The Purdue-Kaplan Earthquake

Published July 11, 2017

The news that Purdue University, Indiana’s public land-grant university, will buy Kaplan University, an online for-profit school, managed to produce only a small blip in national media attention in April. For people in higher education, however, it was an earthquake whose tremors may reverberate for years to come.

For-profit online schools, including Kaplan University, experienced dazzling growth until government regulators began cracking down on them a few years ago. At their height, they enrolled 10 percent of all college students.

Digital education is often called “disruptive technology,” technology that forces change and improvement. That’s scary to many people in higher education, which is often considered slow-moving, costly, and even hidebound. Steeped in tradition, public universities have had trouble adopting digital education. Even today, it’s very difficult to get a completely online degree from a public college. Many online courses are just echoes of the classroom, recorded lectures with a discussion board thrown in.

A Purdue-affiliated online operation such as Kaplan could attract a lot of students, and the competition could force changes on campus—at Purdue and elsewhere.

Mitch Daniels, the president of Purdue and the former governor of Indiana, explained that Purdue administrators studied how they could use online education to reach out to potential students who can’t spend four years on campus. “The conclusion we reached was that even if we invested years and millions of dollars into advancing our digital offerings, there would be no guarantee of success.”

Instead of giving up on online education, Purdue decided to buy the offerings instead. Kaplan University was started in 1938 as a test-preparation school for standardized tests, such as the SAT. Although it is recognized for its good quality, it has, like other for-profit universities, gone through difficult times, partly due to Department of Education regulations. Kaplan’s enrollment declined from over 112,000 students in 2010 to about 32,000 today. Purdue bought it for $1.

The new school, currently called “Purdue NewU,” will be self-supporting and without state appropriations.

Alana Dunagan, a research fellow at the Clayton Christensen Institute and a champion of change-inducing technologies, sees great potential for the merger.

“Part of the beauty of what Purdue has done is structuring the new school as an autonomous unit,” Dunagan said. “Too often, online education is what we call a ‘hybrid’ innovation—using a new technology but really packaging it in the old business model at the exact same cost, with requirements and structure just the same, not taking advantage of the cost structure or the pedagogical improvements possible.”

Public-education faculty are typically wary about online education, and the Purdue faculty’s general reaction was no exception. The Indiana chapter of the American Association of University Professors complained Purdue’s faculty had not been consulted about the purchase, and the group’s opposition extended further: “Non-profit institutions serve the public good; for-profit private institutions serve corporate interests. The two should not mix.”

That was just the start of the criticism. Inside Higher Ed, a widely read online journal, put the transaction under a microscope. Reporter Paul Fain suggested buying a for-profit school and allowing it to operate as it had been doing for more than 80 years creates a complex public-private mix that may not pass the scrutiny of Purdue’s accreditors or the federal government.

Is there truth to Fain’s claims, or is this just lots of anti-innovation smoke without any fire?

Purdue NewU will be a public-benefit corporation, usually defined as a profit-making entity that also has social goals. That means that it can continue to serve Kaplan shareholders. Responding to a list of frequently asked questions, the Purdue administration stated: “This is a change of control and not a change in the institution itself, and we do not have any plans to change the programmatic mix initially.”

The result, Fain noted, is a multitude of concerns, especially about transparency. These issues arise because Kaplan can keep some of its information proprietary, does not have to file with the Internal Revenue Service as a nonprofit organization, and does not have to meet some of the open-books requirements that public entities do. Additionally, Purdue has promised a $5 million guarantee to Kaplan in the case of vaguely specified circumstances. Any financial support will not be from taxpayer funds, Purdue insists.

If Purdue NewU becomes a reality, it could establish a model to help higher education modernize, reduce costs, and reach more students. As Alana Dunagan says, “An autonomous unit could rethink from the ground up how the program could be more workforce-aligned and serve the needs of students who have traditionally been left out or shoved to the margin.”

In other words, Purdue’s new private entity will innovate in ways public colleges normally don’t, because it will need to in order to survive. Rather than rely on taxpayers to bail it out of tough situations, Purdue NewU will strive to provide a product people want, and do so with much greater efficiency. Purdue University will be able to benefit from these insights and potentially improve its own services as a result.

These are the achievements Daniels and Purdue University are seeking, but they will only occur if Purdue NewU can negotiate the shoals of regulatory challenges ahead.

[Originally Published at RealClearEducation]