purdue shakeup

Purdue Shakes Up Academe (Not All Presidents Are as Innovative as Mitch Daniels)

Five years ago, higher education was abuzz over distance learning, a “disruptive technology.” The big question was whether traditional colleges and universities could incorporate the new technology or if they would be crippled because they couldn’t adapt to it. The rapid growth of for-profit online schools and the advent of MOOCs (massive open online courses) underscored the threat.

But that threat has receded. MOOCs weren’t widely replicated and many for-profits, attacked by the federal government for aggressive sales pitches and low graduation rates, shrank or shut down.

Fears are now rippling through the academy again.

Purdue University has bought Kaplan University, a private, for-profit, online college. Led by Purdue president and former Indiana governor Mitch Daniels, the Indiana land-grant university is taking over a full-fledged online college with 32,000 students. It will become a Purdue subsidiary, while still operating the way it has been.

What’s more, Purdue just announced that Kaplan will reduce its tuition for in-state students by 45 percent, to $220 a credit-hour, also well under Purdue’s credit-hour price. A degree from “NewU” (the school is as yet unnamed) will cost in-state students an estimated $39,600, compared with $80,088 (including room and board) for a degree from the main Purdue campus. Kaplan’s lower charges will start this summer, even while the schools are awaiting approval by Purdue’s accreditor and the federal government.

In other words, rather than being cowed by online instruction, Purdue is embracing it in a big way. If it is successful, NewU could force traditional faculty—at Purdue and elsewhere—to make major changes in order to compete. Thus, the shock-waves through academia.

Most major universities are struggling to take advantage of distant learning. They have many online classes; according to the Babson Survey Research Group, 28 percent of all students have taken at least one digital class. However, courses tend to be videos of professors’ lectures with the addition of discussion boards, and students take them primarily for convenience.

And it’s still hard to get an undergraduate degree online. For example, North Carolina State University offers more than 90 online programs, but most are master’s degrees in practical fields (such as biological and agricultural engineering) or certificate programs for undergraduates (such as soil science or feed milling). For the most part, online is not supplanting traditional undergraduate offerings.

Even though it carries the taint of profit-seeking, Kaplan University’s reputation has something of a favorable gloss. Kaplan has been criticized just like many other for-profits, but quickly changed policies when the government found them objectionable. Kaplan is no fly-by-night operation; Stanley Kaplan started it in 1938 as a test-preparation school for exams like the SAT, and the Washington Post owned it from 1984 to 2013, when Amazon’s Jeff Bezos bought the newspaper (separating it from Kaplan).

One hurdle for the purchase is accreditation. Since both Kaplan and Purdue are accredited by the Higher Learning Commission (HLC), it seems doubtful that HLC will fail to accredit NewU, but faculty concerns are typically a big factor in the accreditation process. The Indiana chapter of the American Association of University Professors (AAUP) said it “objects strenuously” to the purchase and adds, “Non-profit institutions serve the public good; for-profit private institutions serve corporate interests. The two should not mix.”

With so much at stake, the details of the purchase are under scrutiny.

Purdue will purchase Kaplan University for a dollar, with the option to buy it out in six years. (Kaplan keeps some of its assets, such as its professional and technical education.)

To facilitate the purchase, the Indiana state legislature quietly included provisions in its latest budget allowing NewU to be a “public-benefit corporation,” which, according to Indiana law, is a “nonprofit corporation organized for public or charitable purposes, such as a museum.” Brian Zink, senior director for news and information at Purdue, says, “Such a corporation can exist as a separate legal entity and pursue its own educational mission while being controlled by, but remaining distinct from, a state university such as Purdue.”

Kaplan, a subsidiary of Graham Holdings, Inc., will remain independent and receive revenues from Purdue. Purdue will pay Kaplan to provide “back-office” services, and Kaplan will receive 12.5 percent of NewU’s revenues, but only after New U’s operating expenses are covered. Zink points out that NewU is guaranteed a $10 million payment beyond its operating expenses each year for five years, either from its own revenue or from Kaplan. After the fifth year, it will receive 10 percent of its revenue before the 12.5 percent payment kicks in. Part of the compensation to Kaplan, says Zink, is an ”earn-out” for the assets it sold for $1.

Paul Fain of Inside Higher Ed, who made an intense effort to pin down the legal and financial aspects of the purchase, suggests that there will be problems of transparency. NewU is not a typical non-profit under 501(c)(3) of the tax code, so it won’t have to file 990 forms that provide disclosures. Some “trade secret” information is being kept under cover and not revealed in the filing with the Securities and Exchange Commission. Yet NewU will be a public entity for the sake of Title IV purposes; it does not need to meet the same federal financial restrictions that for-profits do.

A big question is whether the university will stand behind NewU if it runs into financial trouble. The university agrees to compensate Kaplan under some circumstances. However, Daniels pointed out early on that should that happen, the funds would not come from taxpayers but from other Purdue funds. Brian Zink says, “It is true that Kaplan may in limited circumstances be compensated out of NewU funds for a lost portion of its fee if it is foregone as a result of certain policy changes. However, that fee is subordinated in NewU’s financial structure, meaning it would only be paid after NewU receives its own guaranteed compensation and recovers its expense.”

For students of “disruptive technology,” Purdue’s purchase is a textbook response to innovation—but one that is rare and difficult to pull off. In The Innovator’s Dilemma, Clayton Christensen, the man who popularized the term, says that IBM was one of the few traditional computer companies to survive the onslaught of the personal computer (others such as once-famous Digital Equipment Company and Wang Laboratories faded away). It did so by creating a completely autonomous company in Boca Raton, Florida—far from its headquarters in Armonk, New York.

While Purdue is not creating a distant outpost, it is creating an autonomous unit and buying a school that is already up and running. As Daniels said in his initial statement about the purchase, he and Purdue leadership spent several years studying how to adapt to online education. “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.”

Alana Dunagan, head of higher education at the Christensen Institute, applauds Daniels’ action and believes that the school can innovate in distance education because of its autonomy. But she isn’t sure that other schools can copy what Purdue is doing. “It requires a really innovative leader at the top, someone who takes personal risks,” Dunagan said. “As a former governor, Mitch Daniels has the business expertise and the political chops to do it, but average college presidents may not be able to—even if they have the vision to see beyond the biases of higher education.”

  • Glen_S_McGhee_FHEAP

    How much is Purdue paying for this experiment? No one is saying. What’s the big secret?

    Transparency is another issue — the ex-governor leaned on his pals in the legislature to exempt NewU from Indiana’s public records laws in ways that belie the common good.

    The master trend at work here is the homogenization of organizations — they are becoming more and more similar over time: the distinction between profits and for-profits is vanishing. AAUP is out of touch with this — schools are all becoming entrepreneurial, and for-profit orgs are now benefit corps and social entrepreneurs. Even innovation has lost its meaning.

    There is nothing innovative about this merger — Daniels is just playing his part in the master trend, the isomorphic homogenization of organizational forms. Neo-institutionalists have written about this for decades.

    • George Avery

      In my lifetime, I can’t think of a major “non-profit” university that has not acted as if it were a for profit, the only difference being the distribution of the surplus. Even in my undergraduate days in the 80s, the Ivy League “non-profits” were caught colluding to fix financial aid awards in order to maximize income through the price discrimination scheme known as “financial aid.” In health and other STEM fields, as much emphasis is placed on external funding as publication record in assessing faculty productivity, and I know of several so-called “non-profit” schools that all but require a NSF or NIH grant for tenure in such fields, as those programs allow much higher indirect cost charges than private grants and contracts, and hence are more profitable. I know from personal knowledge – a briefing given by the Director of Admissions under Daniel’s predecessor France Cordova – that Purdue decided around 2010 to seek to admit a MINIMUM percentage of foreign students to maximize income, as these students were charged higher out of state rates and rarely if ever received aid from the school. I know of other schools that sought to specifically admit more Master’s students into their graduate program as these students were less likely to expect funding through assistantships than doctoral students, and thus increased income. Look at all the schools that operate for profit service businesses on their campuses- Purdue in recent years has opened a bookstore to compete with the three long-time private firms in the local market, not to mention operating a clothing store and food service establishments. Those are just the directly operated businesses, not including the for-profit activities of the Purdue Research foundation (a major owner of rental property in the Lafayette area).

      I should point out that I was a Purdue faculty member from 2006-2011, and stayed living in West Lafayette after leaving for a private research position with a medical analytics firm.

      • Glen_S_McGhee_FHEAP

        Thank you for the info.

        What do you think of Kaplan’s faculty? Do they measure up to HLC’s minimal standards? How is HLC responding to the merger? How does course content align? Is the educational quality the same, or inferior?

        This last point — inferiority — is conveniently forgotten when “disruptive innovation” is discussed. Without it (think, cell phones versus land lines), there would be no market scalability for the “disruptive innovation.”

        • Jane S. Shaw

          Clayton Christensen made the point that inferiority is an element in disruptive technology. Sony’s transistor radio was so inferior to RCA’s radios that Sony had to find a new, niche market–teenagers who wanted to listen to the radio by themselves and couldn’t afford anything better anyway. That’s why RCA and other companies ignored them–in no way were they taking any customers away. But technology improved and after awhile RCA faded away. (You’re right that cell phones were inferior to land lines and they still may be, but that didn’t hold cellphone producers back.)

          • Glen_S_McGhee_FHEAP

            We need to apply this to educational innovation. Have you read David F. Noble’s prophetic paper, Digital Diploma Mills?

            As I mentioned, I was asked to transfer my courses to the internet, but I could not think of a way to duplicate the content or the emotional intensity that I brought to the classroom. There is no way online can compete with face-to-face interaction.

  • “And it’s still hard to get an undergraduate degree online.”

    I actually laughed out loud at this point, because that hasn’t been true for many years. It’s true that for-profit schools grew rapidly because they met a need for convenient education for working adults that traditional institutions ignored. But that was then, and now the only reason Kaplan was for sale is that competition is so intense, both for graduate degrees and, yes, for undergraduate ones.

    • Jane S. Shaw

      Perhaps i should have made it clear that I was referring to the difficulty of traditional schools to provide traditional online degrees. Thus my example of NC State.

      • That’s a little different, yes. But even then, it’s not like a lot of traditional schools don’t do this. One can earn a Bachelor’s degree from a variety of public and non-profit universities for much less than one can from Kaplan, and that’s been true nearly since the beginning. Over a decade ago, I finished my Bachelor’s online through a small state college. The only difficulty was finding them, because schools like Kaplan that were fueled by investors had the money and business sense to market heavily, whereas traditional schools typically didn’t have either.

        I do agree that the better regarded schools like N.C. State were much slower to go online, but I think that was more because they were justifiably more cautious about the perceived negative effect of offering online programs on their reputations overall, and because the well endowed schools didn’t feel the same financial pressures to innovate that lesser regarded traditional schools did.

      • Glen_S_McGhee_FHEAP

        Half of the courses taken in Florida’s 4 yr schools are online. I had to laugh too.

  • Jane S. Shaw

    In response to several comments: I would be interested in knowing of any student who started out at a traditional college or university who intended to, and could, take all his or courses online (at that school). If there are many such students, then universities like NC State should relax and not be a bit concerned about what is happening at Purdue. But I don’t think that’s the case. Traditional schools are befuddled about how to deal with the for-profit phenomenon. They won a reprieve when the federal government made an all-out attack on for-profits, but that environment may be changing under our current president.

    • Glen_S_McGhee_FHEAP

      Here’s some information (albeit, a few years old) about the ubiquity of online courses in Florida. Please note the strong presence of “traditional” schools.

      • Jane S. Shaw

        Glen (and Steve): You have given me convincing evidence that some traditional schools, including state universities in Florida at least, do offer online bachelor’s degrees in traditional subjects. But if these schools saw that as the wave of the future, I don’t think they would be betting so heavily on brick-and-mortar investment.

        • Glen_S_McGhee_FHEAP

          Ok, Florida’s public colleges and universities have been pushing online courses and programs for almost twenty years. I was there, teaching when it all started.

          As long as bond markets will continue to buy and fund public improvement investment bonds for Florida’s public education sector, administrators will build buildings to put their names on them. It is that simple. If the resources are available, and can be accessed, this is the supreme measure of institutional legitimacy. Just look at the recent example of Bethume-Cook’s $300 million dollar dorm.

  • MichaelinIowa

    Here is one example in why you should have a problem with Kaplan University. Here is a link to there BS Nursing program – https://www.kaplanuniversity.edu/…/prelicensure…/ Here is a link ot my daughter’s BS Nursing program with a hospital affiliated non-profit http://www.allencollege.edu/accelerated-option.aspx

    See the difference. The Allen College link has full disclosure of
    curriculum, tuition and expenses, and pretty much everything you need to make an informed decision (including NCLEX pass rates and placement rates).

    Look at the latest NCLEX pass rates by school here in Iowa. While Kaplan has improved, it is still sitting at 73%. Most other colleges are at the high 80s to 90s. https://nursing.iowa.gov/…/NCLEX%20RN%20results%20Q2…

    You cannot get any sort of relevant information regarding Kaplan without supplying personal information. That alone should be an indicator to be careful. Compare with a public or non-profit college or university.

    So is Purdue going to continue the lack of disclosure characteristic of Kaplan. The fact that the full agreement and oversight is not subject to public review should be a strong indicator.

    Looking at the offerings from Kaplan. Most of them are what posters on this board would indicate as marginally useful degrees. Perhaps there are some niche areas, but I am not seeing Computer Science, Education, and Engineering as three big hitters for employment opportunities. They do offer Nursing degrees (see above) and Business, but what is the quality. A Nursing degree requires significant patent interaction through clinicals. Does Kaplan support this effort? Already we know their NCLEX
    pass rate is low. How is Kaplan’s pass rate for the CPA?

    Take a look at the Kaplan degree offerings and ask if we really need more degrees in these subjects in general.

  • MichaelinIowa

    I am not sure where the
    figure one half the cost comes from. I am very supportive of online
    educaiton. My daughters and I have taken ample advantage of it. Except
    for one high school course my daughter did with K12, it was all from
    public institutions. Online education allowed both my daugthers to
    graduate from college two years after high school (one with B.S.
    Mechanical Engineering and the other with B.S. Nursing). I have taken
    over 40 credit hours online myself in graduate engineering courses. Some
    takeaways from for profits. First of all you have a much higher loan
    default rate for most of them (Kaplans
    was running at 17% before the rules were tightened), tuition is
    generally higher (even if you include the public money used to support
    state schools) for comparable degrees from comparable colleges, and
    outcomes are poorer for for profits when test licensing is considered
    (consider Kaplan graduates and the NCLEX). Without local tutoring and
    support of a study community, I don’t see that many students being able
    to pass the classes in the high demand degrees. For example my daughter
    took her engineering Math and Physics online as well as Statics,
    Mechanics of Materials, Freshman Analysis, and Statistics. She is very
    smart (was Magna Cum Laude once she got on campus at a land grant
    university), but she would not have been able to pass those classes
    without tutoring from myself and some support from her high school
    engineering instructor.

    It is an interesting
    experiment, and I am not necessarily against it. It should be remembered
    that lots of colleges have strong online presence right now. It just
    becomes exceedingly difficult to teach classes online after a certain
    point. I would like to see the CPA pass rate for those with B.S.
    Accounting from for profit online colleges for example. In general you
    can get the first two years of most subjects (laboratoty classes being
    excluded) in almost any major through online classes at the public
    universities right now.

    The Purdue-Kaplan agreement
    is complex and some parts of it are unavailable (which is an immediate
    red flag as far as I am concerned). When you look at even highly rated
    for profit colleges, you find they are not nearly as open about their
    information as comparable publics and private non-profits. It is always
    contact us for more information. That to me is an immediate indicator
    that it is more about selling than allowing for a dispassionate
    evaluation of the option. Recently Forbes put a story out discussing the
    best trade schools. Many on the list were two year AS schools for a RN.
    You found that the for profits had lower NCLEX rates, higher tuition,
    and were not forthcoming in costs, courses required, etc. on their

    I liked the rules that the Obama
    administration put in place on for profits. Instead of eliminating those
    rules, they should be applied to the public and non-profit colleges and
    universities as well. Right now the Education Department seems to be
    going in the wrong direction.

    • Glen_S_McGhee_FHEAP

      Half-the cost is wrong. I just noticed that IF Kaplan-Purdue is approved by the two universities’ accreditors and federal and state regulators, Kaplan would no longer issue federal aid-eligible credentials. No Title IV is a game-killer here. No way are they going to be able to offer discounts without federal money.

      • MichaelinIowa

        I am still struggling to see how this makes sense. As other posters have noted, there is already a significant online presence by public college and universities. I don’t think Kaplan has any particular technology or skill set (except marketing) that they would bring to the relationship. They have a bunch of overworked/under engaged “adjuncts”. Purdue and other large universities already mobilize an army of adjuncts and lecturers to teach the lower level courses.

    • Jane S. Shaw

      Michael: You might be interested in a Martin Center article by Jenna Robinson about the gainful employment rule. She agrees that the standards should be applied to public and non-profit colleges as well as for-profit schools. https://www.jamesgmartin.center/2014/03/gainful-employment-for-thee-not-me/ She hypothetically applied the rule (as drafted in 2014) to North Carolina colleges to see what would happen if the rule went into effect.

      • MichaelinIowa

        Thank you. I will read the article.

  • Glen_S_McGhee_FHEAP

    As often cited by George Leef, David Labaree’s penetrating insight about contemporary American higher education is especially pertinent in regard to Kaplan/Purdue. Is this really what we want for North Carolina? I think not.

    “The difficulty posed by [the glut of graduates] is not that the population becomes overeducated (such a state is difficult to imagine) but that it becomes overcredentialed, as people pursue diplomas less for the knowledge they are thereby acquiring than for the access the diplomas themselves will provide. The result is a spiral of credential inflation, for as each level of education in turn gradually floods with a crowd of ambitious consumers, individuals have to keep seeking ever higher levels of credentials to move a step ahead of the pack. In such a system, nobody wins.”

    Not students and parents, who “have to spend increasing amounts of time and money to gain additional credentials because the swelling number of credential holders keeps lowering the value of credentials at any given level. Taxpayers find an increasing share of scarce fiscal resources going to support an educational chase with little public benefit. Employers keep raising the entry-level education requirements for particular jobs (as the average education level of applicants rises), but they still find that they have to provide extensive training before employees can carry out their work productively. At all levels, this is an enormously wasteful system, one that is increasingly draining for rich countries like the United States and positively impoverishing for less developed countries that imitate the U.S. educational model.”

    “A second problem is that credentialism undercuts learning. … [as] is almost perfectly captured by a common student question, one that sends chills down the back of the learning-centered teacher but that makes perfect sense for the credential-oriented student: ‘Is this going to be on the test?’ We have credentialism to thank for the aversion to learning that, to a great extent, lies at the heart of our educational system.”

    “A third problem posed by consumer-driven credentialism is the way it reinforces social inequality under the guise of expanding educational opportunity. … The economic, cultural, and social capital that comes with higher class standing gives the bearer an advantage in getting into college, in doing well in college, and in translating college credentials into desirable social outcomes…. The danger is that, as a result, a credential-driven system of education can provide meritocratic cover for socially reproducible outcomes.”

    Source: “How to Succeed in School Without Really Learning: The Credentials Race in American Education.” (1997:259-260)

  • Scott Whitaker

    By buying Kaplan for $1.00, Daniels reduces the acquisition cost of a new student below his competition, namely Big10 or IU. Moreover, students at Kaplan stay longer than a typical freshman. And finally, Kaplan students need a place into which to transfer easily, now to Purdue. Daniels does not have to call into question his Purdue faculty quality.
    Moving an existing course to online costs between $50,000 to $60,000 per course, not including professor time. Multiply that by any realistic number and you can see why this deal makes sense.
    Most professors want online to take over at the 101 courses, and the Kaplan versions are as good as any. Let faculty keep their 301 and 401 levels and they will remain happy.
    While overcredentialing is an issue for the well educated few, profits/surplus (in a non profit or a for profit) are made with the many who start and stay through the first time. Daniels has widen his base of starters.
    Much of these comments worry about “learning,” which is a different topic. What is happening is a massive switch to search-based learning in current colleges (residential or online) because of the convenience, profitability (and publisher price structures) of e-texts. “What is the question; I will Ctrl-F search for the answer.” Analysis and synthesis, among other learning skills, evaporate after a good high school education, if it was there to begin with. The old kind of seminar and paper writing we liked is tucked into expensive Honors Programs now. The really good undergrad professors will soon be looking to teach high school Concurrent enrollment programs, which are the best alignment and value today.