Dive Brief:

• Zovio said the U.S. Department of Education would require it to post an irrevocable letter of credit for $103 million — representing about 25% of its 2018 Title IV funding — within 10 days of spinning off Ashford University into an independent nonprofit institution.
• The requirement comes as part of the department's abbreviated pre-acquisition review of the proposed change in control of the once for-profit college, which the company disclosed in an SEC filing Monday. 
• Zovio is still weighing its options, which include selling Ashford to another institution while becoming its education technology services provider.

Dive Insight:

Zovio, formerly called Bridgepoint Education, requested the review, which allows the company to know what conditions the Ed Department would impose on Ashford's access to Title IV funds following the change in control. The letter of credit would run through March 31, 2021, unless the department extends or replaces it. 

The company had $104.6 million in cash at the end of its most recent financial quarter, down 39% from a year ago. It posted revenues of $107.5 million for that period, compared with $119 million a year earlier. Meanwhile, costs from acquisitions and restructuring widened an existing net loss to $17.6 million for the quarter.

Executives told analysts in the company's latest earnings call that they expect to separate Ashford by the end of the year. But they noted in their filing Monday that selling Ashford, instead of spinning it off, could be a lower-stakes option because it may not require the company to post the 25% letter of credit or make a "substantial cash contribution" to support the university financially.

Either way, Ashford is expected to be a key part of Zovio's strategy. Executives have said they expect the company will provide services to it and other university partners in the event of a spinoff. If Zovio sells Ashford, it will aim to provide education technology services to the acquiring institution.

Zovio has taken several steps to shift from a for-profit college operator to an education technology services provider. In the last year, it changed its name and branding, brought on new leadership, gained new capabilities through acquisition and added education partners.

The IRS has signed off on Zovio's decision to separate Ashford. Its accreditor also approved the move, with the caveat that Ashford would prove its leaders no longer have financial or ownership stakes in Zovio. A site visit six months after the change in control is also required.

"The level of inquiry into the independence that Ashford would have after the transaction and its ability to manage its business affairs was unusually detailed to allow the commission to make the necessary determination," said Jamienne Studley, president of the WASC Senior College and University Commission, in an interview with Education Dive in August.

Separately, the accreditor flagged Ashford's persistence and completion rates as a potential issue during its latest accreditation review. It asked for more information and a special visit to assess if there had been progress. The university's enrollment was down 5% year-over-year to 37,910 students during the latest quarter, which executives attributed to low-retention rates during students' first courses.

Zovio's pivot comes as several for-profit college operators seek cover from heightened regulations and the sector's tarnished reputation by changing their business models or pursuing nonprofit conversions.