Top Dems Urge Cardona to Recoup Phoenix, Ashford Student Loans

After the Biden Administration had wiped out $109 million in student loan debt during the third quarter of 2023, the U.S. Department of Education now finds itself under pressure from congressional Democrats who want tax relief for their constituents.

In November 2023, almost a dozen lawmakers sent a letter to Education Secretary Miguel Cardona urging his Department to “aggressively” claw back those funds from the University of Phoenix and the institution formerly known as Ashford University—a move that would compensate taxpayers for the discharged loans. The letter’s lead authors are Senate Majority Whip Richard Durbin of Illinois and U.S. Representative Rosa DeLauro of Connecticut.

Three months before in August, the Education Department canceled $72 million worth of student loans for 2,300 former Ashford University students; following its acquisition from Zovio Inc. by the University of Arizona in 2020, UA rebranded Ashford as the University of Arizona Global Campus (UAGC). Then in September, the agency also announced it had discharged $37 million in loans for 1,200 former students who had attended Phoenix between 2012 and 2014. ED officials said that they will pursue recoupment for at least some portion of these totals from the owners of both UAGC and Phoenix.

The lawmakers’ letter applauds the Department’s decision which grants relief to the 3,500 former students, and expresses support for Cardona to pursue recoupment from the colleges. Although the legislators don’t specifically mention how much money they want the Department to claw back, the officials say they want the recoupment to proceed so that “taxpayers are not left holding the bag and other predatory for-profit colleges are on notice that they will be held accountable for unscrupulous behavior.” The lawmakers also argue that recoupment “would send a strong warning signal to other predatory for-profit colleges that there are substantial financial consequences for defrauding students.”

According to the Education Department, over 1.3 million borrowers who had either been defrauded by their schools, experienced precipitous closures by those institutions, or are covered by related court settlements had received a total of $22.5 billion in student loan relief by the beginning of October 2023. That $22.5 billion falls within $127 billion in relief extended by the Biden Administration to nearly 3.6 million borrowers overall by that date.

The legislators then ask the Department to review whether UAGC and Phoenix should remain eligible to receive revenue from federal student aid programs. They point out that during the 2021-22 academic year alone, these two schools collected roughly four-fifths of a billion dollars in revenue from federal student aid funding, with $616 million flowing to Phoenix and $183 million to UAGC. These sums amounted to almost 80 percent of Phoenix’s total annual revenue and 64 percent of UAGC’s.

It’s worth noting that even though the lawmakers have access to some of the most accurate statistics available through the Congressional Research Service, other estimates of colleges’ annual federal financial aid revenues are significantly larger. For example, this ranking from former Education Department executive Michael Itzkowitz for the preceding 2020-2021 year places Phoenix in fourth place at $830 million, slightly surpassed by Liberty University. Arizona State University finished second at $900 million, and Grand Canyon University topped the chart at $1.16 billion.

In their letter, the lawmakers emphasize that while collecting such huge sums, Phoenix and Ashford “repeatedly have deceived students, raked in federal dollars, and allowed their executives to profit at taxpayers’ expense.” The officials specifically point out that both schools “engaged in extensive and sustained misconduct that has violated Department regulations, including the prohibition on making substantial misrepresentations to students.” We discussed both schools’ violations at length in the May 2023 feature article that kicked off our series about Phoenix, “What a University of Phoenix Takeover Might Mean for Online Education.”

An interesting paragraph in the letter encourages ED to “continue providing accessible and streamlined avenues for other defrauded borrowers who attended Ashford and Phoenix to receive relief.” This appears to be a reference to the coordinated public relations campaign that the Education Department has apparently undertaken in collaboration with the Federal Trade Commission, an initiative we pointed out in our October 2023 article about the Administration’s $37 million in student loan relief for former Phoenix students. The double-agency collaboration may attempt to register as many defrauded borrowers as possible into the Education Department’s Borrower Defense Loan Discharge program.

That campaign might be having a substantial impact, and colleges beyond Phoenix and UAGC may already be affected. This October 2023 article from Inside Higher Ed’s Katherine Knott reports on college and university administrations witnessing a sudden flood in the number of loan relief applications by borrowers alleging that their schools defrauded them. These filings are not limited to for-profit schools; they also include “community colleges, public research universities, religious colleges, and other types of institutions.”

Senators Elizabeth Warren of Massachusetts and Jeff Merkley of Oregon signed the letter. U.S. Representatives who joined include Maxine Waters and Barbara Lee of California, Pramila Jayapal of Washington, Jan Schakowsky of Illinois, Lloyd Doggett of Texas, Nydia Velázquez of New York, and David Trone of Maryland. Except for Durbin and Merkley, all these lawmakers are up for re-election in 2024.

In a statement issued along with the letter, Senator Durbin points out that since 2020 he had warned two state universities against purchasing online for-profit colleges in deals that would force the state institutions to accept the for-profits’ liabilities and poor-quality educational programming. In September 2023, Durbin wrote a letter cautioning the University of Idaho against acquiring Phoenix, and in 2020 he had also advised the University of Arizona not to buy Ashford.

One wonders if Arizona’s administration might now regret not having taken Durbin’s advice. Five days after the release of the lawmakers’ letter, the Chronicle of Higher Education reported that Arizona’s president Dr. Robert Robbins had disclosed that the university has a “major problem” with its finances.

In a highly unusual speech by a president of a flagship R1 doctoral research institution, President Robbins reported to the Arizona Board of Regents that the university actually had a cash balance on hand of almost a quarter of a billion dollars less than officials had calculated over the summer.

In reference to the Arizona administration’s projection of only 97 days’ worth of cash reserves, Dr. Robbins told Arizona’s Faculty Senate, “I was as surprised as all of you to learn that we didn’t have 156 days’ cash on hand. I didn’t realize that our savings account dipped to this level.”

A January 2024 investigation by the Arizona Republic confirmed what many education industry analysts and observers had suspected: that UA’s Ashford University acquisition was a “significant contributor to the university’s financial instability.” A presentation to the Board of Regents later in November showed that the acquisition had added $265.5 million worth of operating costs to the University of Arizona’s budget in 2023, accounting for much of the working capital shortfall.

Meanwhile, UAGC has never turned a profit and had predicted an operating deficit of $18.3 million in November 2023. What’s more, UAGC has lost about a third of its 35,000 enrollment at the time of the acquisition’s announcement in 2020; currently the school only enrolls roughly 24,300, a 31 percent decline.

Given that the nationwide average bachelor’s degree six-year graduation rate is about 64 percent overall (63 percent at four-year state universities and 68 percent at four-year private nonprofit universities), one shocking exchange uncovered during the Republic’s investigation seems telling:

Early on, those pushing for the deal knew it would face tough questions.

“Do you know the current retention and graduation rate at Ashford?” Brent White, one of the university officials responsible for the merger, wrote to another university official in a May 29, 2020 email. At the time, the six-year graduation rate was 9%.

“The Wikipedia page on Ashford reads like a hit job. . .We really do need a PR firm immediately.”

As the fallout from the crisis spread, several top officials stepped down from their positions. They included UAGC’s president Paul Pastorek, followed by UA’s chief financial officer Lisa Rulney, who left a role that paid $506,325. Even the university’s athletic director Dave Heeke resigned; his departure followed allegations that the university gave the athletic department a $40 million unsecured working capital loan his department never repaid.

With nearly a dozen top congressional Democrats now putting pressure on the Education Department to recoup $72 million from the University of Arizona, news of the financial crisis comes at a particularly precarious time for the college.

Nevertheless, Arizona and UAGC officials still appear to believe that the way the Ashford acquisition was legally structured—by setting up an affiliated entity separate from the University of Arizona to absorb Ashford’s liabilities—should shield the university and the state from recoupment efforts. An August 2023 statement they provided to the Associated Press reads in part:

The University of Arizona had absolutely no involvement in, and is not directly or indirectly responsible for, the actions of Ashford and its parent company, Zovio Inc, on which the Department has based its discharge of these borrower defense to repayment claims. These actions of Ashford and Zovio occurred well before The University of Arizona Global Campus (UAGC) acquired Ashford University.

In 2020, The University of Arizona established UAGC as a non-profit Arizona corporation for the purpose of acquiring Ashford’s online university and operating it as an independent institution in affiliation with The University of Arizona. UAGC was governed by an independent Board of Directors and had new, well experienced senior leadership with no ties to Ashford or Zovio.

However, Knott also points out in another IHE article that the Education Department doesn’t appear to see it that way.

During their press conference announcing the $72 million loan discharge, one of the Department’s senior officials emphasized, “When a school acquires another school, they agree to accept the liabilities from the school they are acquiring. We will seek to recoup the funds from the current owner, as well as anything we can get out of Zovio.”