Why the University of Arizona Decided to Strengthen Ties with Global Campuses

In December 2020, the University of Arizona completed its $1 acquisition of Ashford University, a large for-profit online institution, in a controversial deal aimed at enrolling working adult students.

The deal was similar to other recent conversions of for-profit colleges to nonprofit status with new owners. The University of Arizona Foundation became the owner of a new nonprofit corporation that held Ashford's education business, which was renamed the University of Arizona Global Campus (UAGC). The renamed university purchased services, including marketing and enrollment, from its former owner, Zovio, which remained a publicly traded for-profit company. Under the acquisition agreement, Zovio would provide services to UAGC for 15 years in exchange for a portion of the online college's revenue.

The agreement was designed to keep UAGC and the University of Arizona as separate institutions for at least three years, each with its own board and chief executive. However, an affiliation agreement signed by the parties gave the University of Arizona specific ties to UAGC, including the right to appoint three members to its nine-member board and payment for UAGC's use of the public university's brand.

Just over a year later, those arrangements are changing. The University of Arizona notified campus that it is taking steps to coordinate the operations of the two institutions after the online college faced the risk of losing access to federal financial aid.

The University of Arizona also recently signed an agreement making it jointly responsible for UAGC meeting federal financial aid requirements. University leaders have hinted that Zovio may no longer be involved in the online college's operations.

Officials do not yet know the specific corporate structure for incorporating UAGC into the University of Arizona, which has raised concerns among faculty at the flagship university who worry the eventual relationship could drain the school's financial resources and damage its reputation.

"There's no real plan right now for integration. So it's all very concerning."

— Lucy Ziurys, professor of chemistry, biochemistry, and astronomy at the University of Arizona

University of Arizona leaders said at a faculty senate meeting on February 7 that the cost of incorporating UAGC into the flagship university is not yet known.

"We have to develop a plan," Liesl Folks, the university's provost, said during the virtual meeting. "There is no budget right now because we are determining the shape of the final entity. The costs associated with the transition and operating model will depend entirely on the correct structure of the merged entity that we decide on together."

At the recent faculty senate meeting, faculty also expressed concerns about an ongoing lawsuit filed by California against Ashford in 2017. While the lawsuit initially alleged the institution misled students when it was still owned by Zovio, prosecutors said in late 2021 that the company continued problematic practices while providing marketing and enrollment services for UAGC.

In a Q&A shared with campus, the University of Arizona said it would not be responsible for any liabilities arising from the lawsuit. But faculty remain concerned about reputational damage.

University of Arizona President Robert Robbins hinted at the February faculty senate meeting that UAGC's relationship with Zovio may not last.

"It's very unclear to us right now whether Zovio will continue to be involved in this service agreement," Robbins said.

Gail Burd, the University of Arizona's senior vice provost and a UAGC board member, has been appointed to lead the acquisition 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 service provider or bringing all services in-house.

"We don't know what's going to happen," Burd said. "There are a lot of variables."

However, Vicki Schrey, Zovio's chief external affairs officer, said in an email that the company will continue to fulfill its contract, which runs through June 30, 2036. Schrey called the University of Arizona's plan to incorporate UAGC into the university a positive development. She added that company officials "look forward to supporting our university partner UAGC on this journey."

Schrey did not answer questions about whether UAGC could exit the contract and whether exiting would incur penalties.

In a Q&A to campus, the University of Arizona said it is not yet clear whether UAGC and the University of Arizona will be one entity or two separate entities after integration. Officials expect to finalize details within the next one to two years.

"What I took away from the senate meeting is that there's no real plan for integration right now," said Lucy Ziurys, a professor of chemistry, biochemistry, and astronomy at the University of Arizona. "So it's all very concerning. It seems like a high-stakes situation."

Looking at other online colleges

The planned acquisition began last year when the U.S. Department of Education notified UAGC that it was at risk of losing access to federal financial aid, known as Title IV funds. Federal financial aid funds accounted for nearly 80% of the online college's revenue in 2018.

The Education Department wrote to UAGC in November, saying the college either had to provide a $103 million letter of credit or a combined financial audit with the University of Arizona Foundation to retain federal aid eligibility.

University of Arizona President Robbins met with Education Department officials and reached a new agreement for the online college to keep federal funds flowing. The university signed a provisional program participation agreement in mid-January, making it jointly responsible for ensuring UAGC meets Education Department Title IV access requirements.

Shortly before taking that step, the university amended its affiliation agreement with UAGC. Previously, the University of Arizona had to wait three years after the original 2020 contract was signed before exercising its option to take over UAGC. The parties agreed to waive that provision, allowing the University of Arizona to integrate with the online college sooner.

Burd said officials will first study other universities that have established or purchased large open-access online colleges to plan the integration. This includes Purdue University, which announced in 2017 the acquisition of for-profit Kaplan University and made it the foundation of its online college, now known as Purdue University Global.

Officials will also study Arizona State University's 2014 acquisition of Thunderbird School of Global Management.

Administrators see taking over UAGC as an opportunity to help working adult students attend college. According to a recent University of Arizona document, the average age of UAGC students is 35. Three-quarters of students work full-time. More than a third are the first in their families to attend college.

"These students have adult lives," Burd said. "I can understand the type of student UAGC serves."

The Education Department shift

University of Arizona Provost Folks said at a faculty senate meeting in late January that the university is now taking this action as a result of the Biden administration taking over the Education Department.

"When the original deal was being put together, the Education Department was under a different administration," Folks said. "What the federal Department of Education considers appropriate has shifted, and with that shift, they turned to us and asked for a different arrangement."

An Education Department spokesperson said the agency had no comment on remarks made at the University of Arizona faculty meeting.

The Biden administration has placed certain types of acquisitions within its focus.

The Education Department is planning to develop new regulations specifying which institutions can be considered nonprofit for Title IV purposes after a change in ownership. The resulting rules would significantly impact nonprofits seeking to acquire for-profit schools and convert them to nonprofit status, as for-profit colleges must comply with stricter regulations, including limits on the proportion of revenue they can derive from federal financial aid.

The Education Department has proposed clarifying the definition of a nonprofit institution by designating examples of arrangements that do not meet the nonprofit definition. In its initial proposal, arrangements that may not qualify include a college entering into or maintaining a revenue-sharing agreement with its former owner—like UAGC's relationship with Zovio.

Although the IRS has granted UAGC nonprofit status, the Education Department has not decided whether to treat it as a nonprofit for Title IV purposes. Therefore, the provisional program participation agreement states that UAGC may not advertise itself as a nonprofit.

But according to Robert Shireman, a senior fellow at the Century Foundation, a left-leaning think tank, the agreement allows UAGC to avoid regulations for for-profit colleges. Shireman said whether the Education Department will treat UAGC as a nonprofit remains an open question due to its service agreement with Zovio.

"The question has been avoided, at least for now," Shireman said. "The U.S. Department of Education has no urgent need to answer it because the University of Arizona is taking responsibility."