A Public University Acquires A Big For-Profit, And Raises Big Questions

Enlarge this image toggle caption Mark Wilson/Getty Images Mark Wilson/Getty Images

In a move that's being called "bold" and "out of the blue," Indiana's Purdue University is acquiring the for-profit Kaplan University. In announcing the deal last week, Purdue President Mitch Daniels said it was designed to open the university up to a vast new pool of students nationwide.

"We cannot honor our land-grant mission in the 21st century without reaching out to the 36 million working adults, 750,000 of them in our state, who started but did not complete a college degree, and to the 56 million Americans with no college credit at all."

Kaplan U's 32,000 students will transition to a new entity. Nicknamed "New U" for now, it will be part of the public Purdue system, yet financially self-sustaining. Kaplan Inc., also known for its test-prep business, will contract with New U to share revenue and provide services described as "back-office support."

The deal is eye-catching, but also part of a trend. Over the past decade dozens of nonprofit universities have contracted with private companies to expand their online offerings. For example, Arizona State University works with Pearson, and the University of Southern California with a company called 2U. Florida A&M and South Carolina State, both historically black institutions, have partnered with the University of Phoenix. In an atmosphere of ever-skinnier state budgets, these programs enable universities to reach a global market, cater to working adults, and potentially increase revenue without expensive capital investment.



These deals are "one of the least recognized factors" in the changing landscape of higher education, says Paul LeBlanc, the president of Southern New Hampshire University. Even as enrollment at big, publicly traded for-profit colleges has been falling, LeBlanc says, partnerships constitute "a for-profit industry operating almost at stealth mode across the country."

LeBlanc is very familiar with this shift. Southern New Hampshire, a nonprofit private university based in Manchester, has built up its own online program to be one of the five largest in the country.

"From the Kaplan perspective," the company's CEO, Andrew Rosen said in an interview with Purdue's public radio station, "the opportunity to have an institution like Purdue, with the name, the reputation, that long-term mission orientation ... was very powerful."

LeBlanc agrees. "The first big flagship state university to move into this space, if they can pull it off, is poised to be a pretty big player online."

That may be great for Purdue's brand and Kaplan's financial future, but what about the students and taxpayers of Indiana? Compared with other such arrangements, this deal has raised many questions.

First, almost six months of negotiations were kept secret from most university stakeholders. Then, details of new state legislation blessing the union of Kaplan and Purdue came to light. The Lafayette Journal & Courier reported this week that by amendment to the state budget, passed the same day that New U was announced, the entity will be exempt from Indiana open-door laws, access to public records and public accounting rules.

Mitch Daniels has close ties to legislators as a former Republican governor of Indiana, and Purdue officials helped write the legislation, the paper reported.

Steve Schultz, Purdue legal counsel, provided a statement to NPR Ed:

"Purdue views this opportunity as an extension of its land-grant mission to address an unmet need." He said the new law establishes New U as "a separate corporation" that "falls outside the definition of a 'public agency' under Indiana's access laws" and added, "because Purdue's new unit will neither receive nor use any taxpayer funds, that rationale for requiring public access does not apply."

Robert Shireman of the Century Foundation, a critic of for-profit universities, has examined the Kaplan-Purdue financial disclosure as well as hundreds of similar agreements. "It became scarier the deeper I went into the fine print," he tells NPR Ed. "I think this is an existential threat to public education."

In a piece for the Chronicle of Higher Education, Shireman outlined three major concerns:

First, he contends the deal gives Kaplan veto power over New U's budget, marketing and financial aid decisions. "This publicly traded company is answerable to shareholders who want to spend as little as possible on education and charge as much as possible to students," Shireman tells NPR Ed. "Will Kaplan's representatives advise low-income students that they are taking on too much debt? Probably not. That's the kind of problem we've seen over and over in the for-profit sector."

Brian Zink, a spokesman for Purdue, responded: "Kaplan absolutely does not have veto power over the budget of the new university. The board of New University controls the budget and has control over the entire university."

This board is to be made up of five current Purdue trustees and one Kaplan trustee. The budget will be recommended to this board by an advisory committee that is evenly balanced between Purdue and Kaplan representatives.

Second, says Shireman, the deal places few limits on how Kaplan Inc. can market other services and programs to prospective New U students. These sales leads are valued in the millions of dollars in other deals Shireman has reviewed.

And third, the Purdue-Kaplan deal is designed to last 30 years, with significant financial penalties for pulling out early. This potentially exposes Purdue, and Indiana taxpayers, to financial losses and even legal liabilities. The latter could become a problem if New U engages in the kinds of abuses mentioned in a 2009 Senate investigation, which accused Kaplan of using predatory marketing tactics, and putting more money toward recruitment and profits than education. Kaplan was, however, credited in a 2012 follow-up investigation with engaging in "the most significant reforms" of any for-profit college studied.

So how does all this add up to an "existential threat" to public education, according to Shireman? Well, in Daniels' presentation to the board of trustees, he said that New U would be "financially positive." Translation: this could be a means to supplement, and over time supplant, state support for the university system.

"It's a possibility," says Shireman, "that this is a way to bring in a whole lot of money that they can pour into reducing the state subsidy to the core public university. And then it's always difficult, once you've cut state funding, to restore it."

LeBlanc sees the same pattern. "With the decline in support, states are all being forced to find new revenue sources," he says. "Will that further reinforce the attitude among legislators that, 'Hey, you can fend for yourself?' "

This post has been updated.