Dive Brief:
- The U.S. Department of Education announced Wednesday that it is planning to review 2011 guidance that allows online program management companies, or OPMs, to strike revenue-share agreements with colleges.
- Hundreds of colleges contract with OPMs to help them launch and run online programs. These companies often provide the upfront capital needed to start programs and then take a portion of their revenue in return, typically between 40% and 60% of tuition.
- However, lawmakers have been questioning whether these arrangements comply with federal law. The Education Department plans to hold listening sessions in early March to seek the input of stakeholders, including colleges, faculty, OPMs and students.
Dive Insight:
The OPM industry has exploded over the past decade. One of the most prominent companies in the sector, 2U, went from earning $29.7 million in revenue in 2011 — the year the guidance was created — to nearly $1 billion today.
However, it’s unknown how large the market really is. A report last year from the U.S. Government Accountability Office estimated that at least 550 colleges have contracts with OPM providers, but said this was likely an undercount.
It also found that the Education Department wasn’t adequately monitoring whether these contracts comply with the 2011 guidance, which is meant to prevent aggressive recruiting practices.
Generally, colleges that receive federal financial aid are barred from giving incentive-based compensation to companies or employees that recruit and enroll students into their programs. Banned arrangements include giving commissions or bonuses to workers based on how many students they recruit.
Although the Education Department also considers tuition-sharing to be incentive-based compensation, the 2011 guidance says colleges can contract with OPMs for recruiting services through these arrangements so long as they are part of a larger package of offerings — a carve-out often called the bundled services exception. A bundle of services, for instance, could include recruiting as well as online course support and career counseling.
In Wednesday’s announcement, the agency said the number of students recruited by companies like OPMs has vastly increased since the guidance was released.
“Given the growth in online enrollment and associated federal debt, the Department is seeking public input to understand the impact of this exception and whether any updates are necessary,” it said in the announcement.
Some of the questions the Education Department plans to ask stakeholders revolve around the differences between revenue-share agreements and fee-for-service contracts.
The agency said it wants to know how typical tuition and fees differ between programs supported through revenue-share contracts versus fee-for-service models. It also wants to understand how recruiting services would be affected if colleges switched to fee-for-service arrangements.
“It’s a prime opportunity for students and institutions and other folks in the public to come forward and share their concerns with the current state of play,” said Stephanie Hall, senior fellow at the Center for American Progress, a left-leaning think tank. “We know that a number of colleges of all sizes, all types, have been negatively impacted by some of these long-term contracts.”
A 2U spokesperson said in an email that the company welcomes the opportunity to share thoughts on the bundled services guidance.
“2U and businesses like us have become a vital part of driving innovation, access and affordability in the higher education ecosystem,” the spokesperson said, adding that the company looks forward to working with the agency to ensure “our industry is serving the best interests of students, universities and taxpayers.”
The review of the guidance follows years of mounting criticism against the OPM sector. Democratic lawmakers have questioned whether revenue-share arrangements — as well as the 2011 guidance — comply with federal law.
“There’s a pretty broad agreement at this point that the bundled services loophole that was created back in 2011 really is not consistent with the statute,” said Clare McCann, higher education fellow at Arnold Ventures, a philanthropic organization, and former policy adviser in the Biden Education Department. “The best information the department can get out of this hearing is more about how institutions could adapt to be compliant.”
Meanwhile, policy advocates have expressed concerns that these deals lead colleges to hand over too much control of their programs and incentivize companies to aggressively recruit students.
Critics of OPMs often cite a 2021 investigation from The Wall Street Journal, which found that 2U recruited students into an online master’s of social work program at the University of Southern California that left some with debt burdens they couldn’t afford. 2U is also facing a lawsuit accusing the company of using misleading information to recruit students into a separate online graduate program at USC.
2U has denied the lawsuit’s allegations and pushed back against The Journal’s reporting.
On Wednesday, one influential lawmaker criticized the Education Department’s announcement. Rep. Virginia Foxx, a Republican from North Carolina who chairs the House’s Committee on Education and the Workforce, said it was “reckless” for the department to link enrollment in online programs with rising federal student loan debt.
“Instead, innovations in postsecondary education, including online education, have broken through access barriers for many adult learners,” Foxx said. “While I share the belief that we must ensure programs provide value to students and taxpayers, it’s never going to work for the Department to push blanket compliance policies onto entities.”
The Education Department also released guidance Wednesday clarifying that OPMs that help colleges with recruiting, retention and educational content will generally be considered third-party servicers. This means colleges will have to report arrangements with these companies to the Education Department by May, giving the agency a deeper look into the sector.
