The trials of Kaplan Higher Ed and the education of The Washington Post Co.

“I believe in what Kaplan Higher Education does. I think its work benefits its students and in a sense benefits the country by educating people who need the education,” Donald E. Graham, chief executive of The Post Co. and patriarch of the family that controls it, said at a UBS global media conference in December. “I will go anywhere and meet with anyone to make the case for our work.”

Graham has also noted some of the hazards of the Kaplan higher-education group’s fast growth. In the company’s 2006 annual report, he wrote that challenges Kaplan was facing even then “were the complex result of too-rapid acquisitions outgrowing our management structure.”

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A look at The Washington Post’s education unit, Kaplan.

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One past director of The Post Co.’s board said that members were better versed in media than education but that the lure of big profits was hard to resist.

Another, Dick Simmons, president of the company when it acquired Kaplan, said, “At a time when the largest part of The Washington Post Company, the . . . newspaper, was sinking, sinking, sinking, and here this relatively new player . . . was growing, growing, growing — how do you think anybody would react to that?”

The Post Co. reacted the way many companies do when things are going well: by doubling down, and then doubling down again, ramping up the number of students enrolled in Kaplan.

Along the way, The Post Co.’s reliance on federal student loan money grew. By the end of 2010, more than 90 percent of revenue at Kaplan’s biggest division and nearly a third of The Post Co.’s revenue overall came from the U.S. government.

Public money means public accountability, and critics said Kaplan fell short. Two-thirds of Kaplan’s students drop out before graduating. In Kaplan’s largest unit, nearly one-third default within three years of leaving the school. But Kaplan notes that only a small percentage of its graduates default.

Some have complained that they were not properly counseled about the risks.

“Because [the industry] uses public funding and there have been instances of bad operators taking advantage of students, these kind of stories come out regularly,” said Vince Pisano, who was chief financial officer of Quest and later a Kaplan executive. “You have to be able to stomach it if you want to be in the industry.”

The $40 million phone call

The Post Co. branched into education almost by accident.

In 1984, Simmons got a tip — from the security chief at his last job — that Stanley Kaplan, the founder of a profitable New York test prep company, wanted to sell his firm.

Simmons had never heard of Kaplan, but he was looking to broaden The Post Co. beyond the newspaper and magazine for which it was best known. He expected Katharine Graham, then the chairman and chief executive, to be skeptical. So Simmons sought the blessing of Warren Buffett, The Post Co.’s top outside investor and a fan of companies that had strong positions in their markets. Buffett liked the idea.

In her memoir, Graham later wrote, “I confess that my lack of interest was reflected in my saying to Dick, ‘I don’t give a [expletive] about it, but if you think it will be profitable, let’s do it.’ ”