Purdue to acquire Kaplan University

WEST LAFAYETTE, Ind. - Purdue University will acquire for-profit Kaplan University to create a new public institution, marking a first-of-its-kind move.

The Purdue Board of Trustees on Thursday morning unanimously approved a plan to acquire Kaplan University, a largely online institution that has 15 campuses across the country, including a site in Indianapolis.

"A public university coming together with an established online university I think is by any definition a national first," Purdue President Mitch Daniels said.

The emerging institution, which Purdue is referring to as "NewU" for the time being, will maintain all of Kaplan's current programs and employees, but will be part of the Purdue system and will include its name.

Daniels said the agreement with Kaplan – an affiliate of Graham Holdings Co. – both allows Purdue to fully break into the growing online education sector, which the university wasn't prepared to do on its own, and to serve more nontraditional students who are unlikely to attend a residential campus.

Kaplan enrolls 32,000 students and about 3,000 employees, all of whom will transition to the new university. More than half of Kaplan's student population is older than 30 and most hold full-time jobs while going to school. Kaplan has more than a dozen physical campuses; it used to have nearly three dozen, including one in Cincinnati’s Queensgate neighborhood.

"When we thought there might be an interest at Purdue with (former Indiana) Gov. Daniels, there was no other possibility that was nearly as appealing for Kaplan," said Andy Rosen, Kaplan's chairman and chief executive officer. "I’ve said many times I feel Purdue, probably more than any other institution in the country, has lived up to the land-grant mission while becoming an elite institution."

The "NewU" will rely only on tuition and fundraising to cover operating expenses and will not receive state taxpayer dollars. Indiana resident students will also receive a tuition discount that hasn't yet been determined.

While Purdue is technically purchasing Kaplan University, it will only pay $1 upfront and then enter into a 30-year agreement that allows for a buy-out option after six years.

Kaplan will provide some operation services to the new university, including technology and human resources support, financial aid administration and marketing and advertising, but it isn't entitled to receive any reimbursements unless and until the new university has covered all of its operating costs, according to the terms of the deal.

If certain conditions are met, Kaplan will receive reimbursement for its operation services and up to 12.5 percent of the new university's revenue.

"Purdue is not paying, except for the legally nominal $1," Daniels said. "We’ve struck a long-term service agreement, which really incentivizes both parties to grow the university and that's how Kaplan, if we're successful, will earn its value out."

Several companies that run university chains have turned to revenue-sharing agreements, BuzzFeed reported, but in a few cases the deals have created what critics call "covert" for-profit colleges with less government oversight. Such transactions can also remove so-called "gainful employment" regulations from the Department of Education that threaten to revoke federal funding from schools where students graduate with too much debt relative to their earnings.

A Chronicle of Higher Educationanalysis found five Kaplan programs in 2015 failed the department’s gainful employment rule.

The plan has been in the works for about five months, but Purdue officials had to keep the conversations confidential because Kaplan is a public company, said Gary Lehman, a trustee for the university. Additionally, under state law, the institution was legally obligated to safeguard trade secrets, he said.

The new university now requires approval by the U.S. Department of Education and the Higher Learning Commission, which currently accredits both Purdue and Kaplan. The agreement is expected to officially go into effect in about six to seven months.

Daniels said he expects the approval process to go smoothly, noting the Higher Learning Commission just accredited Kaplan for another 10 years. But the deal could face backlash due to the fact that Kaplan's a for-profit institution, a sector that has increasingly been under public scrutiny.

Additionally, Kaplan itself has been at the center of investigations and lawsuits. In 2015, it paid a $1.3 million settlement under a civil settlement with the U.S. Department of Justice for allegedly hiring unqualified instructors. The U.S. Department of Education also put it on a list released in January of hundreds of schools that load students with more debt than they can pay back.

When asked whether acquiring a for-profit could impact the Purdue brand or the reputation of a Purdue degree, Daniels said student outcomes, not business form, should be the real test in higher education. He also noted that the agreement makes the new university a public institution.

"We've tried to respond (to criticism of the sector) by proving what we've always believed, which is that we were doing a good job for our particular students," said Donald Graham, chairman of Graham Holdings Co. "We are excited by joining an institution of the eminence of this one and by having a leadership that wants to expand our student body into new programs, new fields and particularly service to this state.

USA TODAY contributed .