Collateral Damage in Lender's Demise
Given MyRichUncle's consistent bashing of college financial aid officers for alleged conflicts of interest, few tears were shed in higher education when MRU Holdings, the parent company of the controversial student loan provider, filed for Chapter 7 bankruptcy this month.
But the demise of MRU Holdings is also spelling trouble for Embark, another MRU subsidiary whose online admissions software hundreds of colleges use. The company has laid off many if not most of its employees, and Embark's competitors are warning its customers that the company's future is in danger.
MRU Holdings quietly bought Embark from the Princeton Review in 2007, vowing to invigorate a company that had seen its value and reach tumble during the six years the Princeton Review owned it. But critics panned the purchase on a variety of fronts, including questioning whether an online applications company that sells its wares to admissions offices could thrive given MyRichUncle's widespread alienation of financial aid officers. Others complained that the partnership was part of a larger entangling of business relationships involving lenders, college admissions companies and colleges.
By the middle of last year, MRU reported to the U.S. Securities and Exchange Commission that it had increased its stake in Embark to help it launch the company's new Web site, and said the "wholly owned subsidiary" had lost $5.4 million on revenues of $5.9 million in the 2008 fiscal year.
The parent company expressed optimism that it would be able to take advantage of the relationships Embark builds with entering college students to market student loans to them -- arguably just the sort of conflict of interest that troubled some critics. "While our Embark subsidiary had a net loss, we believe that ... in future fiscal years we will be able to capitalize upon the users that opt-in to receive information about financial services and other products either by selling the leads to other financial services companies or by being able to market student loans to them on a profitable basis."
But in the last year or so, MyRichUncle's own prospects have tumbled with the rest of the student loan industry, with the lender finding itself unable to raise money to issue new loans and steadily narrowing its focus. This month, with the company unable to pay its creditors, and having assets of $11 million and liabilities of $45 million, it declared bankruptcy and suspended its operations.
Embark has continued to operate, and its customers -- some of whom have worried about the company's future given the troubles of its parent -- said they had been reassured by Embark officials. Jeff Zellers, vice president of enrollment at Muskingum College, which uses Embark's online application services, said that after he called company officials for a status report, an Embark official had left a voicemail that said it was operating normally. "We download files every day, so things seem okay for now," Zellers said.
Officials at MRU Holdings could not be reached for comment. But former Embark officials painted a bleak picture of its situation. David Mosher helped build Embark in its early days, left the company a year after it was purchased by Princeton Review, and rejoined it last June after MRU invested in it, focusing largely on helping it launch its new customer relationship management software, Admissions Center 2.0, last summer.
In an interview Tuesday, though, Mosher said that he had been one of 22 employees laid off by Embark on January 28, which he said followed earlier layoffs on December 12 and January 9. Mosher said that there is "not much" left of the former Embark, and that several former MyRichUncle officials, including its former president and co-founder, Raza Khan, have "taken over" the company and various roles and responsibilities there.
Mosher said he could not speculate about the company's future. But he noted with some irony that "the guys who were bashing [the colleges] are now in charge of Embark."
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