Okay, let the investigations begin…..the collusion, the government subsidies and partners….hummm

Bid to buy for-profit college by former Obama insiders raises questions

‘There is at least a taste of unseemliness involved in this,’ a former top education official said.

Longtime Obama friend Marty Nesbitt’s private equity firm Vistria Group has mounted a charm offensive on Capitol Hill to talk up the proposed sale of the for-profit University of Phoenix. | Getty

Politico: As the Obama administration cracks down on for-profit colleges, three former officials working on behalf of an investment firm run by President Barack Obama’s best friend have staged a behind-the-scenes campaign to get the Education Department to green-light a purchase of the biggest for-profit of them all — the University of Phoenix.

The investors include a private equity firm founded and run by longtime Obama friend Marty Nesbitt and former Deputy Education Secretary Tony Miller. The firm, Chicago-based Vistria Group, has mounted a charm offensive on Capitol Hill to talk up the proposed sale of the troubled for-profit education giant, which receives more than $2 billion a year in taxpayer money but is under investigation by three state attorneys general and the FTC.

What stands out about the proposed deal is that several key players are either close to top administration officials, including the president himself, or are former administration insiders — especially Miller, who was part of the effort to more tightly regulate for-profit colleges at the very agency now charged with approving the ownership change. For-profit college officials have likened those rules to a war on the industry, and blame the administration for contributing to their declining enrollments and share prices.

The proposed sale carries high stakes for taxpayers, students and investors: The University of Phoenix’s financial stability may depend on the $1.1 billion acquisition. If the company were to fail, more than 160,000 students could be displaced and the government would be on the hook for hundreds of millions in student loans.

But the investors’ effort to seek Education Department approval of the school’s ownership change also raises questions about potential conflicts of interest.

“There is at least a taste of unseemliness involved in this,” said Mark Schneider, a former top education official under President George W. Bush. “They regulate it. They drive the price down. …They are buying it for pennies on the dollar.”

Vistria Group said it isn’t seeking special treatment. “We expect the Department to evaluate this proposed transaction on the merits,” the company said in a statement.

Vistria is part of a consortium of investors involved in the proposed acquisition, which has already won over shareholders of the school’s parent company, Apollo Education Group. But now the investors need the Education Department and the school’s accreditors to sign off on the ownership change to keep the federal money flowing — most of it in the form of student loans and Pell Grants.

Related reading: Apollo Education

Related reading: Vistria Money

With those decisions looming, Miller and at least one other former Obama insider have met with staff to Sens. Elizabeth Warren (D-Mass.), Richard Blumenthal (D-Conn.) and Dick Durbin (D-Ill.), looking to reassure some of the loudest critics of for-profit colleges in the president’s own party, several Senate aides confirmed to POLITICO. Those lawmakers have pushed Obama’s Education Department to be even tougher on for-profit colleges.

Miller has also met with staff members working for other committee members, including Sens. Michael Bennet (D-Colo.), and Bob Casey (D-Pa.), as well as with Sen. Lamar Alexander, the Tennessee Republican who chairs the Senate education committee. Nesbitt was not part of those Capitol Hill meetings, according to the aides.

The investors’ pitch is that they will turn around the beleaguered education company company and boost student outcomes. In announcing the sale, Miller said in a statement that the investors are committed to running the University of Phoenix “in a manner consistent with the highest ethical standards.”

But the specter of former insiders pushing the sale of a company in an industry that has long been in the administration’s crosshairs is not lost on critics. For seven years, the Obama administration has waged a crackdown on poor quality and predatory practices at many for-profit colleges, with the president himself excoriating some schools for “making out like a bandit” with federal money, but saddling students with big debts and leaving them unprepared for good jobs. He did not name the schools.

“It’s ironic that a former senior official at the Department of Education — an agency that has intentionally targeted and sought to dismantle the for-profit college industry — would now take the reins at the country’s largest for-profit college,” said Rep. Virginia Foxx, a North Carolina Republican who leads the House Committee on Education and the Workforce’s higher education subcommittee.

“Mr. Miller will soon learn firsthand how the harmful regulations he helped develop will limit the choices of students and create burdensome red tape for his institution,” she added.

Sen. John McCain (R-Ariz.) — a longtime defender of the University of Phoenix — told POLITICO he blames the administration’s hard-charging regulatory approach for helping to drive down the company’s stock price and contributing to its decision to sell.

“I know it was the attacks that drove the stock price down,” McCain said. “It’s very clear.”

The sale price, which shareholders approved last month after initially balking at a lower price, is considered a bargain by some industry observers. The day Obama was sworn into office on Jan. 20, 2009, the company’s stock closed at $86.54 per share. Today, it’s trading at around $9, although a recovering economy, unfavorable media coverage and the for-profit industry’s general slump have also contributed to that drop.

Some Senate Democrats said they are also uneasy with the investors’ plan to take the university private, which means it would no longer have to publicly disclose information such as executive compensation, lawsuits or when it’s a target of investigations. Those details are useful to prospective students, they say, at a time when the school faces inquiries from both state and federal authorities.

“Essentially, a company that receives more than $2 billion annually from federal taxpayers — nearly 80 percent of its revenue — is going dark, and it’s happening at a time when the University of Phoenix has come under increased scrutiny from state and federal regulators,” Durbin wrote in a March letter to the Education Department.

Sen. Sherrod Brown (D-Ohio) said the university’s “questionable track record is already a point of concern, and there are many questions as to whether the sale of its parent company is in the best interests of both students and taxpayers.”

Who’s who

Several players in the deal have close ties to the Obama administration they’re now attempting to influence.

Former Deputy Education Secretary Tony Miller was part of the effort to more tightly regulate for-profit colleges at the very agency now charged with approving the ownership change. | AP Photo

 

 

First among them is Miller— the former No. 2 in Obama’s Education Department until he left in 2013 and who is now a partner and chief operating officer of Vistria Group. He would become chairman of the university’s parent company if the sale goes through.

Miller, who spent more than four years as a top Education Department official, represented the administration during nearly a dozen meetings with for-profit education companies — including the very company his firm is now seeking to buy, department records show. The meetings centered on controversial “gainful employment” proposals to cut off financial aid from programs where students leave with high debt and poor job prospects.

Other players in the Capitol Hill effort include Jonathan Samuels, who was responsible for pushing Obama’s agenda through Congress during his nearly six years working in legislative affairs at the White House. Samuels, who now works for Vistria Group, has joined Miller in at least some of his meetings on the Hill, according to a Senate aide. Vistria has also enlisted former White House Deputy Communications Director Amy Brundage, who is working at the Washington public affairs firm SKDKnickerbocker.

“The irony is not lost on us,” said one Republican congressional aide, who asked for anonymity to speak freely. “It’s quite rich, when you have former Obama administration officials who used to denigrate for-profit education now profiting off it.”

Nesbitt, meanwhile, is a co-founder and co-CEO of Vistria Group and widely considered the president’s closest friend. He is Obama’s frequent golf and basketball partner, while his wife, Anita Blanchard, is an obstetrician who delivered Malia and Sasha Obama. Nesbitt acted as treasurer for both of the president’s campaigns and heads the Obama Foundation, which is planning his presidential library.

Nesbitt is also a former business associate of Commerce Secretary Penny Pritzker; he set up Vistria Group in 2013, more than a year after the sale of The Parking Spot, an airport parking company he started with Pritzker’s backing. One of Vistria’s investors has been a charitable foundation called The Pritzker Traubert Foundation, started by Pritzker, federal tax records show. Pritzker resigned from her position at the foundation when she became a cabinet member in 2013. A Commerce Department official said she has not been involved with discussions about the University of Phoenix sale.

Nesbitt, Miller, Samuels and Brundage all declined to comment to POLITICO about the nature of Vistria’s meetings with lawmakers or whether they had reached out to Education Department officials to discuss the potential sale. At the request of the company’s public relations firm, reporters submitted written questions about the meetings, allegations of possible conflicts of interest and how the company plans to turn around the University of Phoenix. Vistria responded with a four-sentence statement.

“We believe that the University of Phoenix, with our support, is poised to be a leader serving the adult learner, by graduating students with the knowledge and skills that employers value, at a cost to the student that ensures a compelling return on her or his educational investment,” the statement said.

“We believe that high-quality outcomes, whether from nonprofit or for-profit institutions, is what is needed in the sector and what matters most. We expect the Department to evaluate this proposed transaction on the merits. The parties have engaged in the formal acquisition review process through regular order.”

The Education Department also declined to answer POLITICO’s questions about whether Nesbitt, Miller or Samuels had discussed the proposed sale with department officials. It refused to provide a copy of the paperwork the investors submitted to kick off the regulatory approval process.

Vistria is one of three investment groups involved in the deal — the others are Wall Street giant Apollo Global Management (no connection to Apollo Education) and Najafi Companies. A spokeswoman for a firm representing Apollo Education declined to say how much each investor had agreed to contribute. But in addition to capital, Vistria brings Obama administration connections that could help pave the way for a smooth approval process and working relationship with government regulators afterward.

It’s quite common for for-profit education companies to hire people who were former regulators, accreditors, politicians or established higher education officials, said Kevin Kinser, an education professor at the State University of New York at Albany who has studied for-profit colleges.

Kinser said it gives the schools a “sense of legitimacy” and understanding of how systems work “for them to do what they need to do.”

Durbin, a reliable Obama ally in the Senate, said he’s not close enough to Nesbitt to know why he got involved with the acquisition.

“He’s an investor, and I’ll just say he thinks this is a good investment,” Durbin said. “I hope that Marty will bring to this endeavor a sense of reform and will create a new for-profit school that truly does serve its students.”

The holding company set up by the investors to buy the University of Phoenix has also paid $80,000 to lobbyists. The lobbying team includes Marc Lampkin — a longtime counsel to former House Speaker John Boehner — at the high-powered D.C. firm Brownstein Hyatt Farber Schreck.

Trace Urdan, a for-profit college analyst who heard Miller describe Vistria’s plans at a recent conference, said Miller appeared “quite earnest.” Miller emphasized that the prospective owners plan to use data to monitor student performance and to make improvements, Urdan said.

“He thinks the size of the university is a real strength to be exploited and the implication is there is a lot of data, so you can analyze the data and figure out what works and doesn’t work,” Urdan said.

The potential sale offers a potential lifeline for the university. But there’s pressure to get the government’s approval quickly since the parent company has warned in regulatory filings that if the sale isn’t completed by October, its worsening financials might sink the deal. Either way, the company says that a further decline in its stock price could lead to regulatory problems that “severely stress” its liquidity.

If the company were to fail, either before or after the proposed sale, current students would be entitled to have their loans forgiven. Taxpayers have already spent more than $90 million on student loan forgiveness resulting from last year’s collapse of the Corinthian Colleges chain.

The Phoenix juggernaut

Founded in 1976, with a class of just eight students, the University of Phoenix became a pioneer in the burgeoning field of career education for adults ― providing flexibility for busy working adults looking for vocational education, especially after the advent of online programs in the late 1980s.

But as the school grew larger, hitting more than half a million students in 2010, critics say it lost its way in terms of the quality of its programs, high costs and aggressive recruiting tactics.

In recent years, scrutiny from state and federal authorities, a flurry of negative media stories and an improving economy combined to send enrollment plunging by more than two-thirds. In April, the university announced it would lay off 470 employees, or nearly 8 percent of its workforce.

The university currently faces investigation by the attorneys general of California, Massachusetts and Florida, according to regulatory filings. Its parent company disclosed last year that the FTC had requested information on a “broad spectrum” of its business practices, including “marketing, recruiting, enrollment, financial aid, tuition and fees, academic programs, academic advising, student retention, billing and debt collection, complaints, accreditation, training, military recruitment, and other compliance matters.”

Early in the Obama administration, in 2009, the Justice Department announced the University of Phoenix had agreed to pay $78.5 million to settle allegations the school had been fraudulently collecting taxpayer money. Two former recruiters had alleged the school created fake employee personnel files to hide the fact it was illegally giving recruiters gifts and free trips based on the number of students they brought in. The university did not acknowledge any wrongdoing in the settlement.

Last fall, the Pentagon took the unusual step of temporarily prohibiting the University of Phoenix from recruiting on military bases. The alleged violations included the misuse of military seals and trademarks, and conducting activities on military bases without proper permission. The ban was reversed three months later.

Many of the university’s students struggle with debt: Data released by the Obama administration’s College Scorecard last year shows that a majority of students who took out federal loans to attend the University of Phoenix did not end up making even a dollar’s worth of progress in paying down their debt after five years ― a sign their debts may not be manageable.

Yet the school continues to be popular, especially with veterans. Last year, about 45,000 GI Bill recipients enrolled at the University of Phoenix, at a cost of $290 million to taxpayers.

The university’s parent company is also seeing big international growth: Its global division serves more than 150,000 learners worldwide, with online and campus-based programs in countries such as Australia, India, Mexico and Chile, according to a company filing. While the international schools are a small share of total revenue, the footprint of its global division has been expanding.

‘Black box’ approval process

The process by which the Education Department will make a decision on the ownership change — and who will make that decision — has been shrouded in secrecy, say some for-profit college critics.

Bob Shireman, a former Obama Education Department official who was one of the architects of the for-profit college crackdown, called the approval process for college ownership changes a “black box.”

While the White House keeps logs to document who comes and goes to speak to executive branch officials, no one knows who is lobbying the Education Department on the sale, said Ben Miller, a former Obama Education Department staffer who is now senior director for postsecondary education at the Center for American Progress.

Asked about its decision-making process, a department official said the approval of the ownership change will be handled by the Office of Federal Student Aid, the department’s business operations arm, “in consultation with a variety of other offices,” which they declined to name.

“As we have said in the past, what’s good for students is at the heart of our review of this sale,” Dorie Nolt, the department’s press secretary, said in a statement. “We will work with Apollo to ensure that the new owner is focused on improving student outcomes.”

Shireman and Ben Miller say they want the department to use its leverage to impose conditions on the approval of the ownership change, such as requiring the university to rely less heavily on federal Pell Grants and other taxpayer programs, and to seek out more students who are willing or able to pay out of pocket.

Even if those conditions happen, Durbin said he’s skeptical the investors can pull off a turnaround, which he said previous owners failed to accomplish.

“I have met with the Apollo [Education Group] people over the years,” Durbin said. “Every meeting was preceded by ‘we’re different,’ and then it would turn out … they weren’t so different.”

Miller insists this ownership team will turn things around. In a letter to The Wall Street Journal in February, he said his company is committed to making the University of Phoenix “the most trusted provider of career-relevant higher education for working adults in the country.”

The new owners will prevail on the merits, he said.

“Success in today’s environment,” he wrote, “isn’t predicated on special treatment from regulators or legislators.”