Zovio, a private, for-profit educational services company, is throwing in the towel. The publicly traded entity revealed its intent to cease operations and sell its assets in an SEC filing dated September 20. In the filing, the company described its outsourcing relationship with several higher education institutions, including the University of Arizona Global Campus.
On the surface, it might seem like taking down a private, for-profit pseudo-college might be just what the doctor ordered. After all, Zovio is an “educational services” company that provides canned, white label content that slightly more recognizable (and slightly more accredited) institutions can put their name on and share the profits from. As part of these business arrangements, the servicing company provides “…recruiting, admissions, marketing, student financial aid processing, and financial aid advising, program advising, student retention advising, support services for academics, information technology and institutional support services” in exchange for service fees.
Lots and lots of service fees.
In 2020, Zovio sold Ashford University to the University of Arizona. Ashford University was a regionally accredited online university. Following the sale, the University of Arizona transformed Ashford University into The University of Arizona Global Campus (UAGC). Prospective students from anywhere could enroll and earn a variety of degrees. The University of Arizona would lend its name to the project and Zovio would do the work. Zovio also operated two related companies, Fullstack Academy and TutorMe. Fullstack Academy delivers bootcamps; TutorMe delivers on-demand tutoring and online coursework.
Outsourcing does not always go as planned
According to the filing, things did not go as planned. Despite Zovio’s best efforts, enrollment tanked as did revenues. Through the first quarter of 2022, UAGC operated at a loss, and Zovio began to rethink the UAGC deal. The second quarter of 2022 was equally unpleasant for Zovio, but for a different reason. The company lost a lawsuit filed by the State of California, and a judge there awarded the state $22.5M in penalties. California’s Attorney General claimed that Zovio was somewhat left of honest about its programs and their potential. In the suit, the AG claimed the compan made more than 1.2M misrepresentations to California residents between 2009 and 2020.
To satisfy the judgment, the company sold TutorMe. That sale accelerated Zovio’s decision to liquidate its assets and exit the business.
The decision leaves UAGC unable to deliver content to its enrolled student base. And as a private company, Zovio can exit the business whenever it wants to. (Including mid-semester.)
That is the real danger of outsourcing a portion of your core business to a private entity. If the private provider cannot make the business work, it will shut down – just like that. And outsourcing degree programs is not about the students; it is about the money.
Education institutions are not profit-making ventures
This also reveals a truth about higher education institutions: they do not generate a profit. They cannot operate like businesses because they are not businesses. The state operates public higher education institutions as a public benefit and to support its public policy goals.
Outsourcing the core function of education puts students in danger of getting the rug ripped out from underneath them. This is happening right now to however many students are enrolled in UAGC. This will continue to happen as other “educational service companies” determine – at the end of some random quarter – that for all the money people spend on higher education, the service does not make a profit.
It is not just that students will lose the effort they put into their classwork before some executive made a business decision. It is about how much money they borrowed to pay for these classes. The classes can disappear in an instant, but the student loan debt does not.
The lesson here should be that institutions cannot rely on outsourcing to meet their public policy goals and public benefit functions. The notion that they can is part of the sad myth perpetuated by people who view education as a business yet understand neither business nor public policy.
Outsourcing works only if it makes financial sense to the service provider. When it no longer makes business sense, the service recipient will find itself on the curb.
Photo Credit: Phillip Pessar, via Flickr
