Graham Holdings Co. announced this morning in a filing with the SEC that it plans to sell its for-profit Kaplan University to a new non-profit public-benefit corporation called New University that is affiliated with Indiana’s Purdue University, a state institution. Purdue confirmed the deal in a press release quoting its president, Mitch Daniels, the former governor of Indiana.
The press release describes the assets that Purdue will acquire as including Kaplan’s “15 campuses and learning centers, 32,000 students, 3,000 employees, and decades of experience in distance education.” But the release adds that the new entity “will operate almost exclusively online.”
Under the agreement, Graham Holdings says, it will “provide key non-academic operations support to New University for an initial term of 30 years with a buy-out option after six years.” The Purdue release states that Kaplan will provide services including “technological support, human resources, facilities management and other administrative functions.” In other words, Purdue could keep paying Graham Holdings for decades to help run the New /old university. (UPDATE 11:45 am: The details of the deal are now out. Graham is selling Kaplan University to Purdue for $1 ― potentially a big tax win for Graham, even as it has the chance to reap big annual returns from the service contract.)
Betty Vandenbosch, the current president of Kaplan University, will be the chancellor of New University.
For the parties to go through with the deal, it needs regulatory approvals within a year from the U.S. Department of Education, the Indiana Commission for Higher Education and the private Higher Learning Commission, which is the accreditor of both Purdue and Kaplan University.
The deal looks like the latest attempt by the owners of a struggling, troubled for-profit college to salvage its investment, in an era where terrible abuses by many for-profit schools ― deceptive recruiting, sky-high prices, and misrepresentations to government overseers ― have tarnished the reputations and hurt the bottom lines of many companies in the industry, and led to new regulations to curb for-profit misconduct.
Grand Canyon University’s attempt to convert to a non-profit was rejected last year by the same Higher Learning Commission over concerns that a for-profit entity would continue to run the show. The Obama Department of Education last August refused to recognize the troubling conversion to non-profit status of the CollegeAmerica/Stevens-Henager chain because of concerns about how the deal enriches the previous for-profit owner, and other such conversions have been questioned on similar grounds. Many of the former campuses of the collapsed, notorious Corinthian Colleges were bought by debt collection non-profit ECMC in a Department of Education-blessed deal that has led to perpetuation of failures and abuses at taxpayer expense. The predatory for-profit college operation Education Management Corporation announced in March 2017 that it planned to sell itself to the Dream Center Foundation, a Los Angeles-based missionary non-profit organization, in a transaction that raises multiple concerns. The awful ITT Tech, before it finally collapsed, negotiated to be acquired by the public University of Akron.
If this deal goes through, former Kaplan programs will no longer be subject to the Obama administration’s “gainful employment” rule, which cuts off federal student aid to for-profit college programs that consistently leave graduates with debt they cannot afford to repay. A number of Kaplan programs have flunked this test so far. The gainful employment rule applies to non-profit programs as well, but only short-term ones. A shift to non-profit status would also free Kaplan schools from the obligation that for-profit colleges get no more than 90 percent of their revenue from Department of Education aid; some Graham-owned schools have come perilously close to this line.
It’s admirable that Governor Daniels and Purdue want to make a deeper investment in career education ― training people for jobs in health care, information technology, business, and other fields. And there are fine instructors at Kaplan who should be able to keep teaching.
But locking the taxpayers of Indiana into a deal to take over Kaplan and retain Graham Holdings for decades doesn’t look like the right way forward, even if Purdue says New University “will be self-sufficient and will not require an appropriation from the state.”
I say that because I have carefully reviewed the performance of Kaplan and Graham Holdings, which was called the Washington Post Company until it sold its flagship newspaper to Jeff Bezos in 2013. I’m concerned that Purdue may well be acquiring toxic assets. And while the deal would free the former Kaplan schools from regulations aimed at curbing for-profit college abuses and shortcomings, as the Corinthian example has shown, it won’t guarantee that such abuses will stop.
Here are some of the facts:
— Kaplan Higher Education has in recent years been under investigation by or settled cases with: the U.S. Department of Justice; U.S. Department of Education; and the attorneys general of Delaware, Florida, Illinois, Massachusetts, and North Carolina. Details
— In 2015, Massachusetts attorney general Maura Healey announced settlement of an investigation of Kaplan for unfair and deceptive student recruiting practices. Kaplan agreed to pay $1.375 million to former students. According to Healey, Kaplan Career Institute got students to enroll “with harassing sales tactics and misleading representations in its recruitment materials concerning its educational program and employment.” Healey found that Kaplan’s website and its recruiters claimed job placement rates for Kaplan’s Medical Assistant and Medical Billing and Coding programs as above 70 percent, when in fact the rates were significantly lower. Kaplan also promised to help students find jobs, but students told Healey’s office “that the job listings provided by Kaplan were from publicly available resources and that Kaplan did not provide any special services or programs to assist students and graduates in their job search.” Accordingly, Healey said in her court filing, “Kaplan unfairly or deceptively induced students to enroll…” In the settlement papers, Healy noted that Kaplan no longer operates any Kaplan Career Institute schools in Massachusetts. Under the settlement, Kaplan must give the attorney general’s office notice “before attempting to open or re-open any for-profit school campuses in Massachusetts.” Kaplan admitted no wrongdoing in the Massachusetts settlements, and it publicly denied Healy’s allegations.
— In 2015, Kaplan agreed to pay about $1.3 million under a settlement with the Justice Department to resolve whistleblower allegations that Kaplan College employed unqualified instructors at its campuses in Texas. Kaplan denied wrongdoing.
— An award-winning 2015 Miami Herald investigation of for-profit colleges led with the story of a Florida mom, Sara Pierce, who says she was misled by a recruiter for Kaplan University into signing up for an online bachelor’s degree program in Nutrition Science. Pierce thought the program would directly qualify her to be a licensed nutritionist, when in fact it was not accredited by the appropriate agency. When, near the end of her studies, a professor let Pierce know that the degree would not make her eligible for the job she sought, and she complained, the school pointed her to fine print in a Kaplan manual. But it stands to reason that had Pierce actually known the low value of the degree, she would not have enrolled. There are other instances of Kaplan students feeling similarly misled about accreditation — in Kaplan’s dental assistant program in Charlotte, in Kaplan’s online Concord law school — and left deep in debt, without the useful degree they sought.
— A Kaplan training document obtained by Senate investigators encouraged employees recruiting students to “Keep digging until you uncover their pain, fears and dreams” and to “Get to their emotions and you will create the urgency!” (Kaplan said the company stopped using the guide in 2010.)
— In 2011, the Huffington Post reported, based on accounts from Kaplan employees and students, that Kaplan managers pressured recruiters to engage in “guerrilla registration” — enrolling students in classes they never took, without their permission, in order to increase federal aid. (Kaplan denied the claims.)
— In 2014, Graham Holdings then-CEO (now chairman of the board) Donald Graham launched a college scholarship program for undocumented young people, obtained more than $80 million in donations from Mark Zuckerberg, Bill Gates, Michael Bloomberg, and others, and, through the program’s director, who was placed on the Graham payroll, sent some five percent of the students and scholarship money to Kaplan and other for-profit colleges owned by Graham Holdings — a clear conflict of interest.
— Donald Graham, the heir to the family company that owned the Washington Post newspaper, and a pillar of the Washington DC business, political, and social establishment, was, according to Obama White House officials, the most influential and aggressive behind-the-scenes industry lobbyist working to weaken Administration initiatives to hold for-profit colleges accountable for abuses. In response to media reports about Kaplan abuses, Graham has explained that Kaplan “is a high-integrity place” that has a great record of success, is “bitterly sorry” for a few minor lapses, and has been unfairly attacked in the media. As to the time in 2010 that undercover Government Accountability Office investigators caught Kaplan recruiters engaging in blatant deceptive practices, Graham blames two rogue employees who “behaved like the worst kind of unethical used-car salesmen.” He does admit that “Some for-profit colleges have behaved disgracefully to their students; I do not defend them.” But as to defunct Corinthian Colleges, which even some industry executives now say was one the worst actors in this sector, Graham may not defend them, but he owned them. His company owned as much as 8 percent of awful Corinthian before its demise.
Purdue president Daniels spoke at the 2013 convention of the main for-profit college trade association, APSCU. That group’s hyper-aggressive, disingenuous defense of the worst behavior in its sector has accelerated the fall in fortunes of for-profit colleges generally.
The Purdue press release quotes former Obama Secretary of Education Arne Duncan as saying, “I’m excited by this opportunity for a world-class university to expand its reach and help educate adult learners by acquiring a strong for-profit college.”
-- Purdue president Mitch Daniels told his faculty of the Kaplan deal one hour before he told the public. His announcement was met with silence.
-- "Betty Vandenbosch, Kaplan University president and incoming chancellor of Purdue’s New University, said classes, faculty, degree paths offered and current pricing structures would remain the same, for now."
-- "Purdue will get five seats on the new nonprofit's board and Graham will get one (from the already assembled board of trustees for Kaplan University)."
-- Slide presentation that President Daniels delivered to Purdue board of trustees on Thursday morning to present the Kaplan deal -- never mentions the multiple law enforcement investigations of, or controversies surrounding, Kaplan. Instead a slide tells the trustees about Kaplan: "Reputation: Viewed positively for ethics, academics, regulatory & legal compliance."
-- Former U.S. Deputy Under Secretary of Education Robert Shireman: "the Purdue-Kaplan agreement provided to shareholders and approved by the trustees reveals ... a dangerous, long-term marriage between a public university and a firm answerable to Wall Street investors."
-- I've neglected to mention one other possible motivation for Donald Graham to want to alter Kaplan's business model and receive revenue from Purdue rather than from U.S. Department of Education federal student aid. Graham may be holding his breath, hoping the vengeful Donald Trump won’t find out about a March 2016 email in which Graham disparaged Trump’s business skills. Kaplan has been getting as much as $1.5 a billion a year in student aid from the federal government that Trump now heads.
-- "In legislation Purdue helped craft and put into hands of legislators, the 'New U' is exempt from Indiana open door laws, access to public records laws and accounting for public funds codes – each on the books to offer basic public scrutiny that governs the state’s governmental bodies and universities, including Purdue."
— "The Indiana Conference of American Association of University Professors on Tuesday evening released a statement that said it 'objects strenuously' to the deal... 'This is not what public higher education is about,' added David Nalbone, vice president of the chapter and psychology professor at Purdue Northwest. 'This is about making money and it does so by cheapening a Purdue degree.'"
-- "Purdue’s Faculty Senate Seeks to Rescind Kaplan Deal." At the faculty senate meeting, Purdue president Mitch Daniels, answering questions from the faculty group, slandered former U.S. Deputy Under Secretary of Education Robert Shireman, a critic of the deal. Daniels also told the faculty senate that Kaplan University had not had a lawsuit against it in ten years, a deceptive statement reminiscent of the kinds of things Kaplan recruiters have been caught telling prospective students. The 2015 settlement with Kaplan filed in state court by the Massachusetts attorney general was to address the actions of Kaplan Career Institute, a separate division of Kaplan Higher Education, while the 2015 settlement of a fraud case brought by the Justice Department was over the misconduct of Kaplan College. But both units were, like Kaplan University, divisions of Kaplan Higher Education and overseen by the same management team. Other investigations -- by the attorneys general of Delaware, Florida, Illinois -- have involved Kaplan University itself. In addition, there's a very clear reason why no students have sued Kaplan, if that is the case; Kaplan for many years has forced all students to agree, as a condition of enrollment, that any dispute with the school -- over deceptive marketing, campus assault, or anything else -- must be taken to private, secret arbitration instead of a court of law. Daniels' egregious slander of Shireman and his deceptive statements about Kaplan suggest he may not know what he's talking about -- or what he's getting into.
-- "One controversial point in the agreement calls for Kaplan and Purdue to form a four-person committee that will recommend an annual budget for the newly acquired university and also recommend tuition and fee levels. The new committee will have two representatives named by Purdue and two named by Kaplan, although it will answer to a Board of Trustees at the new university stacked heavily by Purdue." (As noted above, "Purdue will get five seats on the new nonprofit's board and Graham will get one (from the already assembled board of trustees for Kaplan University).")
Rachel E. Hile, associate professor in the Department of English and Linguistics at Indiana University-Purdue University Fort Wayne: "the Purdue-Kaplan deal is a bad plan for reaching Indiana's higher-ed goals.... If the Purdue-Kaplan deal goes through, Daniels may be able to brag about an increased percentage of citizens with college credentials. But by providing those degrees using a “business model” that focuses on paying teachers the minimum possible, he ensures that those credentials will mean less than a Purdue degree does now."
This article also appears on Republic Report.