Purdue's acquisition of for-profit Kaplan University hits roadblock

WASHINGTON — The U.S. Education Department wants Purdue University to absorb the debts and liabilities of Kaplan University as a condition for approving the state school’s controversial purchase of the for-profit college, a request that critics say could place Indiana taxpayers at risk.

Purdue, a renowned public university in Indiana, acquired Kaplan’s 15 campuses and learning centers in April to form a new online college, dubbed NewU. The deal was met with swift resistance from some Purdue faculty, consumer groups and liberal lawmakers because of the for-profit company’s continued involvement in the new public university. Foes of the deal asked whether NewU would require public funding.

But Purdue president Mitch Daniels, the former governor of Indiana, said the new venture would not receive or require taxpayer dollars. Those assurances are now in question as details of an Education Department review of the acquisition have emerged.

In a letter obtained by The Washington Post, Michael Frola, a senior official at the Education Department, takes issue with Purdue’s unwillingness to cover all liabilities arising out of Kaplan’s participation in the federal student aid program. The state university said it would take responsibility only for liabilities tied to NewU, not those that Kaplan may have accrued before the closing of the deal. Those liabilities can include tuition refunds to students or reimbursing the department for the canceled loans of former students.

Frola said the department will not approve the change of ownership unless Purdue will “assume responsibility for liabilities resulting from the operation of Kaplan University as an educational institution, whether they are known or unknown, and whether they accrue prior to, or after the closing of the transaction.”

The debts and liabilities backed by Purdue “constitute an instrumentality of the State of Indiana for the purpose of the department’s regulations,” he said. In other words, the department ultimately holds Purdue and the state of Indiana responsible for any liabilities resulting from the operation of Kaplan University.

The schools need the Education Department to bless the acquisition so that students of NewU can receive federal grants and loans to attend. Frola said Purdue could have Kaplan Higher Education cover the costs of any liabilities, an option that Purdue spokesman Brian Zink said the school will pursue.

But Zink said nothing in the department’s stipulation prevents Purdue, NewU and Kaplan Higher Education from divvying up the responsibility for all debts and liabilities.

“This is a basic principle of freedom of contract,” he said. “The department has been very clear that it recognizes this principle in calls it has had with representatives of Purdue and Kaplan.”

Purdue will pay $1 for Kaplan’s academic operations. The for-profit company will provide a range of services in exchange for 12.5 percent of the NewU’s total revenue. But Kaplan will get paid only after the new school generates enough revenue to cover its operating costs and other expenses.

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