Little scrutiny in DeVry sale, as DeVos targets protections
WASHINGTON — A little-known venture capitalist is on the verge of acquiring one of the biggest for-profit colleges in the country, a transaction that would put him in control of a troubled national chain that’s more than 60 times the size of the tiny California school he currently owns.
The business friendly Trump administration has given a tentative green light to the sale of DeVry University to Bradley Palmer, chairman of Connecticut-based Palm Ventures, even as critics warn the deal raises red flags. Chief among them is the challenge of taking over such a large institution. DeVry, which has an annual enrollment of about 46,000, also faces thousands of fraud complaints filed by students.
The DeVry acquisition is the inverse of how Washington typically works. Often companies and their top executives spend heavily to influence a government decision or policy in their favor. But there’s no sign that any of the parties employed lobbyists or made significant political contributions specifically to push the sale forward.
Like most transactions in the for-profit world, the DeVry deal has received little public scrutiny even though millions of dollars in federal financial aid are at stake. And the change in ownership is moving along at the same time Education Secretary Betsy DeVos works to dismantle Obama-era regulations designed to better police the industry and increase protections for students.
Reviving for-profit colleges: If the DeVry deal is finalized, it would be another in a series of recent sales meant to breathe new life into troubled for-profit colleges. Purdue University recently bought the for-profit Kaplan University chain and converted it into a nonprofit to lead the school’s online programs. Kaplan agreed to a $1.3 million settlement in 2015 after it was accused of hiring unqualified instructors. Last year the Dream Center Foundation, a religious charity, purchased three chains from Education Management Corporation, which in 2015 agreed to nearly $200 million in settlements over allegations that it used illegal recruiting tactics.
Under the terms of the DeVry sale, the chain’s stock will be acquired at no cost by Cogswell Education LLC, a holding company registered in Delaware and run by Palmer. Cogswell Education currently owns the for-profit Cogswell College in San Jose.
The impact for students is unclear. The Education Department said DeVry must keep promises it previously made to its students, including a commitment to disclose information about costs and student debt. A spokeswoman for Cogswell Education added that Palmer has no plans to sell DeVry in any particular timeframe.
“We are going into the DeVry investment with a long-term view focused on impact, quality and student outcomes,” spokeswoman Natalie Berkey said in a statement.
Favoring corporations: For DeVos’ detractors, the sale is more evidence that she’s putting corporate profits over the interests of consumers. A little more than a decade ago, Palmer’s firm acquired the nonprofit Heald College chain. In the span of a few years, Heald was converted into a for-profit school and then sold for $395 million to the Corinthian Colleges chain, which collapsed in 2015.
Bob Shireman, a former Education Department official during President Barack Obama’s first term and a frequent critic of for-profit colleges, questioned whether a similar fate awaits DeVry. Would Palm Ventures strip the chain down to make it as profitable as possible and then sell it off?
“Based on the way private equity firms have behaved generally, it would be reasonable to conclude that things are going to get worse for students and taxpayers,” Shireman said. “Not every lion kills its tamer, it’s not an absolute, but certainly it’s a reason for concern.”
Palmer declined to comment for this story. Berkey said in a statement that Palmer is “very private” and does not speak with media. She said if the transaction secures all necessary approvals, DeVry will be operated and governed by its own independent board of trustees, separate from Cogswell College.
“Further, it is not anticipated at this time that Brad Palmer or any employee or affiliate of Palm Ventures or any shareholder of DeVry will have a seat on the DeVry board of trustees,” Berkey said.
Ernie Gibble, a spokesman for Adtalem Global Education, which currently owns DeVry, declined to respond to questions about the deal, saying only that “the transaction is still tracking according to expectations.”
The sale is still awaiting final review by the Education Department but already has cleared several key hurdles, despite reservations voiced by regulators.
In an SEC filing Sept. 17, Adtalem said DeVry’s accreditor, the Higher Learning Commission, had approved a transfer of the school’s accreditation to the new owner. Gibble declined to provide a copy of the commission’s approval letter. Commission spokesman Steve Kauffman said the company does not make information about cases public.
Department officials gave preliminary approval in a June 19 “pre-acquisition review” to Adtalem, although the document suggested there would be some connection between DeVry and Cogswell College. The department has concerns about combining two institutions of “vastly different size,” the letter said, adding that DeVry “dwarfs” Cogswell College.
The department’s proposed solution is to let DeVry’s new owner operate the chain at current enrollment levels, with a ban on expansion for at least a year. The department also plans to continue holding $68 million that DeVry was previously required to pay as a form of insurance in case the chain fails.
Behind closed doors: When a college changes hands, it’s typically reviewed by the Education Department and by the school’s accreditor, but it’s largely done behind closed doors and without public input. The Obama administration began calling for greater scrutiny of school transactions in its final years but never formally changed procedures.
“They have tended to happen in a black box, where it’s never been clear who is making these decisions, on what basis they are making them or what criteria are being used,” said Shireman, a senior fellow at The Century Foundation, a progressive Washington think tank.
The DeVry sale is expected to close in early fiscal year 2019, which began in July, according to an SEC disclosure filed last month by Adtalem. Even though DeVry has fallen behind in certain performance benchmarks that the deal rested upon, Palmer hasn’t signaled any plans to change course.