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The Biden administration said Wednesday it will forgive about $37 million in student loans for borrowers who attended the University of Phoenix, once a for-profit behemoth that in the last decade lost a massive chunk of its enrollment amid lawsuits and scandal.

More than 1,200 students who attended the University of Phoenix between late September 2012 and December 2014 will have their loans wiped out, Federal Trade Commission and U.S. Department of Education officials jointly announced.

University of Phoenix representatives falsely advertised they maintained relationships with prominent companies, including those in the Fortune 500, and implied students could use those ties to lock down jobs, the Education Department and FTC alleged.

The university settled identical FTC allegations in 2019 to the tune of $191 million. 

The loan discharge fits with the White House’s stated mission of holding accountable institutions it deems poorly performing and deceptive — namely for-profits. A senior Education Department official said Wednesday it will seek to recoup the costs of the cancellation from University of Phoenix’s owners.

But the move also casts a shadow on the University of Idaho’s $550 million deal to acquire University of Phoenix and convert it into a nonprofit institution, an arrangement already under fire by faculty and, recently, federal lawmakers. 

“These allegations do not reflect University of Phoenix we know today,” University of Idaho spokesperson Jodi Walker said in an email. “We value the student focus and vision University of Phoenix has today and stand by our commitment to affiliate.”

Meanwhile, University of Phoenix intends to fight loan discharges it considers invalid, spokesperson Andrea Smiley said in an emailed statement.

The university will “vigorously challenge each frivolous allegation and suspicious claim through every available legal avenue,” Smiley said. 

U of Phoenix’s checkered history

The University of Phoenix peaked in 2010, when it enrolled almost half a million students — buoyed by an advertising campaign that Richard Cordray, chief operating officer for the Office of Federal Student Aid, called brazenly deceptive Wednesday. 

However, mired in lawsuits and government investigations, the University of Phoenix bled enrollment, which has fallen to about 85,000 students.

The University of Phoenix never admitted wrongdoing in its FTC settlement, which Smiley reiterated Wednesday. 

But federal officials said Wednesday the evidence the FTC gathered against the for-profit was enough to discharge loans under a federal program called borrower defense to repayment, which clears the debts of students whose colleges misled them.

The FTC and Education Department alleged the for-profit had told students that corporations were clamoring to hire University of Phoenix graduates — a lie, the agencies said. 

In another example, University of Phoenix allegedly posted names and insignias of companies on an internal career database portal, giving students the impression it was presenting unique job opportunities even though they were available to the general public.

“Students who trusted the school and wanted to better their lives through education ended up with mounds of debt and useless degrees,” Cordray said. 

Recouping the costs

A senior Education Department official Wednesday said it will attempt to recover the discharge costs from the University of Phoenix’s current owners, Apollo Global Management and the Vistria Group, private investment firms.

Doing so is not simple. The Education Department ran into legal trouble last year when it tried to recoup more than $23 million from DeVry University, another for-profit college that the agency said had defrauded students.

The Education Department in February 2022 wiped away loans for about 650 DeVry students, also under borrower defense. But after it threatened to go after DeVry that August, the for-profit sued in October.

DeVry officials alleged the Education Department didn’t allow it due process rights and had flouted regulatory requirements. 

In July, DeVry once again asked a federal court to block the recoupment, saying otherwise “it will suffer irreparable injury.”

What’s up with Idaho?

The senior department official it’s not focusing on the University of Idaho for recoupment, especially since its deal to acquire the University of Phoenix hasn’t closed yet. That’s expected early next year.

However, the cancellation could fuel critics’ arguments that the public university erred in acquiring a for-profit institution with a history of poor student outcomes. 

In May, Idaho’s education board approved the university to create a nonprofit entity, which will buy the University of Phoenix. The University of Idaho plans to sell $685 million worth of bonds to pay for the project.

Most of the money, $550 million, would apply to the purchase price of University of Phoenix. The nonprofit is projected to give the University of Idaho $10 million annually.

The arrangement recently caught the attention of three U.S. Democratic senators, including Elizabeth Warren of Massachusetts, who warned University of Idaho against moving forward with it.

“Given Phoenix’s long record of poor student outcomes, deception of veterans, and entanglements in federal investigations and enforcement actions, we urge you to reconsider the implications of acquiring Phoenix, which could cause great harm to students and taxpayers not only in Idaho but also across the country,” the senators wrote in a letter this month.

In response, the Idaho university’s president emphasized the nonprofit would act as a legal firewall of sorts between the public college and University of Phoenix. 

Before the University of Idaho struck the deal, the University of Arkansas System had this year mulled scooping up the for-profit college.

However, the Arkansas board in April narrowly voted not to support a sale, citing concerns about the University of Phoenix’s past.