapped to lead the acquisition’s planning team. Burd echoed Robbins’ comments in an interview with Higher Ed Dive. She said UAGC’s president has considered other options, such as working with another services provider or bringing everything in-house.
“We don’t know what will happen,” Burd said. “There’s a lot of moving parts.”
However, Vickie Schray, Zovio’s chief external affairs officer, said in an email the company will continue to perform under the contract, which runs through June 30, 2036. Schray called U of Arizona’s plans to bring UAGC into the university a positive development. She added that company officials “look forward to supporting our university partner, UAGC, on this journey.”
Schray did not answer questions about whether UAGC could back out of the contract and if there would be penalties if it did so.
In the Q&A for the campus, U of Arizona said it does not yet know whether UAGC and U of Arizona will be one entity or two separate entities when they are integrated. Officials expect to hammer out the details over the next one to two years.
“What I’ve gathered from the senate meetings is there’s really no plan about the integration yet,” said Lucy Ziurys, a chemistry, biochemistry and astronomy professor at the U of Arizona. “And so this is all very concerning. It seems like a very high-risk situation.”
Looking to other online colleges
The planned acquisition was kickstarted last year, when the U.S. Department of Education informed UAGC that it was at risk of losing access to federal financial aid, called Title IV funds. Federal financial aid dollars made up nearly 80% of the online college’s revenue in 2018.
The Ed Department wrote UAGC in November, saying that the college would either have to post a letter of credit valued at $103 million or provide a consolidated financial audit with the U of Arizona Foundation in order to retain access to federal aid.
U of Arizona’s president, Robbins, met with Ed Department officials and struck a new deal for the online college to keep federal funds flowing. The university signed a temporary program participation agreement in mid-January making it jointly responsible for ensuring UAGC meets the Ed Department’s requirements for Title IV access.
Shortly before taking that step, the university altered its affiliation agreement with UAGC. Previously, U of Arizona would have to wait three years after the original contract was signed in 2020 to pursue the option to take over UAGC. The two parties agreed to waive that section, allowing the U of Arizona to integrate with the online college sooner.
Burd said officials will begin planning the integration by looking at other universities that have built or bought large online colleges with open enrollment. That includes Purdue University, which in 2017 announced it was buying the for-profit Kaplan University and turning it into the basis for its online college, now called Purdue University Global.
Officials will also look at Arizona State University’s acquisition of Thunderbird School of Global Management in 2014.
Administrators cast taking over UAGC as an opportunity to help working adult students go to college. The average age of students at UAGC is 35, according to a recent U of Arizona document. Three-quarters are employed full-time. And more than one-third are first-generation students.
“These are students who have an adult life,” Burd said. “I can appreciate the types of students UAGC is benefiting.”
A shift at the Ed Department
Folks, U of Arizona’s provost, suggested during a faculty senate meeting in late January that the university was making the move now as a result of the Biden administration taking over the Ed Department.
“At the time when the original deal was contemplated, the Department of Education was under a different administration,” Folks said. “What was deemed appropriate to the federal Department of Education has shifted, and with that shift, they’ve turned around to us and asked for a different arrangement”
An Ed Department spokesperson said the agency had no comment about statements made in U of Arizona faculty meetings.
The Biden administration has put certain types of acquisitions in its crosshairs.
The Ed Department is planning on new regulations about which institutions can be considered nonprofits for the purposes of receiving Title IV funding when they change owners. The resulting rules will have a big impact on nonprofit institutions seeking to buy for-profit schools and convert them into nonprofits, as proprietary colleges must adhere to stricter regulations. That includes rules that limit how much revenue for-profits derive from federal financial aid.
The Ed Department has suggested clarifying the definition of a nonprofit institution by specifying examples of certain arrangements that don’t meet that definition. Among arrangements that may not qualify under its initial proposal are deals in which a college enters or maintains a revenue-share agreement with its former owner — much like UAGC’s relationship with Zovio.
The Ed Department has not yet made a decision about whether it will consider UAGC a nonprofit institution for the purposes of Title IV funding, even though the IRS has granted the online college nonprofit status. As such, UAGC must not advertise itself as a nonprofit institution, the temporary program participation agreement said.
But the agreement allows UAGC to avoid regulations governing for-profit colleges, according to Robert Shireman, a senior fellow at The Century Foundation, a left-leaning think tank.
It’s an open question about whether the Ed Department will consider UAGC a nonprofit because of its services agreement with Zovio, Shireman said.
“That question has been avoided, at least for the time being,” Shireman said. “There’s not a deep need for the U.S. Department of Education to answer that question because the U of Arizona is taking responsibility.”