Dear Commons Community,

The troubled for-profit education company that owns the University of Phoenix agreed on Monday to be bought for $1.1 billion by a group of investors that includes a private equity firm with close ties to the Obama administration.  As reported by the New York Times:

“The university and its owner, the Apollo Education Group, have been subject to a series of state and federal investigations into allegations of shady recruiting, deceptive advertising and questionable financial aid practices.

In recent years, many for-profit educational institutions that have received billions of dollars in federal aid, including the University of Phoenix, have been pummeled by criticisms that they preyed upon veterans and low-income students, saddling them with outsize student loan debt and subpar instruction.

Moreover, at many of these schools, enrollment has been falling and profits shrinking, casting doubt on the future health of the industry.

The investors in the Apollo Education Group include the Chicago-based investment firm Vistria Group, the Phoenix-based Najafi Companies, and funds affiliated with Apollo Global Management, which is not connected to the Apollo Education Group.

The new owners, who said they are not relying on debt to pay for the acquisition, are promising to lead a clean-up of the for-profit education industry.

Vistria’s founder is Marty Nesbitt, one of President Obama’s closest friends and the chairman of the Obama Foundation. Mr. Nesbitt is also a longtime business partner of Penny Pritzker, the commerce secretary.

A Vistria partner and its chief operating officer, Tony Miller, was deputy secretary of the United States Department of Education between 2009 and 2013. He has been tapped to become the new chairman of Apollo Education Group in August, when the deal is scheduled to be completed.

The acquisition is subject to approval by both the Education Department and the accreditation group the Higher Learning Commission.

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

He said the University of Phoenix would operate “in a manner consistent with the highest ethical standards.”

But longtime critics of the for-profit education industry said that the new owners would find it difficult to balance the pursuit of such a high-minded approach with the challenge of reviving high profits for investors.

Barmak Nassirian, director of federal policy analysis at the American Association of State Colleges and Universities, argued that the premium of roughly 30 percent that investors paid over the previous month’s weighted stock average would not seem to be justified by the company’s recent record of anemic earnings and worsening forecasts.

The company in January reported an operating loss for its most recent quarter of $45.2 million, compared to operating income of $64.2 million for the same quarter a year earlier. Excluding special items, income from continuing operations in the most recent quarter was $31.3 million, slipping from $49.9 million a year earlier.

The university has also had to contend with a shrinking number of campuses, layoffs and tumbling enrollment.”

The result of going private will mean that details of Phoenix’ operations  will be much harder to come by.  

“The sale of Apollo Education Group under the terms reported today means that the largest for-profit college chain in America is essentially going dark,” Senator Richard Durbin, a Democrat of Illinois, said. “We’ll know less than ever about the operations of one of the most heavily subsidized universities in America.”

This sale epitomizes the education-industrial complex in America where former education and government officials become major players  in companies that profit from education ventures.  There are too many opportunities for influence peddling that typically is good for the company but bad for education and especially students.

The U.S. Department of Education and appropriate accreditation agencies should not approve this sale.

Tony