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Three Takeaways from ED Borrower Defense Claim on UAGC
Borrower defense is arbitrary, but UAGC and U Phoenix should not be surprised
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On Wednesday the US Depart of Education (ED) announced that it would discharge upwards of $72 million in student loan debt from former Ashford University students, using borrower defense to repayment claims.
The major education coverage can be found with Inside Higher Ed and Higher Ed Dive. The latter article led with the point that the University of Arizona may be liable for a portion of those claims due to its acquisition of Ashford to convert into the University of Arizona Global Campus (UAGC).
Here are some key takeaways from my perspective.
Somewhat Arbitrary, non-Independent Borrower Defense Claims
Borrower Defense to Repayment (BDTR) has undergone a lot of changes since its 1993 / 1994 inception. The once-obscure rule became a bigger issue with its 2016 revision that was partially driven by the large numbers of claims from the shutdown of Corinthian Colleges and and ITT. The rules were revised again in 2019 and in July 2023, although the latest revisions have been blocked by a federal court.
There has been a lot of drama on the four versions of BDTR, and CooleyED has a good set of articles for those wanting the details. Perhaps the biggest issue at play is the change from an individual basis (each student must file a claim and be adjudicated individually) to allowing a group basis (entire groups of students are subject to BDTR actions, whether they knew to apply or not, with the adjudication based on the general case). This change is at the root of much of the legal challenges and drama, but the trend is clear.
My problem with this usage, as with so many other ED actions, is that in reality ED uses slim statutory basis to create far-reaching and arbitrary claims, pretty much at the sole discretion of ED. Unless there is a lawsuit filed in response, ED acts as the prosecutor and judge and jury, which leads to political usage and regulatory activism. However, even though there are legitimate questions about the aggressive BDTR usage, Ashford University clearly had some real problems in its student recruitment and in my opinion Zovio (parent company) deserved to suffer repercussions from the lawsuit.
Closing the Door on UAGC Claims
Once the decision for the University to acquire Ashford University and create UAGC became public, I was critical of the naive or misleading claims made by university leadership about their lack of liability for past Zovio / Ashford actions.
Spokesperson Pam Scott:
President Robert Robbins:
My conclusion at the time of the lawsuit win in Spring 2022:
Well here we are.
Beyond liabilities, UA leadership frequently touted the $37.5 million in pre-payments from Zovio to UAGC as a key basis of the agreement. UAGC would immediately be an income source. Further, UAGC would be insulated from additional marketing spend as that would be Zovio’s responsibility. See this post for quotes.
With the dissolution of Zovio and full acquisition of UAGC, and with Wednesday’s ED actions, so much of the University of Arizona’s claims about the UAGC financial status are gone, or at least in doubt. Zovio doesn’t exist, and UA is on the hook for all marketing spend. UA is or might be on the hook for BDTR claims that might exceed the much-touted $37.5 million pre-payment. All liability rests with UA and UAGC.
The University of Arizona disagrees and is likely to fight any efforts by ED to recoup funds, based on a written statement to the Arizona Star.
Sending a Message
In the IHE article, I was quoted:
For anyone thinking that the timing of Wednesday’s announcement, coming in the midst of the University of Idaho’s acquisition of the University of Phoenix, is a coincidence, think again. The U Idaho board has approved the sale, but it is not yet complete. I strongly suspect that ED took this action at this time to send a message, particularly to Idaho. Nice nonprofit acquisition you have there. It would be a shame if some liability were to happen to it.
And this message is not just for Idaho / Phoenix - it is for any universities considering a nonprofit conversion.
Whether you agree with ED’s actions with the planned discharge of $72 million student loans tied to Ashford BDTR claims or not, it would be a mistake to not see the bigger picture of what is going on with ED’s continued regulatory activism.
It is possible that ED makes a lot of noise and legal maneuvering with UA but in the end drops its efforts to recoup funds, with the duration of the public dispute likely lasting at least as long as it takes the University of Idaho to finalize its acquisition of the University of Phoenix. We don’t know, but that’s my guess. But even if UA prevails in the end, this is a new headache for UAGC that makes leadership (at least at the time of the acquisition) look even worse.
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