For Critics of DeVos, Sale of DeVry Chain Raises Red Flags - NBC Southern California
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For Critics of DeVos, Sale of DeVry Chain Raises Red Flags

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

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    For Critics of DeVos, Sale of DeVry Chain Raises Red Flags
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    In this July 18, 2018, file photo, Secretary of Education Betsy DeVos speaks during a Cabinet meeting with President Donald Trump in the Cabinet Room of the White House. A little-known venture capitalist is on the verge of acquiring one of the country’s biggest for-profit colleges, a transaction that would put him in control of a troubled national chain vastly larger than the tiny California school he currently owns.

    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.

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    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.

    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?

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    "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.

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    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.

    The Illinois Board of Higher Education voted over the summer to grant DeVry the authority to operate and grant degrees in Illinois under Cogswell Education. Adtalem is headquartered in Chicago, and eight of DeVry's 52 campuses are in Illinois.

    The state board's approval came even as a coalition of student and taxpayer advocacy groups raised numerous concerns about the transaction, including Palm Ventures' history with Heald and what they said was a "lack of clarity" about the potential role that Palm Ventures may have in operating DeVry's programs.

    In a June 1 letter to the Illinois board, Palmer declared that the objections the groups raised were "replete with errors." Heald thrived while owned by Palm Ventures, he wrote, and the firm had no dealings with Corinthian before the sale.

    But Sen. Dick Durbin, D-Ill., a critic of DeVry who had urged DeVos and the board to carefully scrutinize the deal, said students in Illinois and across the country should be wary of signing up at the new institution. DeVry agreed in 2016 to a $100 million settlement to resolve an FTC lawsuit alleging the school misled students through deceptive ads.

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    "I've raised my concerns about this transaction from the get-go," Durbin said in a statement. "DeVry has a proven track record of misconduct and Cogswell is ill-equipped, even unlikely, to turn it around."

    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.

    The December 2017 purchase agreement permits Cogswell Education to walk away if the Education Department receives more than 2,250 fraud claims from former DeVry students on or before the deal's closing date. As of May, there were approximately 10,275 complaints against DeVry pending review, according to department data, including more than 3,700 filed since January 2017.

    Barmak Nassirian, director of federal relations and policy analysis for the American Association of State Colleges and Universities, said it's no coincidence that DeVry and other for-profits are attempting a comeback at the same time the Trump administration moves to eliminate policies that Nassirian describes as "governmental safeguards."

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    "It's precisely the administration's elimination of oversight that has created this new frenzy in the marketplace, where the veterans of the previous round of rip-offs are basically taking their winnings and handing the toxic assets to new owners," Nassirian said.

    Although Palm Ventures isn't seen as a major player in the for-profit realm, it has quietly bought and sold several chains over the past three decades, generating millions of dollars by flipping brands like Heald College, UEI College and American Education Center. It also owns Nightingale College, a small for-profit nursing school in Utah, and a stake in Post University, a for-profit in Connecticut that's fighting two federal lawsuits from former employees who say it uses unethical recruiting practices to drive profits.

    Palmer's father, Russell Palmer, who led a predecessor of the Deloitte firm, has bought and sold several for-profit chains through his Philadelphia investment firm, the Palmer Group.

    None of the Palm Ventures' officers listed on the company's website comes from a career in academia, and the firm just as frequently invests in tech companies, hotels and the food industry. Palmer, who got his start in the restaurant industry, typically stays out of the limelight, even in marquee education deals. When he bought Heald College in 2007, a news release announcing the sale said the buyer "wishes to remain undisclosed."

    Founded more than a century ago, Cogswell College had 740 students throughout the 2016-17 school year, according to Education Department data. Most of its students are California residents, taught by 19 full-time faculty members.

    The school's revenue has skyrocketed since Palmer bought it, growing from $1.3 million in 2010 to nearly $10 million in 2015, according to Education Department data analyzed by The Associated Press. The growth has been tied to a rapid rise in enrollment, from 238 students to more than 600, with a sharp increase in the number of low-income students who receive federal Pell Grants. 

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