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University of Phoenix: Biden Cancels $37 Million in Loans for 1,200 Students

In September 2023, the Biden administration announced that it would approve $37 million in student loan cancellations for more than 1,200 former students enrolled at the University of Phoenix between 2012 and 2014 who essentially claimed that the for-profit school scammed them.

“The University of Phoenix brazenly deceived prospective students with false ads to get them to enroll,” said the chief operating officer of the U.S. Department of Education’s Office of Federal Student Aid, Richard Cordray. “Students who trusted the school and wanted to better their lives through education ended up with mounds of debt and useless degrees.”

Although the announcement marks yet another in a $22 billion string of student debt relief approvals during the Biden administration, it also raises more questions about the University of Idaho’s proposal to acquire the embattled University of Phoenix. readers will recall our series of articles in which we covered the recent attempts to purchase Phoenix, first by the University of Arkansas and now by the University of Idaho.

One of the federal regulations that we covered provides the legal authorization for this announcement’s $37 billion in loan discharges. It’s known as borrower defense to repayment (BDR), and this law allows students to have their federal student loans forgiven if they can prove that their college defrauded them. In other words, if a former student can prove to the Education Department that a school lied to them—and that the ex-student relied on those deceptions when deciding to enroll—ED has the authority to cancel all or part of their student loan debts.

We also covered Phoenix’s long history of fraudulent and deceptive business practices that have attracted a series of investigations by government agencies and law enforcement authorities. One such investigation resulted in Phoenix’s record $191 million Federal Trade Commission settlement in 2019, which also provides the evidentiary foundation for this latest $37 million debt cancellation.

The FTC found that between 2012 and 2014, Phoenix misled prospective students with false advertising about its “corporate partnerships” with firms like AT&T, Microsoft, Yahoo, Twitter, and the American Red Cross, along with the job opportunities that would purportedly be available to graduates. Washington lawyer David Halperin of the Republic Report points out that the Education Department concluded that Phoenix’s students could now demonstrate eligibility for loan cancellations under borrower defense to repayment regulations based on ED’s review of the 2019 FTC investigation’s evidence.

However, the Department only allowed 1,200 students to qualify so far. That’s because these borrowers needed to have attended Phoenix between 2012 and 2014 and must have previously applied to ED’s borrower defense program for relief.

“Smoke & Mirrors” False Advertising

In a statement released with the announcement, the Education Department said it had reviewed the FTC’s evidence, including “internal emails, policies, and procedures; recorded phone calls with prospective Phoenix students; and draft and final advertisements.” Furthermore, ED also conducted its own independent fact-finding process in which it obtained evidence from Phoenix.

Shocking new facts revealed through this unusual double-agency collaboration have disclosed a far more extensive scope of deceptions than we had previously reported. For example:

  • The misleading practices weren’t limited to deceptive advertisements in TV commercials and social media during the university’s “Let’s Get to Work” national advertising campaign, as our coverage had indicated, but also occurred during recruitment calls and meetings with prospective students. Phoenix used those opportunities to deceive prospective student borrowers about their employment prospects by misrepresenting the nature of the university’s relationships with those blue-chip corporations.
  • ED’s University of Phoenix Borrower Defense Executive Summary further explains, “Phoenix represented that its relationship with these companies created unique job opportunities for Phoenix students, which was not true.”
  • Borrowers heard from the school that a degree from Phoenix would help “get your foot in a few thousand doors,” and that the school purportedly had corporate “partners” who were “looking specifically at University of Phoenix students for hire instead of any other school.”

But not a single one of those promises was true. The statement continues:

Phoenix did not have partnerships with companies to provide hiring preferences for its students. In fact, the school’s relationship with corporate partners did not result in any benefits to impacted Phoenix students. Corporate partners let Phoenix display their insignias and names in a career database portal, which gave the false impression that Phoenix offered unique job opportunities, when in reality all the jobs posted were available to the general public.

Phoenix’s management was aware that the corporate relationships the school claimed to have did not exist. One senior vice president at Phoenix described one of the advertisements in question as “smoke & mirrors.” Another conceded to other company executives that the “Let’s Get to Work” ad campaign lacked factual support and needed improvement. Despite these concerns, Phoenix continued to falsely advertise its “connection” and “partnership” with corporate employers for more than two years, until December 2014.

In other words, the evidence collected by the two agencies shows that Phoenix’s promises of high-profile employer connections and employment opportunities were all empty. Because borrowers reasonably relied on these promises to their detriment, the Education Department decided to award complete student debt relief to all those who enrolled at Phoenix between 2012 and 2014.

Recruiting Phoenix’s Borrowers

Unfortunately for Phoenix, the Biden Administration may have also launched a coordinated publicity campaign between the Education Department and the FTC to recruit as many qualified former Phoenix students as possible to enroll in ED’s Borrower Defense to Repayment program. Evidence of such a campaign appears on this FTC web page launched on the same day as the Administration’s $37 million loan discharge announcement.

The page kicks off with copywriting that’s certainly engaging enough: “The Department of Education (ED) just announced that it will approve full federal student loan forgiveness for some University of Phoenix students. Want to know if you’re eligible to get your federal loans forgiven? Keep reading.”

The Administration has clear incentives to boost the numbers of loan discharges—which should also boost the President’s odds of winning a second term in office. One of President Biden’s most effective campaign promises during his 2020 campaign focused on student debt relief.

But now that the Supreme Court has canceled the President’s initial strategy for delivering on this promise, his team appears to be scrambling to provide student loan discharges through alternate mechanisms.

Downplaying the Recoupment Risk

Halperin reports that during a call with the media, an Education Department official said that ED planned to pursue recoupment of the $37 million from Phoenix, much as it has already launched a similar recoupment action against DeVry University that we discuss below, and announced it would pursue another against Ashford University. Whoever owns Phoenix at the time ED launches the recoupment proceeding would be responsible for paying the $37 million.

University of Idaho officials have always tried to downplay this recoupment risk. Currently, they appear to rely on arguments like these:

  1. The Phoenix acquisition poses no financial risks to the State of Idaho because borrower defense recoupment liabilities would be assumed by a legally separate nonprofit entity. Newly rebranded as Four Three Education, Inc., that entity would assume all the assets, liabilities, and capital of the University of Phoenix but function separately from the University of Idaho. Moreover, tax-exempt and taxable bond issues would finance Four Three’s operations separately from the U of I.
  2. If the deal goes through, The university counts a $200 million working capital deposit from Phoenix as available to manage this potential BDR liability. Phoenix may have additional working capital from operations that may be available to manage such contingent liabilities, but to our knowledge, the U of I has never provided the public with any estimates for those additional funds.
  3. The University of Idaho carries a liability insurance policy covering claims up to $25 million.
  4. Estimates of this BDR risk appear relatively small. Phoenix’s management estimates that this risk amounts to only about $1.5 million, but some consultants estimate it amounts to more than $7 million. Strangely enough, the University of Idaho does not yet appear to have disclosed a precise value for this risk.

Billions In Potential Liability

Even though the Idaho officials portray confidence in public about their ability to manage the Phoenix acquisition’s BDR risk, privately they must feel concerned about some of the new math related to Phoenix that the Education Department just released.

Perhaps that “math anxiety” may explain why in mid-October the university refused to release records requested by Idaho Education News that would specifically clarify the acquisition’s borrower defense risks. The publication had asked for “reports, analysis or other data compiled by the University of Idaho or its consultants, regarding the exposure created by University of Phoenix student loans.” In refusing, counsel for the university ostensibly claimed that such records were shielded by Phoenix’s acquisition nondisclosure agreement, a federal privacy law, and attorney-client privilege. However, the real reasons are probably quite different.

What sort of math anxiety might prompt such a refusal? First, in a previous Republic Report article, Halperin had estimated that Phoenix’s liability for canceled loans from borrower defense claims could run into the billions of dollars but did not specifically explain his calculations. Why he offered that prediction is now becoming clear.

In 2012, Phoenix enrolled approximately 400,000 students but also suffered from a massive dropout rate. Assuming that Phoenix enrolled around half a million students between 2012 and 2014, one could estimate the school’s potential liability through a simple proportion. Halperin says:

If loan cancellation for 1,200 students equals 37 million dollars, cancellation for 500,000 students could be 15 billion dollars.

Second, Halperin’s analysis implies that the average value of each one of the loans forgiven by the Biden Administration within the $37 million sample amounts to $30,833 per borrower. This amount roughly aligns with similar totals found by recent studies of average student loan balances for undergraduates.

Third, let’s compare that average balance per borrower with the best current data on the number of borrower defense claims against Phoenix. In response to a Freedom of Information Act (FOIA) request, on September 15—only five days before the announcement of the $37 million discharge—the blog Higher Education Inquirer received new data from the U.S. Department of Education.

The Department reported that borrowers had filed 73,740 consumer fraud claims against Phoenix through the agency’s Borrower Defense to Repayment program. Most of the claims were filed only recently, with 41,700 or about 57 percent of the BDR claims filed between 2022 and August 2023. But of that 73,740 total, 34,940 are already approved for relief under the Sweet v. Cardona lawsuit’s settlement, and 38,210 cases are currently pending.

However, these values suggest that—absent court rulings that reduce the school’s financial responsibility—Phoenix could eventually face potential recoupments on behalf of the 34,940 just-announced claims approved under Sweet and the 1,200 claims Biden just approved. That’s 36,140 claims combined. The aggregate average value of those loans at $30,833 per borrower amounts to about $1.11 billion dollars.

In such a scenario, the minimum resources disclosed up to now that are available to fund Four Three’s borrower defense claims might not go very far. Idaho officials claim that Four Three will have $200 million available plus the $25 million liability coverage, or $225 million total. But that’s only about 21 percent of the resources it would need to pay for this $1.11 billion.

In other words, Four Three would need at least five times the available resources its backers have disclosed to date. And that’s not counting a second potential avalanche of claims, including some proportion of the roughly 38,010 pending Phoenix BDR cases still awaiting awards, plus some of the claims yet to be filed in response to the federal agencies’ PR campaign. This analysis also suggests that the risk exposure estimates ranging from only $1.5 million to $7 million seem unreasonably low.

Moreover, a potential $1.11 billion large-scale recoupment doesn’t seem implausible given the range of recent actions by the Education Department. For example, in August 2022, the Department approved a $3.9 billion group discharge for 208,000 borrowers who attended the now-defunct ITT Technical Institute. And six months earlier in February, ED also approved $415 million in borrower defense claims for students at four schools, including a $72 million recoupment action against the currently operating Chicago-based for-profit DeVry University. “The Department anticipates that the number of approved claims related to DeVry will increase as it continues reviewing pending applications,” says the agency.

More Borrowers Eligible for Relief

But wait, there’s more. Halperin cites two more groups of former students with defense to repayment cases who also would likely qualify:

  • Borrowers from the Armed Forces who enrolled after relying on deceptions that resulted in the Department of Defense’s temporary cancellation in 2015 of Phoenix’s privilege to recruit students on military bases
  • Borrowers who enrolled in 2022 or 2023 after relying on Phoenix’s recent deceptive advertising campaign in violation of its 2019 FTC settlement. In this case, Phoenix falsely implied that it was a state university instead of a for-profit school by claiming “no out-of-state tuition” in commercials and other advertisements. Six U.S. senators drew scrutiny to this violation in a May 2023 letter to the secretaries of the Department of Education, Department of Veterans Affairs, Department of Defense, and the chair of the FTC.

Three of these senators then wrote an additional letter in September to University of Idaho President Scott Green, advising him to reconsider Idaho’s acquisition of Phoenix. The senators—Elizabeth Warren of Massachusetts, Richard Durbin of Illinois, and Richard Blumenthal of Connecticut—warned President Green about Idaho’s liability risk because of Phoenix’s borrower defense exposure. The senators also reviewed Phoenix’s history, including the school’s poor student outcomes and track record of predatory recruiting, which we covered in depth within our previous reports here on

In his reply, President Green relies upon the separate legal status of Phoenix after its assimilation into the Four Three Education entity. That way, he argues that the University of Idaho and Idaho taxpayers will be shielded from BDR liabilities, except for guaranteeing $9.9 million annually as a “backstop” if the merged entity defaults on bond issue interest payments.

President Green also cites an updated FAQ section on the university’s website. A key passage argues that Ashford University’s liability stems from losing a court battle with California’s Department of Justice, where Ashford was convicted of 1.2 million fraudulent misrepresentations—a case we examined in depth within our earlier article—but that Phoenix has not yet lost such a case. That might be true, but Phoenix already agreed to a $191 million settlement with the FTC to avoid an extensive and likely losing court battle against the federal government over fraud charges.

Certainly, in the event of a large-scale Education Department recoupment action arising out of borrower defense or any other claims, Phoenix might be “prepared to vigorously challenge such [an] action on appropriate grounds” in court, as the FAQ also claims. But that doesn’t mean Phoenix would prevail.

And as we suggest above, Phoenix’s multi-decade track record of investigations by law enforcement and other government agencies across the nation does not exactly inspire confidence that it could somehow mount effective defenses in court that would preclude all liability from recoupment actions arising out of this potential avalanche of BDR filings.

The Worst-Case Scenario

Finally, what would happen in the worst-case scenario, where Four Three lacks the resources to offset BDR recoupment demands? Halperin believes that the State of Idaho would simply allow the Four Three/Phoenix entity to declare bankruptcy:

I guess after that the University of Idaho might just let the new non-profit declare bankruptcy and walk away from its obligations. Cool. This new explanation doesn’t in any way change my conclusion that Idaho faces real risks from borrower defense—or from being associated with a predatory school.

Douglas Mark

While a partner in a San Francisco marketing and design firm, for over 20 years Douglas Mark wrote online and print content for the world’s biggest brands, including United Airlines, Union Bank, Ziff Davis, Sebastiani and AT&T.

Since his first magazine article appeared in MacUser in 1995, he’s also written on finance and graduate business education in addition to mobile online devices, apps, and technology. He graduated in the top 1 percent of his class with a business administration degree from the University of Illinois and studied computer science at Stanford University.