Feds OK sale of University of Phoenix parent, if terms met

AP News
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Posted: Dec 07, 2016 7:42 PM

The federal government will allow one of the nation's largest for-profit college companies to be sold only if the new owners put up $385 million as insurance and agree not to increase enrollment, among other terms.

Apollo Education Group, the parent company of the University of Phoenix, agreed in February to be bought by a consortium of investors for $1.1 billion. The deal would take the publicly traded company private and aim to turn around its struggling finances. In its most recent fiscal year, it reported an operating loss of $65 million while enrollment at the University of Phoenix fell 23 percent.

The U.S. Department of Education, whose approval is needed to obtain federal funding, announced on Wednesday that it will give its blessing only if Apollo's proposed buyers agree to several requirements laid out in a 10-page letter.

Among key terms, the new owners would have to pay $385 million that would cover costs if the company fails. The amount represents 25 percent of Phoenix-based Apollo's federal funding last year.

The proposed buyers, led by the private equity firm Apollo Global Management, also would be barred from increasing enrollment at Apollo schools and would have to submit regular reports on enrollment and revenue.

The Department of Education, in its letter, said the conditions are meant to "ameliorate operational and administrative capability risk." Apollo officials said they received the letter and are evaluating it.

The University of Phoenix, which has campuses nationwide, says it offers campus and online degree programs, certificate courses and individual online classes, putting "college in your reach with flexible classes designed to fit your needs."

Colleges often face financial requirements when they change ownership, but the Department of Education has added extra requirements for the Apollo deal.

The company, for example, would not be able to force its students to sign agreements saying they agree to settle disputes outside of court, as some for-profit colleges have required. It also would be required to report all known investigations into it in the past five years and all student complaints in that period.

Apollo has been the subject of several state and federal investigations in recent years and has faced lawsuits alleging deception in its advertising and recruiting tactics.

Like many for-profit college operators, the company also has seen its enrollment and revenue slide since the industry peaked in 2010. The University of Phoenix has closed 150 campuses and recently reported enrollment of 165,000 for this year, down from 251,000 two years earlier.

Democratic President Barack Obama's administration has cracked down on for-profit colleges accused of misconduct in recent years, but some industry experts predict Republican President-elect Donald Trump's administration will be friendlier.

Since Trump's election last month, stock prices in for-profit college companies have surged, including a 9-percent boost to Apollo shares.

If Apollo and its proposed buyers agree to the Department of Education's terms, they still must receive approval from the University of Phoenix's academic accreditor, the Higher Learning Commission.