Purdue Buys For-Profit Kaplan University for $1 to Create New Kind of...

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Purdue Buys For-Profit Kaplan University for $1 to Create New Kind of Public University

By Jeffrey R. Young     Apr 27, 2017

Purdue Buys For-Profit Kaplan University for $1 to Create New Kind of Public University

It’s kind of a head-spinner. Purdue University agreed today to buy one of the largest for-profit universities, Kaplan University, and turn it into a public, non-profit university in the Purdue system. Except that this new public university will apparently operate without state funding (though financial aid will be available to students).

The sale price for Kaplan University’s 15 campuses was $1, though with one important catch: The new nonprofit university operated by Purdue promised to give a percentage of its revenue back to its former owner, Kaplan, Inc., for the next 30 years.

That arrangement may end up being similar to how a growing number of nonprofit universities work with so-called Outsourced Program Managers, such as 2U, that help colleges launch online programs by providing software and marketing support (and initial investment) in exchange for a portion of tuition revenue in long-term contracts. At least that’s the take from Trace Urdan, an independent analyst who watches the for-profit education sector. “They’re peeling off all of the academic operations into the nonprofit, and they’re retaining all the nonacademic pieces into the for-profit,” he says.

The news emerged Thursday morning when Graham Holdings Company, which owns Kaplan, made an SEC filing disclosing plans for the sale. (Editor’s note: Graham Holdings is an investor in EdSurge). Just a few hours later, Purdue University’s Board of Trustees approved the sale in a special meeting.

Purdue’s president, Mitch Daniels, formerly the Republican governor of the state, explained in a statement that the idea to buy Kaplan arose after Purdue looked to expand its online offerings.

“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,” said Daniels, in a statement. “A careful analysis made it clear that we are very ill-equipped to build the necessary capabilities ourselves, and that the smart course would be to acquire them if we could. We were able to find exactly what we were looking for. Today’s agreement moves us from a standing start to a leading position.”

Under the deal, which went by the internal nickname the Morrill Project, Purdue will acquire all of Kaplan University’s 15 campuses and learning centers, which account for 32,000 online and campus-based students and nearly 3,000 employees. Justin Morrill established the Morrill Land-Grant Colleges Act, and Daniels stressed that he saw the new university as a new way to fulfill the land-grant mission.

Some Purdue alums questioned the move to put Kaplan University under the Purdue name. “Maybe Purdue could refund me 4 years of tuition difference between them and Kaplan then,” wrote one former Purdue student on Facebook.

Kaplan University students pay about $34,000 total for a bachelor’s degree, but the cost varies "depending on the type of program, the number of scholarships and grants and various other factors,” according to Mark Harrad, a spokesperson for Kaplan, Inc. Purdue’s posted price for undergraduate tuition is $10,002 per year for in-state students and $28,804 per year for nonresidents, and it typically takes four years to finish the degree.

In their board meeting Thursday morning, Daniels and trustees said that the new university would break even in the first few years—even without state funds—and that Purdue expects the project to “turn a large profit,” according to a report in Purdue’s student newspaper.

“You have to wonder what the revenue will look like,” said Russell Poulin, director of policy and analysis for WCET. “Profit is not a big part of the land-grant mission.”

Purdue officials said that students from Indiana will get a lower, in-state rate, though details were not specified.

Before the sale, Kaplan University was not exactly thriving. Its enrollment dropped by 22 percent in 2016, and Kaplan Higher Education revenue fell 27 percent, according to Graham Holdings’ annual report.

“Kaplan believes that with the ability to tell everybody they’re nonprofit, they’ll see real growth in the number of students,” says Urdan. He says the deal essentially tests a long-held belief by the operators of for-profit colleges, who say they are doing the same things as non-profit innovators (like Southern New Hampshire University) but feel unfairly “mistrusted and loathed” because they are for-profit.

“I wouldn’t be surprised if this was the beginning of a mini-trend,” Urdan adds.

The U.S. Department of Education will need to approve the arrangement, as well as Purdue’s accreditor, the Higher Learning Commission.

The sale to Purdue does not include Kaplan's test-prep or publishing units.

Sydney Johnson contributed to this report.

Disclosure: Graham Holdings Company is an investor in EdSurge.

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