Purdue & Kaplan Teaming Up Represents a New Solution to an Old Challenge

May 8, 2017 DMS Marketing Team

Since the turn of the century, the desire to scale distance learning has united a surprising combination of higher education institutions and solutions providers. Not long ago, it was common to see for-profit companies acquire not-for-profit institutions as a fast-track to regional accreditation. Grand Canyon University and Post University represent two success stories for this approach.

In other scenarios, not-for-profit schools (like Southern New Hampshire University) benchmarked the operational enrollment management and marketing practices of large for-profit schools. The integration and synchronization of functional areas, such as admissions and financial aid, resulted in shorter gaps between inquiry and matriculation, allowing them to better compete for adult students against institutions that had for years enhanced operations with a focus on speed, without sacrificing best selectivity practices.

More recently, colleges and universities have been contracting with online program management service providers (OPMs) to launch and scale their online programs. OPMs manage everything from marketing to admissions to course development and delivery. They invest their own funds and only charge a share of revenue to the university, making these deals bear much less risk. (That is as long as you don’t consider opportunity loss, since schools are generally locked into long-term contracts in which they typically receive the minority share of tuition revenue.)

As traditional schools look to expand into the adult and online markets, they have been observing the triumphs of institutions like them. Although there are various examples of success, every model developed to date includes negative aspects. As such, higher education leaders continue to seek alternative solutions to scale their online presences.

The acquisition of Kaplan by Purdue University, announced on April 28, is a prime example of an innovative solution. Without question, this move will help Purdue quickly become a significant force within the world of distance education. Taking a longer view, it is fair to ponder consumer perception and how this might impact Purdue’s long-term, holistic achievement.

To better understand this issue, let’s take a look at the details publicly available related to this merger.

Why Is Purdue Acquiring Kaplan?

According to Mitch Daniels, the president of Purdue and the former governor of Indiana, “Purdue 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.”

Daniels seems to be aiming to position Purdue as a leading provider of online higher education. He noted that, “A careful analysis made it clear that we are ill-equipped to build the necessary capabilities ourselves, and that the smart course would be to acquire them if we could.” Purchasing Kaplan is Purdue’s “smart course” of action.

How Does The Purdue/Kaplan Deal Work?

Purdue University is acquiring Kaplan University along with its institutional operations and assets. This includes 15 campuses and learning centers. As of April 28, it was published that 32,000 students were enrolled in Kaplan programs and 3,000 individuals were employed by Kaplan. Both of these groups will be transitioned to Purdue University.

Prior to the acquisition, Purdue University consisted of the West Lafayette flagship campus and two regional campuses. The Kaplan University online program and 15 campuses will encompass a separate entity within the Purdue brand. The Purdue name will be utilized in some manner, but the actual name of this new division has not yet been announced.

Despite being part of the Purdue system, the Kaplan operations will be kept separate with the current Kaplan University president, Betty Vandenbosch, acting as the chancellor of the new division. In fact, all funding for this group will come from tuition and fundraising with no state resources used to cover operational expenses.

Here’s where it gets interesting. Purdue is only spending $1 to bring Kaplan into its fold. In fact, this deal looks more like an OPM contract than an acquisition. Graham Holdings Co. (NYSE: GHC), currently the parent company of Kaplan Inc. and Kaplan University, will stay intimately involved. Although the ownership of Kaplan University is transitioning to Purdue, Kaplan Inc. is staying with Graham. And Kaplan Inc. will be providing a long list of services to the Kaplan division of Purdue for a period of 30 years.

According to the documents filed by Graham Holdings with the Securities and Exchange Commission, Kaplan Inc. will provide the services listed below in exchange for 12.5% of the division’s revenue.

  • Editorial services, marketing and advertising
  • Front-end student advising
  • Admissions support services
  • International student recruitment
  • Test preparation
  • Technology support
  • Business office
  • Financial aid and student finance
  • Human resources
  • Facilities and property management
  • Finance and accounting
  • General administrative functions

Purdue University specifically states on the splash page dedicated to this news that they “will operate this new university with the same care and commitment to student success as we do the other campuses in the Purdue system.” They will be responsible for all of the academic functions, with Kaplan Inc. maintaining a role in the budget approval process.

How Will The Purdue/Kaplan Partnership Impact The Greater Higher Education Industry?

First, we need to see if the agreement gets approval from state and federal regulators, including the U.S. Department of Education and the Higher Learning Commission (HLC). (Note: Both Purdue and Kaplan are accredited by HLC.) If it does, one can predict more for-profit/not-for-profit mergers in the near future.

Assuming the deal moves forward, operations will immediately transfer to the new university model. That’s what we know.

Here’s what we don’t know:

  • How will consumers react to the joining of the Purdue and Kaplan brands?
  • Will the combination with Kaplan impact the Purdue brand in any way, and will there be an impact on Purdue’s traditional enrollment efforts?
  • A number of Kaplan programs fell below gainful employment standards based on the list published at the start of the year. Since not-for-profit schools are not subject to the same oversight, will Kaplan’s programs be removed from the list?

Due to regrettable practices by a small number of highly visible institutions, for-profit institutions as a group are at times perceived with low regard. Having worked for and with a long roster of for-profit institutions, I know the passion for educating America exists on both sides of the profit spectrum. In the words of Daniels, “I’ve always thought the right question in higher education has nothing to do with business form; it has to do with outcome.”

The new Purdue/Kaplan system has the potential to change the face of distance education while impacting the lives of many working adults. Assuming positive results, this merger signals a pivot point at which not-for-profit and for-profit schools team up to provide a high level of education in an efficient manner to a historically under-served population.

We’ll be watching closely to see how it all comes to fruition. And we’ll be cheering them on every step of the way.

 

Sources:

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