The Arizona Board of Regents and the University of Arizona knew about the financial and legal risks before UA purchased Ashford University but mitigated them through financial, contractual and academic measures, the regents say in a new report to the governor.
They acknowledge they knew about “bad acts” by for-profit Ashford and its operator, Zovio, and that Zovio “insisted on a very compressed timeline” to sell the online university to the UA. The deal took place over a five-month period from March through July 2020. The report says the regents “voiced hesitation about the pace and compressed timeline of the transaction” but allowed it to go through.
ABOR sent the report Tuesday afternoon in response to Gov. Katie Hobbs telling the board last month that she was alarmed by “the incredibly risky nature of the purchase” of Ashford, which is now the online UA Global Campus, and wrote that “significant ethical problems with Ashford University’s business model appear to have been brushed aside by university leadership during the acquisition.”
The university, which is currently dealing with a $177 million budget deficit, agreed to buy Ashford for $1, rebranded it as UAGC, and last summer integrated it into the overall UA, gaining thousands of online students while adding $265.5 million to the UA’s operating costs. Hobbs asked last month for a report from the regents, who oversee the state’s three public universities, detailing the purchase’s rationale and process.
The board responded to Hobbs that university leaders and ABOR were “appropriately concerned about documented and substantiated allegations of Ashford’s past noncompliance, including matters described in the California Attorney General’s pending lawsuit and other regulatory actions, as well as ... claims asserted by hundreds of former Ashford students regarding purported misleading, unethical, and improper recruitment and enrollment practices.”
The report added that “The UArizona team and ABOR took these matters very seriously — entirely contrary to any assertion that these problems were ‘brushed aside.’”
UA “obtained repeated assurances” from Zovio, Ashford’s management company, “that these practices had been corrected,” but also negotiated agreements to protect UA and UAGC “from the lingering consequences of the bad acts of Ashford and Zovio,” says the report, signed by ABOR Chair Fred DuVal and Executive Director John Arnold, who is also UA’s interim chief financial officer.
The agreement specified that Zovio and Ashford retained all liabilities associated with Ashford’s operation prior to the sale, it says.
However, in August, the Biden administration cancelled $72 million in student loans for borrowers who say they were cheated by Ashford. The U.S. Department of Education is seeking to recoup the money from the UA, which says it should not be held responsible because the actions occurred well before it acquired the school.
The new ABOR report notes that UA initially kept Zovio on as manager of the online university but says it “focused on ensuring that the improper practices would not continue” by having the authority to “impose financial penalties for Zovio’s failure to meet 26 agreed-upon key performance indicators.” UAGC Corp. terminated the Zovio contract in July 2022.
The opportunity to buy Ashford arose in March 2020, the month when the onset of the COVID-19 pandemic made it urgent to expand online programs as on-campus programs shut down, the report says.
“Although UArizona conceivably might have targeted other online universities for acquisition,” it says, Ashford presented advantages including a “high-quality online platform” with 35,000 diverse students, most of them non-white women older than 25.
Interim UA CFO Arnold has said the purchase agreement brought $47 million in cash to the university, and that although UAGC is operating at a deficit, he expects it to be profitable by the end of fiscal year 2025.
Despite Hobbs’ concerns, and continued disapproval from the UA Faculty Senate, UA’s president and the regents stand behind the purchase decision.
Earlier this week, UA President Robert C. Robbins told The Arizona Republic in an interview, “As I have talked to the 23,000 students,” referring to the current student body of UAGC, “they are incredibly excited about the opportunity to come to one of the top 30 research universities in the county and be part of the Wildcat family.”
Robbins acknowledged to The Republic, however, that UAGC students do not have access to the same courses, professors, student services, career services, degrees or curricula as UA students.
The regents’ report says UAGC’s full integration into the university may eventually “include a single faculty, single student body” and UA-approved curriculum.
Key takeaways from report
During the purchasing process, university leadership “became aware of investigations and actions by various federal and state agencies alleging that Ashford and Zovio used illegal and unethical methods to recruit and enroll students, including a lawsuit by the California Attorney General’s Office.”
The report says the UA team was “clear-eyed in recognizing the headwinds facing Ashford, including repercussions from the alleged aggressive marketing and debt collection practices, declining enrollments due to competitions from other public and non-profit universities, federal and state investigations, and declining retention and graduation rates.”
Because of Zovio’s reputation, the UA established various internal functions to oversee and monitor its performance. A separate UAGC Corporation team reviewed calls with students to assure that the quality was consistent with what UAGC expected, for example. The corporation also hired an external independent firm to perform “secret shopper” reviews, conducting “40 calls each calendar quarter to Zovio’s marketing and enrollment personnel to test compliance.”
On July 31, 2022, UAGC Corp. ceased to have any further operational or financial relationship with Zovio.
On Aug. 1, 2022, after a “careful vetting process,” UAGC Corporation extended employment offers to 817 Zovio employees and 791 accepted employment opportunities with UAGC.
On June 30, 2023, the UA officially “acquired from UAGC Corporation substantially all of its assets and all of its operations.” For now, according to the report, UAGC remains a separately accredited institution within the UA and is considered by the Department of Education as a separate institution “for the purposes of federal student aid under Title IV.”
“As soon as appropriate,” the report states, “UAGC Corporation will be wound down and dissolved.”
Hiring of outside firm
As promised in Arnold’s UA financial action plan released last month, ABOR has hired Ernst & Young LLP, a consulting firm, to conduct a financial and operational assessment of Arizona Online, UAGC, and the college of applied science and technology.
For the next 12 weeks, ending June 30, the firm is set to perform a detailed financial analysis of UAGC and Arizona Online, assess the financial and resource impact of the combination of UAGC and Arizona Online, and identify the potential risks associated with online education.
In addition, the report notes that UAGC is expected to comply with ABOR metrics for online course completion rates, pace of students’ progression, student retention, percentage of courses taught by faculty with doctorate degrees and faculty who are benefits-eligible, and U.S. News and World Report online program rankings.
It also says the UA has 13 full-time-equivalent employees monitoring UAGC’s compliance, that independent surveys are taken to determine students’ satisfaction, and that coaching and training is provided to enrollment advisors.
Bonuses for Robbins
According to his employment contracts with ABOR, Robbins stood to make $30,000 in a special bonus by demonstrating “substantial progress toward enhancing the student experience and outcomes of UA Global Campus.”
That includes, according to his contract, “an improvement in the online course completion rate, a decrease in the online student attrition rate, and the number of UAGC courses taught by faculty who are benefits eligible.”
In his 2022-23 contract, Robbins stood to make $45,000 by completing the transition of UAGC under the full oversight of the UA by June 30, 2023.
According to the ABOR report released Tuesday, the UA officially “acquired from UAGC Corporation substantially all of its assets and all of its operations” on June 30, 2023.
A leadership change
In the report, ABOR touched upon the hiring and resignation of Paul Pastorek, who served as interim and then full-time senior vice president of UAGC.
Pastorek began at UAGC as chief executive officer and president in February 2021. He was promoted to serve as a UA senior vice president in July last year, according to his LinkedIn profile.
It was under Pastorek’s leadership that the UAGC Corp. “established various internal functions to oversee” the performance of Zovio.
Robbins accepted Pastorek’s resignation in late November 2023, the report notes. There was no indication of why the resignation was offered.
Currently, Gary Packard serves as interim senior vice provost for online initiatives at the UA. Packard reports to the university’s interim Provost Ron Marx. Pastorek reported directly to Robbins.
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