For critics of DeVos, sale of DeVry chain raises red flags

WASHINGTON (AP) — 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 Trump administration has given a tentative green light to the sale of DeVry University to Bradley Palmer, chairman of the 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 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.

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.

It has yet to be seen what the deal means for students. The Education Department said DeVry must keep promises it previously made to its students, including a commitment to disclose a variety of information about costs and student debt. A spokeswoman for Cogswell Education added that Palmer has no plan to sell DeVry in any 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 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.

"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 that if the transaction secures all necessary approvals, DeVry will be operated and governed by its own independent board of trustees, separate from Cogswell College.

Ernie Gibble, a spokesman for Adtalem Global Education, declined to respond to questions about the deal, saying only that "the transaction is still tracking according to expectations."

The sale is awaiting final review by the Education Department but has cleared several key hurdles, despite reservations voiced by regulators.

In an SEC filing Monday, Adtalem said DeVry's accreditor, the Higher Learning Commission, had approved a transfer of the school's accreditation to the new owner. The Education Department gave preliminary approval for the deal in a June 19 "pre-acquisition review," although it noted concerns about combining two institutions of "vastly different size."

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. The state board's approval came after a coalition of student and taxpayer advocacy groups raised numerous concerns about the transaction, including Palm Ventures' history with Heald.

In a June 1 letter to the Illinois board, Palmer declared that the objections the groups raised were "replete with errors."

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

"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."

Although Palm Ventures isn't typically seen as a major player in the for-profit realm, it has quietly bought and sold several chains over the past three decades. It also owns Nightingale College, a small for-profit nursing school in Utah, and has 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.

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.

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Contact Collin Binkley at https://twitter.com/cbinkley and Richard Lardner at https://twitter.com/rplardner