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The University of Phoenix name and logo on the side of a glass building.

University of Phoenix

Apollo Education Group's decision to go from publicly traded for-profit company to a privately held one may not be the only major restructuring the company will face down the road.

The parent company of the University of Phoenix announced yesterday that it would be sold to a group of investors, including the Vistria Group, for $1.1 billion. Tony Miller, the chief operating officer and a partner of the Vistria Group, who is a former deputy secretary of the U.S. Department of Education, will become chairman of the Apollo board.

In a statement, Miller said the company wants to focus on its transformation and enhancing student outcomes.

“For too long and too often, the private education industry has been characterized by inadequate student outcomes, overly aggressive marketing practices and poor compliance. This doesn’t need to be the case,” Miller said. “We are committed to accelerating and enhancing efforts to establish the University of Phoenix as the leading provider of quality higher education for working adults and to continue supporting the organization’s commitment to operating in a manner consistent with the highest ethical standards.”

To experts familiar with the for-profit landscape, the move away from being publicly traded could signal a possible future move by Apollo to try a new business model, evolving into a nonprofit or simply rebuilding without the scrutiny of shareholders and the public eye.

The U.S. Department of Education still will have to decide whether to approve the sale in order for the company to remain eligible for federal student aid. However, this new group of investors is familiar with the department's handling of for-profit entities. Besides Miller, who held his department post during the first term of the Obama administration, Vistria is led by Martin Nesbitt, who has been described by Fortune as a "close pal" of the president.

The University of Phoenix last year received more than $1.7 billion in federal student loans and grants, the most of any college, according to an Inside Higher Ed analysis of federal records.

In July, the U.S. Federal Trade Commission sent Apollo a civil investigative demand related to allegations of deceptive or unfair advertising and marketing. In August, California’s attorney general, Kamala Harris, announced that her office also would investigate Phoenix for its treatment of military and veteran students. And last week, Apollo announced it had received a second investigative subpoena from Harris's office. (Federal election records show that last year Nesbitt donated to Harris's ongoing campaign for U.S. Senate.) The U.S. Department of Defense lifted its probation of Phoenix last month. That sanction stemmed from allegations of improper recruiting of students who receive military tuition assistance.

The department also could impose new limitations on the university as a condition of approving its change in ownership. But such limitations could threaten the sale from being completed, according to a copy of the terms of the deal released Monday. For example, the buyers could walk away from the deal if the department were to require the University of Phoenix to take out a letter of credit that is greater than 10 percent of its federal funding.

Asked about the department’s plans for the University of Phoenix, James Runcie, the chief operating officer of the department’s Office of Federal Student Aid, told reporters Monday that “it would be premature and inappropriate for us to talk about what we’re doing with respect to that institution.”

Runcie cited “ongoing investigations” of the university, and said department officials “also have program reviews and other things that we’re going through.”

Under Secretary of Education Ted Mitchell, in a statement, struck a more optimistic tone about the company’s sale.

“It’s encouraging that the Vistria Group is talking about a focus on improving student outcomes. We’ll be watching closely to ensure that they follow through on this commitment,” he said, adding that “what’s good for students will be at the heart of our review.”

A department official, who declined to be named, said in an email that officials had not yet received from the University of Phoenix a sale proposal to review. The official said that, generally speaking, in making such decisions, the department looks at “the type of institution being acquired … its compliance history, the financial condition of the purchaser, the Title IV history of the purchaser and the details of the sales transaction to determine if a change in ownership would be approved for Title IV purposes and if so, any limitations placed on the new company after the institution is purchased.”

A Time for Change?

Apollo long has been the largest for-profit education provider in the country. But its quarterly reports for years now have revealed plummeting revenues and student enrollment numbers. At its peak in 2010, Apollo had 475,000 degree-seeking students and about $4.9 billion in annual revenue. Corporate filings released last month revealed the company's quarterly revenue was down to $586 million compared to $714.5 million a year ago. Total enrollment also fell to about 201,000 students from about 267,000 last year.

The institution also has faced increased pressure from regulators and the Obama administration.

Apollo and the University of Phoenix thrived under the regulatory environment of the early and mid-2000s, but have been unable to continue those high enrollment and revenue numbers as regulations have tightened during the last few years. There's also been an increase in competition from the growing nonprofit sector. For example, the rates vary, but tuition for a bachelor degree from Phoenix is $410 per credit, or more. But Southern New Hampshire University, a nonprofit, charges around $320 per credit hour for undergraduate degrees, and community colleges often charge less than $100 per credit hour.

“They were set up in a particular regulatory environment, and when that environment shifts they don’t have anything to fall back on. With all the changes and pressures on higher education in general, you don’t see traditional institutions say, 'We can’t deal anymore' and close up shop. They’ve been able to adapt and adjust over time,” said Kevin Kinser, chair of the department of educational administration and policy studies at the State University of New York at Albany and an expert on for-profit education. “The fact that Apollo, University of Phoenix, hasn’t been able to do that is a pretty strong critique against the for-profit sector and its ability to adjust to the market.”

Robert Shireman, a senior fellow at the Century Foundation, said Apollo had a model that worked well 20 years ago, but that changed as the company “cut corners” on quality and chased profits.

“The buyer says the new ownership will focus on compliance, but it is not enough to be a not-corrupt college. We need colleges to strive to be excellent, and I am not sure that the buyers realize how difficult that is in the for-profit environment,” he said, in an email.

The move to privatize and change ownership to a small group of investors could signal that some significant changes will take place that may not have been welcomed by shareholders looking for the company to meet revenue estimates.

“While the company is private, it will be able to maneuver more easily, taking steps that might look bad from a share-price perspective but over the longer term make the school stronger and, at least, appear higher quality,” Shireman said.

Under this new designation, Apollo can reduce tuition, hire more full-time faculty or advise students more fully so that some decide not to attend -- all in an effort to improve the perceived value of the company, he said.

Those changes “might take several years, so that the venture investors can make a killing when the company goes public again,” said Shireman. “The problem is that when the company goes public again the new shareholders have every incentive to, one by one, change every policy that has helped protect students from abuse.”

Being able to potentially make radical changes behind closed doors could lead to another outcome.

“Now they can make changes and shifts behind closed doors so no one is looking at their numbers and asking why haven’t they turned it around yet,” Kinser said. “They could be looking at a way to sell off some of their properties, or they could turn the University of Phoenix into online only and get rid of on-the-ground operations. This could be the first step to becoming nonprofit.”

It’s easier for a privately held company to go nonprofit than for a publicly traded one, he said.

Kinser compares this recent move by Apollo to one by Laureate Education, which went private in an effort to expand, but took on debt that would have displeased shareholders. In October, that company announced steps to become publicly traded once again. In addition, there's Education Management Corporation, which also transitioned from publicly traded to privately held in an effort to restructure and to be exempt from U.S. Securities and Exchange Commission regulations.

Only a handful of the large, publicly traded for-profit companies are still around -- DeVry University, Bridgepoint Education, ITT Technical Services and Career Education Corporation.

“The current and recent environment has been such that a number of schools are looking at how to structure to focus on long-term investments and educational outcomes, rather than quarterly returns for the market,” said Steve Gunderson, president and chief executive officer of the Association of Private Sector Colleges and Universities. “I’m not saying that makes one structure better than another, but we’ve seen some incredible diversification.”

-- Michael Stratford contributed to this article.

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