Blog Post | January 11, 2024

Regulating College Mergers: The Devil is in the Details

Author: Dr. Frank Fernandez, University of Florida and Dr. Neal H. Hutchens, University of Kentucky

In this second of a two-part blog series, Drs. Frank Fernandez and Neal Hutchens make the case that state and federal policymakers should work together to raise minimum standards for consumer protections for students. Aligned polices from both the federal and state levels can and should help enhance accountability and transparency across all sectors, strengthening student protections along the way. Read part one of the series here.

During the Covid-19 pandemic, Arizona State University (ASU) planted its flag in California. ASU establishing a foothold in California came just a few years after the institution first declared its intention to open a campus in the Los Angeles area.  

By the fall of 2021, the ASU California Center was open for business – but there was one problem. For students at the ASU California Center to be eligible for federal financial aid, ASU needed state authorization to operate in California. We have found that compared to other states, California has a relatively robust Bureau of Private Postsecondary Education (BPPE). BPPE is charged with administering regulations to protect students from new, unaccredited providers of higher education. However, the state relied on the bureau to review applications from for-profit colleges and universities or private, non-profit providers. The agency was not prepared to review the almost unprecedented case of a public institution from another state seeking to become a multi-state public institution.  

ASU hired local lobbyists and, in fall 2022, secured legislation that required BPPE to authorize ASU to do business in the state. By February 2023, ASU announced an agreement that resulted in Columbia College Hollywood being rebranded as California College of ASU. Two months later, ASU completed a merger with the Los Angeles Fashion Institute of Design and Merchandising (FIDM) 

Authorization of ASU’s initiatives could potentially enhance access for California students, but how ASU has structured its increased presence in the state merits additional scrutiny from BPPE. The two financially struggling institutions ASU acquired as part of its latest California expansion will adopt the ASU brand but continue to exist as separate, private institutions from ASU 

The move raises similar issues to when public universities seek to acquire for-profit schools with plans to allow them to function as separate legal operations, such as the University of Idaho’s recent bid for University of Phoenix. In California, ASU is blurring expectations — and evading oversight — of how the public should distinguish between public and non-public higher education.  

These new institutions may fly ASU’s banner, but state regulators need to monitor carefully if students are served in the ways expected by a public institution. In the case of FIDM, for example, some current students complained that they were left unable to complete their intended degrees. ASU also declined to provide details about the financial arrangements to acquire FIDM, which is not the kind of financial transparency expected from a public university. To be clear, much of ASU operations in California are not by a public university, but by private, nonprofit institutions affiliated with ASU. Such arrangements could ultimately benefit students in California, but state officials should keep a close eye on the outcomes of ASU’s California presence. 

The legislation that allowed ASU — and potentially other state public institutions — to operate in California will need to be renewed in 2026. The legislation should be amended to require public institutions to meet the same obligations for transparency as the California State University and University of California campuses. For instance, ASU should be required to disclose financial details when it moves to takeover other schools like FIDM. California has prided itself on having some of the largest and most affordable systems of public higher education in the world. If other state universities want to operate in California, they should make the same disclosures and commitments to affordability and student protections as California’s systems of public higher education.   

Over the next few years, California should monitor evolving federal regulations on college mergers. Additionally, California could consider how other states, such as Maryland, have adopted regulations to prevent for-profit colleges from changing their legal status — including through mergers — to avoid regulations. Traditional distinctions between public and private or between private, non-profit and private, for-profit universities are increasingly blurred. California will need to increase support for the BPPE to ensure that it is able to protect students and ensure affordable higher education in the Golden State.  

The ASU-FIDM merger is not an exception that should be handled on an ad hoc basis. States like California will need to revisit their regulatory frameworks to address the increasingly sophisticated legal arrangements for buying and selling colleges to acquire data and tuition from the students they enroll.  

 

Frank Fernandez is Associate Professor of Higher Education Administration & Policy and affiliate faculty with the Center for Latin American Studies at University of Florida. He writes about educational equity and policy issues.    

Neal H. Hutchens is a Professor in the Department of Educational Policy Studies and Evaluation at the University of Kentucky. His research focuses on the intersections of law, policy and practice in higher education.