Purdue University Buys For-Profit Kaplan University, But Is It A Good Idea?

On the surface, Purdue University and Kaplan University don’t have a lot in common: One is a public university from Indiana and the other is a for-profit chain mostly offering online courses. But now they have one rather large thing in common: ownership. Purdue has purchased Kaplan — for a dollar.

Purdue University announced Thursday that it would purchase Kaplan University — a for-profit chain currently owned by Graham Holdings — and take it nonprofit.

The new school — referred to as New University in a Graham Holdings’ Securities and Exchange Commission filing — will consist of Kaplan’s current campuses and learning centers, institutional operations and assets, 32,000 student, and 3,000 employees.

The Deal

Purdue isn’t actually purchasing Kaplan outright, instead it is entering into an agreement with Graham

Instead of paying millions of dollars for the for-profit chain, Purdue will initially only pay Graham $1, reports the Washington Post (which was previously owned by Graham).

In exchange, Kaplan Inc., which sells online learning systems to nonprofit colleges, will continue to provide operational support, including marketing, human resources, and financial aid administration to the new university for 30 years, with a buy-out option after six years.

Additionally, the deal notes that Kaplan is not entitled to receive any reimbursement of costs of these services until New University has first covered all of its operating costs and set aside $10 million for each of its first five years of operations, according to the Graham Holdings filing.

Eventually, Kaplan will receive reimbursement for its costs of providing support to the school, as well as a fee equal to 12.5% of New University’s revenue.

Why Is This Happening?

While Purdue and Kaplan University don’t have much in common, besides that whole “we’re a school thing,” the move to combine forces is meant to provide each school with a benefit.

For instance, by switching to a nonprofit status, Kaplan University could shed some of its stigma associated with for-profit colleges.

Kaplan has been at the center of some scrutiny in recent years. The Washington Post reports the chain is party to investigations by the attorneys general of Illinois, Delaware, and North Carolina.

In 2015, the company agreed to a settlement in Massachusetts to resolve allegations that it misled students about job placement rates.

For Purdue, the deal provides a dedicated avenue to expand its online learning programs.

“None of us knows how fast or in what direction online higher education will evolve, but we know its role will grow, and we intend that Purdue be positioned to be a leader as that happens,” Purdue president Mitch Daniels said in a statement.

Additionally, as we’ve previously reported, while transferring to nonprofit status means schools must follow stricter restrictions on moneymaking ventures, some former owners aren’t having trouble with finances.

For instance, the New York Times reported in 2015 that in some cases, owners have been able to finance the purchase of their for-profit colleges by offering loans and tax-deductible donations to an affiliated nonprofit. The new nonprofit then rents the buildings used for the school from the original owner and more often than not, the management team for the institution remains relatively unchanged.

 

Should It Happen?

Consumer advocates have previously raised concerns with schools moving from for-profit to nonprofit status, noting that the reasons for the switch might not be above-board.

As for the Purdue/Kaplan deal there are still several details that haven’t been provided. For example, how much will enrolling at the school cost? Will tuition carry the for-profit price tag or the more modest cost of a public university?

Suzanne Martindale, policy staff attorney for our colleagues at Consumers Union, tells Consumerist that the deal is a bit odd for an established university like Purdue.

But only time, and details, will provide answers to whether this marriage should move forward.

“If Purdue takes an active role in restructuring Kaplan, so that it becomes a nonprofit delivering quality education to students at a reasonable price, then perhaps it’s a step forward compared to Kaplan’s past performance,” she said.

“But if they don’t exercise real oversight to ensure that the Kaplan arm truly runs as a mission-driven nonprofit, the deal could harm students, not to mention hurt Purdue’s reputation.”