Pushback mounts as Idaho nears Phoenix purchase

Universities approach finish line with wins from court and accreditor, then get new challenges from lawmakers and ratings agency

February 26, 2024
Running back Aaron Duckworth of the Idaho Vandals carries a tackler with him during first half action against the Appalachian State Mountaineers to illustrate Pushback mounts as Idaho nears Phoenix purchase
Source: Loren Orr/Getty Images

The University of Idaho is moving closer to its long-planned $685 million (£540 million) purchase of one-time for-profit giant University of Phoenix, while also hitting a new set of political and financial headwinds.

In a win for the effort, a state judge has ruled in favour of the university and the State Board of Education, deciding that the board did not violate legal limits on closed-door meetings when it repeatedly gathered in private early last year to consider the Phoenix purchase.

That follows an earlier approval of the sale by one of the nation’s major accrediting agencies, the Higher Learning Commission, which already accredits Phoenix.

In response, however, some Idaho state lawmakers have taken new steps to block the deal, pushing forth legislation to set up a formal review of the purchase. And a leading credit rating agency, Moody’s Investors Service, has formally warned that completing the sale could produce a sharp drop in the university’s bond rating.

Both Moody’s and another major financial ratings service, S&P Global, currently give the University of Idaho strong marks on its bond performance – A1 at Moody’s and A/Stable at S&P. Moody’s, though, suggested the sale could produce a possible “multi-notch” rating reduction, a step it rarely takes.

Just the size of the merger, without the university providing details on how it would be structured, is “enough for us to say that there could be a potential rating impact”, said Susan Fitzgerald, a managing director at Moody’s specialising in higher education.

That prompted a sharp retort from the university, which complained through a spokesperson that Moody’s was making public pronouncements before it had obtained “a full understanding of this transaction”.

Phoenix was once the nation’s biggest for-profit university, reaching nearly 500,000 students, more than 130 campuses, and almost $5 billion in annual revenue by 2010. It has since contracted to only about 80,000 online students, after persistent scandals across the for-profit sector arising largely from a common model of extracting federal student aid dollars by offering low-quality instruction to poorly qualified recruits.

The University of Idaho, meanwhile, has had its own struggles. Enrolment at its flagship campus in Moscow is around 9,500, down about 6 per cent over the past decade.

Phoenix has been shopping itself to challenged public institutions in less-populated parts of the country, holding out the idea that a buyer could quickly make progress in the global competition for online students. The University of Arkansas System spent time considering the idea before backing away early last year.

As in Arkansas, the University of Idaho is working with the idea that it would create a type of legally separate entity that would own Phoenix’s operations. The idea is to let Idaho reap the expertise and enrolment and other benefits of Phoenix, while minimising the risk from its existing financial obligations.

“As we face a national enrolment cliff in traditional students and increased demand from adult learners,” the University of Idaho has said in explaining the rationale, “this brings together two institutions that complement each other and share a vision for student success.”

Idaho is dominated politically by the Republican Party, whose members can be found on both sides of the question. The state’s governor, Brad Little, appointed the governing board that is pushing for the sale, while the attorney general, Raúl Labrador, brought the court case over the closed-door meetings and is considering appealing his loss in the matter.

The university hopes to complete the purchase “later this spring”, its spokesperson said.


Register to continue

Why register?

  • Registration is free and only takes a moment
  • Once registered, you can read 3 articles a month
  • Sign up for our newsletter
Please Login or Register to read this article.

Related articles

Related universities