Obama Insiders Want to Buy Floundering For-Profit, University of Phoenix
Today, I read an article entitled, “Bid to Buy For-profit College by Former Obama Insiders Raises Questions.” I cannot share it with readers because the article appeared in Politico Pro, an exclusive publication that costs between $10,000 and $300,000 a year for a subscription. (The article was sent to me. I did not pay for it. Even USDOE decided not to pay the $25,000 per year it would cost to subscribe.)
But I believe it is important to relay to readers information from the article. So, what I will do in this *free* post is paraphrase some of the article content and cite from/link to other sources.
(Update 06-30: Thank you to Peter Greene, who found the very same article on “regular” Politico. Read it here. Apparently the $10,000 – $300,000 difference is in a day: The free piece was posted on 06-29, and the pay piece was posted 06-28.)
Obama’s very close friend (“first friend?”), Marty Nesbitt, and others are seeking US Department of Education (USDOE) approval to purchase the fiscally-troubled for-profit, University of Phoenix. Nesbitt and former Deputy Secretary of Education, Tony Miller, run a Chicago-based private equity firm, Vistria Group.
USDOE approval would keep the student loan and Pell grant bucks coming to University of Phoenix– which happens to be the subject of three state attorneys general as well as the Federal Trade Commission (FTC).
The price tag for Vistria et al. appears to be $1.1 billion. As it stands, University of Phoenix receives $2 billion annually in public money.
If University of Phoenix goes under, then all of those student loans are forgiven– which means taxpayers foot the bill. If Vistria et al. acquire University of Phoenix, then the goings-on at the school become private. No more requiring that that public be made aware of the salaries of the school’s executives, or that the public be made aware of litigation against the school, or that the public know about pending investigations.
Then comes the issue of a number of people close to Obama, or the White House, being involved in the proposed acquisition. Miller is one. He would be in charge of Apollo Education if Vistria et al. acquire University of Phoenix.
The private equity firm run by one of President Obama’s best friends is getting even closer to his administration. The Chicago-based Vistria Group, co-founded last year by longtime Obama pal Marty Nesbitt, has hired Jon Samuels, one of the President’s top lieutenants on Capitol Hill, Fortune has learned.
It’s not immediately clear what role Samuels will fill for the fledgling investment outfit. (In a phone call to Fortune, Samuels confirmed his new employment status, but declined to comment further.) The Chicago native doesn’t appear to have any experience working in the financial services industry. Rather, Samuels has made his career in politics, working his way up from Capitol Hill, where he spent eight years in the office of Rep. Jan Schakowsky, a liberal Democrat representing Chicago’s lakefront. He joined Obama’s presidential campaign in 2008 and eventually went to work for the legislative affairs operation in the White House, which functions as the administration’s in-house lobbying team.
Vistria’s political clout starts at the top: Nesbitt is a charter member of Obama’s Chicago inner circle, serving as national treasurer for both of Obama’s White House bids and now leading the effort to establish his presidential library. Befitting that status, he’s also one of Obama’s favorite golfing buddies, having hit the links with the President 19 times as of early August, according to a Politico breakdown. In business, his defining success so far has been co-founding The Parking Spot, an airport parking company, with now-Secretary of Commerce Penny Pritzker.
Nesbitt launched the Vistria Group last year with Kip Kirkpatrick, a healthcare investor who once ran for Illinois treasurer. Samuels joins them and a small roster they’ve assembled since then that includes Tony Miller, a Silver Lake veteran who was most recently Obama’s deputy secretary at the Department of Education.
How the firm plans to use that political wattage isn’t yet known. Vistria has raised $148 million for its first fund, according to an Aug. 5 filing, including $5 million from the Illinois Municipal Retirement System. In its brochure, the firm said it plans to invest in primarily U.S.-based mid-market companies, operating in education, health care and financial services—chosen, as Nesbitt told the Chicago Tribune last year, for their position at “the nexus of the public and private sectors.” (The firm’s name is a mash-up of the Latin words for “power” and “three,” which Nesbitt explained points to the cofounders’ financial, operational and regulatory know-how.)
As we’ve noted, there’s a can’t-miss irony to one of the President’s closest confidants and campaign advisors embarking in private equity when Obama won reelection partly by vilifying Mitt Romney’s career in the industry. And it gets richer when that friend poaches talent from the President’s administration. Conceivably, if a broader tax reform debate breaks out next year and the administration presses its case for ending the capital gains treatment of investment managers’ carried interest earnings, the industry and its defenders could make hay by pointing to the Obama alumni club gathering at Vistria.
We now have an idea regarding “how the firm will use their political wattage.”
Politico Pro tried to get statements from Nesbitt, Samuels, and Brundage regarding any contact made with USDOE. In questions submitted in writing, Politico Pro broached issues of conflicts of interest.
Vistria replied with a brief statement to the effect of the leadership potential of the University of Phoenix in producing (you probably can guess) students ready to serve the needs of the economy, and that the cost to the student would pay off in “high quality outcomes.”
No addressing the conflicts of interest.
University of Phoenix’s stock is at $9 a share, down from $56 five years ago. It seems that Vistria et al. need to convince USDOE to give its blessing in short order; Apollo Ed believes that the acquisition must happen by October; otherwise, the University of Phoenix’s financials might be so bad that the for-profit would be beyond recovery. Of course, they can’t wait too much longer than that; Obama/Chicago will be out of the White House.
The University of Phoenix, an online college, is under investigation by the U.S. Federal Trade Commission for potential deceptive or unfair business practices, its parent company, Apollo Education Group, said Wednesday.
According to CNNMoney, Apollo must release sensitive documents regarding marketing, tuition, billing, accreditation, financial aid, fees, student retention and military recruitment practices, among other things, that go as far back as Jan. 2011.
The University of Phoenix has reportedly collected more than $488 million in tuition and fees for veterans, “a figure that dwarfs nearly every other institution identified as a GI recipient by the Department of Veterans Affairs.”
The federal government began tracking for-profit universities that recruit low-income students that qualify for large amounts of financial aid, leave them with debt that aggregates well after graduation and then makes repayment difficult.
CNNMoney reports that new federal rules were implemented on July 1 to hold universities with career-training programs responsible for students’ returns on investment of their degree programs. This regulation has the potential to shut down roughly 1,400 schools. …
Of course, what is sad-funny is that those formerly working for a USDOE supposedly cracking down on for-profit colleges’/universities’ shady actions at, well, making that profit are now wanting the USDOE blessing in order to enter into a billion-dollar business venture with a for-profit university.
Politico Pro closes its piece with brief discussion of the “black box” of unknown approval protocol by which USDOE would bestow approval for Vistria et al. to become official owners of University of Phoenix.
Miller says that Vistria et al. will (you’ll love this) *turn around* this for-profit.
In 2010, Steve Eisman spoke of for-profit colleges as being the next subprime mortgage crisis. His words are worth a read six years later. For-profit colleges depend upon massive financial aid including student loans that students cannot repay.
Eisman notes that the beauty of for-profit colleges is that the government, student, and taxpayer carry the risk. He also notes that regulation would be detrimental to for-profit colleges.
For-profit colleges need to be regulated into extinction. However, I am hard-pressed to see that happen given the professional incest that so easily blurs lines between service and exploitation.
Coming July 08, 2016, from TC Press (revised release date):