The $50 Million Purdue-Kaplan Deal: What It Means for Kaplan, Purdue, and EdTech

In efforts to expand its reach to more nontraditional students and to make itself present in the online education market, Purdue University, a public institution in Indiana, bought Kaplan University — a for-profit online college owned by Kaplan, Inc., a subsidiary of the Graham Holdings Company — on April 27.

In the deal, Kaplan University’s students, programs, 15 campuses, and academic staff of just over 2,100 employees will become part of Purdue.

The Purdue-Kaplan deal: Basic facts and figures

Kaplan, Inc. will continue to run most operations at the new online school, which will join separately accredited, independently operating institutions Indiana University — Purdue University Fort Wayne, Purdue University Northwest, and Purdue University West Lafayette under the Purdue University umbrella. The new school has yet to be named, but like the other universities, it will likely bear some resemblance to the Purdue brand.

Kaplan University is the only part of the company being sold — Kaplan, Inc.’s test prep and English language learning programs are not part of the deal.

Kaplan, Inc. is required to ensure that Purdue receives at least $10 million a year for the first five years after the merge from the new school’s revenues after expenses. After that, Purdue will begin to pay Graham Holdings 12.5 percent of the revenues each year in return. That basically means Kaplan, Inc. owes Purdue $50 million before it can make any substantial profit off the deal.

In the sixth year of the deal, Purdue has a choice: It can completely buy out Kaplan University and make all of the new school’s operations in-house, or it can contract with an outside online-program manager. In addition, Purdue could decide to not buy out Kaplan University and continue its original arrangement with the school.

Right now, the deal is set to last 30 years. It will be automatically renewed every five years.

According to The Chronicle‘s initial breaking news article about the deal, “The new university can opt out of the deal at certain points, but would be required to pay a sum that would probably total millions of dollars to Kaplan. Both parties will have the option of ending the agreement if the new university suffers $25 million in cash operating losses for three consecutive years, or if cash operating losses reach more than $75 million at any point during the deal’s initial 30-year term.”

The deal may already be detailed, but it is not yet set in stone. According to a statement from Kaplan, Inc., there are some hurdles currently prohibiting the merge.

There are still regulatory and accreditor approvals to be finalized before the definitive agreement becomes effective. Those approvals include the U.S. Department of Education, Indiana Commission for Higher Education and the Higher Learning Commission, which is the regional accreditor of both Purdue and Kaplan University. It is expected to take about six to seven months for the transaction to close,” said Kaplan, Inc. in a statement.

What the deal means for Kaplan

Because of the increasingly tarnished reputation of for-profit universities, the deal is a step in the right direction for Kaplan University. The online college has dealt with repercussions in recent years because some of its programs do not fulfill the federal “gainful employment” regulation rules.

“According to U.S. Education Department data released in January, five of Kaplan’s programs failed that test and 16 others were in the warning zone. Two of the five that failed have been discontinued, and the three others are not enrolling new students. Four of the 16 in danger are active, seven are not enrolling new students, and five have been discontinued,” said a follow-up article by The Chronicle. These controversies have caused Kaplan University’s student enrollment numbers to decrease.

Through the deal, Kaplan University will lose its for-profit standing and become a “non-profit, public benefit corporation” according to its corporate filing.

An article by the Portland Press Herald said that “Several for-profit universities have entered into arrangements like Kaplan’s, which enable them to benefit from the tax advantages of a nonprofit company.”

Despite that change, the new school will continue Kaplan University’s open enrollment policy.

Purdue’s reasoning behind the deal

According to the article by the Portland Press Herald, Mitch Daniels, Purdue’s president, said he has “seen a lot of schools throw a lot of money at online education without much result,” which is why he wanted to purchase an already-established program.

Because Purdue’s student body consists of an overwhelming majority of traditional students — at its flagship campus, the average student age is 20, and at its branch campuses, the average student age increases only slightly to about 22 to 24, according to Inside Higher Ed — the large public college wanted to broaden its reach and diversify its student body. Kaplan University’s average student age is 34; through acquiring the online school, Purdue is succeeding in expanding its student range and education offerings.

What people think of the Purdue-Kaplan deal

According to the Inside Higher Ed article, Purdue faculty members and other higher ed officials were not informed of the deal before it was announced, and so far, they seem to have mixed reactions about it because of the shaky reputations of for-profit institutions and the potential controversies that could arise from a large, public land-grant university purchasing a for-profit company.

“This is nothing but a re-skinning of the garbage that Kaplan was doling out under its own brand under new management,” Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities, said in the Inside Higher Ed article. “I have no reason to believe that you could somehow take those components and make something stunningly different with them than Kaplan was making.”

On the other hand, in the same Inside Higher Ed article, Levon Esters, an associate professor of youth development and agricultural education who chairs the University Senate Faculty Affairs Committee at Purdue, said “I think there are a lot of kinks that, you can imagine, need to be worked out. Over time those things will be addressed, but right now, I think my first reaction is it’s a good thing. It’s probably going to allow students and other individuals an opportunity to get a Purdue degree.”

The general consensus is that the deal benefits Purdue because it undoubtedly increases its accessibility and helps it cater to the student demographics that it previously neglected. Similarly, the deal will likely boost Kaplan University’s reputation, because it will make the online school a non-profit, public-benefit corporation that does not receive state funding. In addition, because it will likely bear Purdue in its title when it is rebranded, the new school’s degrees might hold more weight in the workforce than Kaplan University’s did.

There is still some haziness about the deal, and many officials are unsure of what the outcomes of it will be as of yet. It could mark the beginning of a new partnership between higher ed and edtech.

Elizabeth Hartel

Elizabeth Hartel

Elizabeth hails from New Jersey and studies journalism at Emerson College, where she works for two publications: a lifestyle magazine and a music magazine. In addition to education, she also enjoys writing about health and fitness and pop culture.