Administration

Purdue Wins State Approval for Controversial Deal With Kaplan U.

August 10, 2017

Updated (8/10/2017, 9:04 p.m.) with response from Purdue University.

Purdue University, as expected, won state approval on Thursday for its deal to take over Kaplan University. But as the transaction now moves to the U.S. Department of Education for review of a "change of control" request, a critic of the deal is urging the department to reject it because, he argues, control isn’t really changing.

He also argues that by approving Kaplan’s application, the department would be agreeing with Purdue’s implicit request to treat the new venture as if it were a public university, even though Purdue actually plans to create a private entity to run it and proposes other actions that raise questions as to how public it really will be.

Under the terms of the deal, the yet-to-be-renamed, 29,000-student Kaplan University would rely on Kaplan Inc. for services such student recruiting, marketing, and technology, similar to how many colleges now contract with outside companies, known as "online program managers," to run their online education programs. (When the deal was announced, in April, Kaplan’s reported enrollment was 32,000, both online and at 15 campuses and learning centers; the university’s parent company, Graham Holdings, disclosed the latest enrollment figures, along with declines in revenue from the venture, this month.)

"This is Kaplan reaching an agreement to put Purdue’s name on Kaplan’s institutions, while Kaplan maintains an enormous role in controlling the future of those institutions" because of rights it retains under the contract, said Robert M. Shireman, a senior fellow at the Century Foundation, in an interview on Thursday. "It’s more like a ‘super-OPM,’ rather than an actual sale."

Mr. Shireman laid out his concerns this week in a two-page letter to A. Wayne Johnson, the Education Department official who runs the federal student-aid programs. Mr. Johnson’s division oversees conditions under which colleges can receive federal student aid.

The contract between Purdue and Kaplan "does not actually constitute a change of ownership," Mr. Shireman asserts in the letter. Instead, he says, the contract lays out a long-term operating agreement "with provisions that could someday result in Purdue owning the schools based on an as-yet-undetermined price." And, the letter continues, "Purdue has not agreed to pay that price nor demonstrated that it could or would pay the price."

Nonprofit or For-Profit

Mr. Shireman has questioned the deal ever since it was announced, prompting a personal attack from Purdue’s president, Mitch Daniels. Mr. Shireman said the department should deny the request and continue to treat Kaplan University as a for-profit institution.

Alternatively, he contends in the letter, if the department does approve the change of ownership, it should treat the university as it does traditional nonprofit universities, which, under Internal Revenue Service regulations, must comply with governance standards of charitable nonprofit organizations. They also file a tax document, known as Form 990, that is publicly available.

A Kaplan spokeswoman referred questions about the letter to Purdue. A spokesman for Purdue, Brian G. Zink, said in an email late Thursday: "Purdue’s proposed acquisition of Kaplan University is a clear change of ownership, and the resulting NewU will be a public institution of higher education completely controlled by Purdue. This is readily ascertainable from the enabling legislation, NewU’s organizational documents, the sale agreement, and other transaction documents, which are all publicly available."

Purdue has said it plans to create a nonprofit benefit corporation to govern the new institution, which would not be incorporated under IRS rules as a public charity. University officials have said that meetings and some documents related to the venture would be public, but provisions slipped into Indiana’s budget at Purdue’s request this year exempt the venture from the state’s open-records laws.

Purdue said governance of the institution would be overseen by a six-member Board of Trustees that would itself be appointed by the Purdue Board of Trustees, including five of Purdue’s current trustees. It said the board would "oversee and approve all academic, budget, marketing, and operational functions of the new university."

And in his email Mr. Zink noted that "the enabling legislation is clear that NewU’s debts and liabilities will be backed by Purdue as the controlling state institution."

The transaction also requires approval from the Higher Learning Commission, the accreditor for both Kaplan and Purdue. Officials at the commission and at the Education Department did not immediately respond to inquiries about the timetables for their decisions.

Goldie Blumenstyk writes about the intersection of business and higher education. Check out www.goldieblumenstyk.com for information on her new book about the higher-education crisis; follow her on Twitter @GoldieStandard; or email her at goldie@chronicle.com.