Purdue's decision to acquire Kaplan a 'high-risk, high-reward' move

April 27, 2017

Purdue University’s decision to acquire online education giant Kaplan University reverberated Thursday throughout the higher education world—with reaction ranging from praise of Purdue’s boldness to fear of how the deal would affect its reputation long term.

Observers said the deal is unprecedented for a public research university and leaves several unanswered questions about how others in the sector will respond.

“It’s very surprising,” said Robert Kelchen, an assistant professor of higher education at Seton Hall University. “I think it’s a fairly high-risk, high-reward strategy."

“Purdue gets essentially all of Kaplan’s students,” Kelchen said. “They get a lot of national attention and they get a ready-made online or adult student infrastructure that they didn’t really have. The question then becomes, was it better for them to essentially acquire Kaplan, or start something on their own?”

Lumina Foundation CEO Jamie Merisotis said the deal is interesting because it bucks a trend of for-profit universities acquiring not-for-profit, private colleges.

“We’ve never seen a major land-grant university like Purdue acquire a private, for-profit institution,” said Merisotis, whose organization's mission is to increase the percentage of Americans with education and training beyond high school. “This positions Purdue as sort of a major national online player.”

Merisotis said Purdue’s big jump into online is a bit of a coming-of-age moment for adults in higher education and a “big signal about the market.”

“One of the things I really appreciate about this is that it puts it in the field of view the fact that adults are a very important part of the equation,” Merisotis said. “There’s a lot of opportunity here to grow and help build the American workforce by targeting that population of workers.”

Jason Kloth, CEO of Ascend Indiana, a group that connects employers with qualified workers, said one of the top issues facing Indiana companies is increasing its supply of degreed, credentialed workers.

“Purdue’s efforts to find a mechanism to deliver education to larger groups of people, including nontraditional students, will have a significant positive impact on educational attainment that leads to better paying jobs,” Kloth said.

Indiana Senate President Pro Tem David Long said the move positions Purdue as major player in online education.

“You’re either in the game or you’re not,” Long said. “For a university as prestigious as Purdue to be engaged at this level is great for the university and great for the state. It will be an opportunity for them to take their brand outside of our state.”

President Mitch Daniels said extending Purdue’s reach to online students was part of a focus on increasing college attainment rates and Purdue’s "land-grant mission to expand higher education beyond the wealthy and elites of society.”

“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,” Daniels said in a statement.

However, concerns about brand management bubbled up Thursday, with many skeptics wondering whether the acquisition would diminish the stature of a Purdue diploma or being a Purdue faculty member.

“What feeds the online education industry is the concept of doing things faster and cheaper,” said David Sanders, chairman of Purdue’s Senate and associate professor of biological sciences. “I’m concerned, in particular, with Purdue’s faculty brand. What are people going to think of our faculty going forward? Those are unanswered questions.”

A potential positive aspect of the deal, Sanders said, is that it could become a money-maker for Purdue in the long run. He said it also eliminates a major player in for-profit education—a sector he is skeptical about.

“I’m willing to wait and see,” Sanders said. “That doesn’t mean I don’t have concerns and questions I have in public. I’m pleased there’s going to be one fewer for-profit college going forward because it will now be a state institution.”

Merisotis said Daniels’ reputation has “helped carry this because he’s demonstrated a willingness to take risks, and frankly, [he’s] delivering on that.”

It could pay off if Purdue demonstrates that it can increase the academic success of Kaplan students, Merisotis said, though it carries risk because it opens the door to people who have lower academic success rates.

“The bet they’re making is that Purdue’s high-quality delivery model will serve that population of students better,” Merisotis said.

How other peer universities—and the rest of the struggling for-profit sector—will react to the news is another question. Will this signal the beginning of an era of mergers and acquisitions in higher education?

Arizona State University is currently the biggest player in online education among universities that have a large physical presence and history as a public school.

“It will be interesting to see if other colleges try to do this sort of partnership as well, and if regulators allow it,” Kelchen said. “They’ll probably wait and see for a couple of years. It has the potential for some institutions to consider it.”

Purdue cut the deal at a time the overall-for profit industry is in flux.

Enrollment has dropped and the sector has drawn increased scrutiny from federal regulators in recent years—although Kelchen said “those pressures have probably gone down a little bit” under new U.S. Secretary of Education Betsy DeVos.

“I think it’s possible that regulators would scrutinize this, in part because it’s unprecedented,” Merisotis said. “The regulatory structure for for-profits is different than it is for not-for-profits. That’s going to give the Department of Education some work to do here.”

State approvals could be an easier sell.

Indiana's top lawmakers received advance word on the proposal and quietly slipped enabling legislation into the state’s budget. 

Senate Appropriations Chairman Luke Kenley said he was “pretty comfortable” putting the enabling legislation in the budget because higher education Commissioner Teresa Lubbers “vetted” it.

Lubbers said in a statement released to IBJ that the Indiana Commission for Higher Education “looks forward to working with Purdue University to develop the procedures for authorization of this new state education-affiliation institution.”

“As higher education evolves to serve more students in innovative ways,” Lubbers said, “we will seek to ensure that new models enhance access, affordability and academic quality for students.”


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