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Purdue Buys Kaplan University, Will Create New Nonprofit Chain

April 27, 2017
 
 

In an unprecedented move, a public research university, Indiana's Purdue University, is buying Kaplan University, a large for-profit chain with a mostly online footprint.

The deal will lead to the creation of a new nonprofit institution, which under some as yet undetermined form of Purdue's name will offer credentials ranging from certificates to doctoral degrees, online and at 15 campus locations.

Kaplan currently enrolls 32,000 students and employs 3,000 faculty members and other staff. All will transition to the new Purdue subsidiary. Kaplan's parent company, Graham Holdings, is publicly traded and, until a few years ago, was the owner of The Washington Post.

Purdue has in recent years won fans and faced some controversy for entrepreneurial moves led by its president, former Republican governor of Indiana Mitch Daniels Jr. The university said the former Kaplan University would become a nonprofit called New University (the name Purdue is using for now), which will operate as a wholly owned subsidiary of the public university. The remaining Kaplan Inc., which already sells a range of mostly technology related services to nonprofit colleges, will continue to provide nonacademic support to the new nonprofit under an agreement with a 30-year term, with a buyout option after six.

Terms for the deal include only a "nominal" up-front payment, according to a corporate filing. "Kaplan is not entitled to receive any reimbursement of costs incurred in providing support functions, or any fee, unless and until New University has first covered all of its operating costs," the filing said.

Like most large for-profits, Kaplan's holding company has in recent years struggled with declining enrollments and unflattering attention from federal and state regulators. For example, Kaplan Higher Education in 2015 paid $1.3 million to settle a federal whistle-blower's allegations that the company employed unqualified instructors. Yet Kaplan University, which is separate from the former Kaplan Higher Education campus involved in that lawsuit, still has a large infrastructure that will allow Purdue to immediately be a major player in online education. Purdue will join several nonprofit institutions that are increasingly dominating online education, including Arizona State, Liberty, Southern New Hampshire and Western Governors Universities.

“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,” Daniels said in a written 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.”

The Kaplan news follows several dramatic changes for large, publicly traded for-profits, including the collapse of the controversial ITT Technical Institute and Corinthian Colleges, the sale of the University of Phoenix to private investors, and the so-far unsuccessful attempt by Grand Canyon University to go nonprofit, with the company saying it wants to avoid the "stigma" for-profits face.

Likewise, Education Management Corporation, a major for-profit chain, last month sold to the Dream Center Foundation, a religious missionary group, that plans to run the former EDMC as a secular, nonprofit institution. And a large chunk of the remains of Corinthian was purchased less than three years ago by ECMC Group, a student loan guarantee agency, that created the Zenith Education Group as a new nonprofit career college chain.

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