Purdue University Just Bought a Major For-Profit College for $1. Here's Why

In a move that has raised eyebrows with higher education experts, a well-regarded public university has forged a deal with a for-profit college.

Purdue University announced Thursday that it has paid $1 up front to acquire assets from Kaplan University in an attempt to expand its offerings in online education targeted toward adult learners.

Purdue President Mitch Daniels said at a Board of Trustees meeting Thursday that the Indiana university wants to be a leader as online education continues to grow, but that it wasn’t capable of doing that on its own. “Today’s agreement moves us from a standing start to a leading position,” Daniels said in a statement.

Purdue will turn Kaplan into a yet-to-be-named new public university that will, for the time being, continue offering the same set of academic programs. Kaplan’s 3,000 employees will be transferred, as will its 32,000 students. Purdue says it will take over the academic side of the operation, while Kaplan will continue non-academic services, including marketing and student recruitment.

The new university will be self-sufficient and run off of tuition revenue and fundraising. Students will pay Kaplan's existing tuition and fees, although Purdue said Indiana students may receive an in-state discount.

Trouble-Plagued Industry

While Kaplan has one of the stronger names in for-profit education, the industry has faced years of declining enrollment, heightened regulations, legal battles, and broad criticism for loading students up with debt and providing meaningless degrees. At Kaplan itself, enrollment fell 22% in 2016 and its revenue is down 40% from 2014, according to an annual report from Graham Holdings, which owns Kaplan.

As David Halperin, a policy analyst who writes about for-profit colleges, points out in a piece on Huffington Post, Kaplan has been investigated by or settled cases -- some for more than $1 million -- with attorneys general in Delaware, Florida, Illinois, Massachusetts, and North Carolina, as well as with the U.S. Departments of Education and Justice.

Barmak Nassirian, a director of federal relations and policy analysis at the American Association of State Colleges and Universities, said while he understands the need for colleges to innovate, he questions whether Kaplan’s model of online education is the right vehicle.

“The pairing couldn’t be of an odder couple than what I’d describe as one of the crown jewels of American higher education, Purdue, and one of the most predatory bottom feeders, Kaplan,” Nassirian says.

When asked on a call with reporters whether Purdue was concerned that the industry's past problems would harm Purdue’s image, however, Daniels said the poor reputation of for-profit colleges is a “moot point,” since this will be a public university.

Details of the Deal

Rather than a straightforward acquisition, the two colleges have framed the deal as a 30-year "transfer agreement" with a buy-out option after six years, according to Thursday's SEC filing, which detailed the arrangement. Purdue is paying $1 now to get Kaplan’s “academic assets,” and after the newly created university is profitable, Kaplan will earn 12.5% of the revenue from the new university. The agreement still needs to be approved by the Higher Learning Commission, which accredits both colleges. Purdue says it will take about six months for all the regulatory and accreditor approvals to be in place.

While other for-profit universities have tried to transition to nonprofits, this arrangement is the first of its kind. But it’s likely not a one-off idea, says Trace Urdan, a for-profit industry analyst.

In fact, Urdan says, this could be the beginning of a trend for struggling for-profits that want the shed their reputation and regulatory restraints and for nonprofit universities looking to serve a different demographic of students online. "It's not a crazy idea to think we could see other purchases like this," Urdan says.