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NPR Ed
A Public
University Acquires A Big For-Profit, And Raises Big Questions
By Anya Kamenetz
In a move that's being called "bold" and "out of the blue," Indiana's
Purdue University is acquiring the for-profit Kaplan University. In
announcing the deal last week, Purdue President Mitch Daniels said it
was designed to open the university up to a vast new pool of students
nationwide.
"We cannot honor our land-grant mission in the 21st century without
reaching out to the 36 million working adults, 750,000 of them in our
state, who started but did not complete a college degree, and to the 56
million Americans with no college credit at all."
Kaplan U's 32,000 students will transition to a new entity. Nicknamed
"New U" for now, it will be part of the public Purdue system, yet
financially self-sustaining. Kaplan Inc., also known for its test-prep
business, will contract with New U to share revenue and provide
services described as "back-office support."
The deal is eye-catching, but also part of a trend. Over the past
decade dozens of nonprofit universities have contracted with private
companies to expand their online offerings. For example, Arizona State
University works with Pearson, and the University of Southern
California with a company called 2U. Florida A&M and South Carolina
State, both historically black institutions, have partnered with the
University of Phoenix. In an atmosphere of ever-skinnier state budgets,
these programs enable universities to reach a global market, cater to
working adults, and potentially increase revenue without expensive
capital investment.
These deals are "one of the least recognized factors" in the changing
landscape of higher education, says Paul LeBlanc, the president of
Southern New Hampshire University. Even as enrollment at big, publicly
traded for-profit colleges has been falling, LeBlanc says, partnerships
constitute "a for-profit industry operating almost at stealth mode
across the country."
LeBlanc is very familiar with this shift. Southern New Hampshire, a
nonprofit private university based in Manchester, has built up its own
online program to be one of the five largest in the country.
"From the Kaplan perspective," the company's CEO, Andrew Rosen said in
an interview with Purdue's public radio station, "the opportunity to
have an institution like Purdue, with the name, the reputation, that
long-term mission orientation ... was very powerful."
LeBlanc agrees. "The first big flagship state university to move into
this space, if they can pull it off, is poised to be a pretty big
player online."
That may be great for Purdue's brand and Kaplan's financial future, but
what about the students and taxpayers of Indiana? Compared with other
such arrangements, this deal has raised many questions.
First, almost six months of negotiations were kept secret from most
university stakeholders. Then, details of new state legislation
blessing the union of Kaplan and Purdue came to light. The Lafayette
Journal & Courier reported this week that by amendment to the state
budget, passed the same day that New U was announced, the entity will
be exempt from Indiana open-door laws, access to public records and
public accounting rules.
Mitch Daniels has close ties to legislators as a former Republican
governor of Indiana, and Purdue officials helped write the legislation,
the paper reported.
Steve Schultz, Purdue legal counsel, provided a statement to NPR Ed:
"Purdue views this opportunity as an extension of its land-grant
mission to address an unmet need." He said the new law establishes New
U as "a separate corporation" that "falls outside the definition of a
'public agency' under Indiana's access laws" and added, "because
Purdue's new unit will neither receive nor use any taxpayer funds, that
rationale for requiring public access does not apply."
Robert Shireman of the Century Foundation, a critic of for-profit
universities, has examined the Kaplan-Purdue financial disclosure as
well as hundreds of similar agreements. "It became scarier the deeper I
went into the fine print," he tells NPR Ed. "I think this is an
existential threat to public education."
In a piece for the Chronicle of Higher Education, Shireman outlined
three major concerns:
First, he contends the deal gives Kaplan veto power over New U's
budget, marketing and financial aid decisions. "This publicly traded
company is answerable to shareholders who want to spend as little as
possible on education and charge as much as possible to students,"
Shireman tells NPR Ed. "Will Kaplan's representatives advise low-income
students that they are taking on too much debt? Probably not. That's
the kind of problem we've seen over and over in the for-profit sector."
Brian Zink, a spokesman for Purdue, responded: "Kaplan absolutely does
not have veto power over the budget of the new university. The board of
New University controls the budget and has control over the entire
university."
This board is to be made up of five current Purdue trustees and one
Kaplan trustee. The budget will be recommended to this board by an
advisory committee that is evenly balanced between Purdue and Kaplan
representatives.
Second, says Shireman, the deal places few limits on how Kaplan Inc.
can market other services and programs to prospective New U students.
These sales leads are valued in the millions of dollars in other deals
Shireman has reviewed.
And third, the Purdue-Kaplan deal is designed to last 30 years, with
significant financial penalties for pulling out early. This potentially
exposes Purdue, and Indiana taxpayers, to financial losses and even
legal liabilities. The latter could become a problem if New U engages
in the kinds of abuses mentioned in a 2009 Senate investigation, which
accused Kaplan of using predatory marketing tactics, and putting more
money toward recruitment and profits than education. Kaplan was,
however, credited in a 2012 follow-up investigation with engaging in
"the most significant reforms" of any for-profit college studied.
So how does all this add up to an "existential threat" to public
education, according to Shireman? Well, in Daniels' presentation to the
board of trustees, he said that New U would be "financially positive."
Translation: this could be a means to supplement, and over time
supplant, state support for the university system.
"It's a possibility," says Shireman, "that this is a way to bring in a
whole lot of money that they can pour into reducing the state subsidy
to the core public university. And then it's always difficult, once
you've cut state funding, to restore it."
LeBlanc sees the same pattern. "With the decline in support, states are
all being forced to find new revenue sources," he says. "Will that
further reinforce the attitude among legislators that, 'Hey, you can
fend for yourself?' "
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