I don't see the solution that I figured out to this problem. I had to enable Office365.
Starting at the Home page for the course, go to Settings, click on the Navigation tab. Scroll down to the hidden/disabled items. For me, Office365 was disabled. Click on the breadcrumbs and select Enable. Scroll to the bottom and click Save. Now Office365 appears in my navigation, click on it and it may ask you to log in.
Once I did this, I was able to create Collaborations using Office365.
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