Parent Company of University of Phoenix Acquired for $1.1 Billion


The for-profit education company that owns the University of Phoenix has agreed to be sold to a group of investors, including a private equity firm related to the Obama administration, for the sum of $1.1 billion.

A number of state and federal investigations have been conducted in an effort to look further into allegations that the University of Phoenix and its parent company, Apollo Education Group, have taken part in dishonest recruiting efforts, false advertising, and deceptive financial aid practices, writes Melissa Korn for The Wall Street Journal.

Many of the for-profit institutions that receive federal aid have recently faced criticism that they prey on veterans and low-income students, who often leave the schools with large amounts of student debt loan and a degree that does not carry much value.

The Obama administration’s attention has corresponded with a downturn in enrollment at these for-profit schools due to the creation of tougher regulations including the “gainful employment” rule. The dictum, which was passed last year, forced Phoenix to cut a number of its lowest-performing programs in an effort to avoid penalties that would result in the school losing access to federal financial aid.

Currently the school boasts a total student enrollment of around 200,000, less than half of what it was at the peak for the company in the wake of the recession, reports Patricia Cohen for The New York Times.

A transformation plan was introduced by the school last year in an effort to repair its reputation, which would include a number of measures such as admissions requirements and cutting back how frequently students were allowed to enroll.  According to the company’s CEO, the plan was meant to increase graduation rates and reduce the number of students who default on their loans.  However, the measures also would cut enrollment for a short period of time, a move investors balked at, reports Molly Hensley-Clancy for BuzzFeed.

Greg Capelli, Apollo Education’s CEO, released a statement saying that the new deal would offer “the flexibility and runway it needs to complete the transformational plan at University of Phoenix.”

The new owners include the Chicago-based investment firm Vistria Group, the Phoenix-based Najafi Companies, and funds affiliated with Apollo Global Management, which has no connection to Apollo Education Group.  The group of investors say they would like to clean up the for-profit education industry.

The Vistria Group is led by Marty Nesbitt, one of President Obama’s closest friends.  The group is planning to make Tony Miller, the former deputy secretary of the Education Department, the new chairman of the company.

“For too long and too often, the private education industry has been characterized by inadequate student outcomes, overly aggressive marketing practices and poor compliance,” Miller said in a news release. “This doesn’t need to be the case.”

He went on to say that the University of Phoenix would soon be operating “in a manner consistent with the highest ethical standards.”

The deal has already received approval by Apollo’s board and is expected to finalize in August.  The Department of Education, the Higher Learning Commission and state regulatory and programmatic accreditation bodies still need to offer approval.

A majority of Apollo Education’s Class A and Class B shareholders, in separate votes, also need to approve the plan.  The Class B shareholders have entered an agreement to vote in favor of the plan.