Dive Brief:
- A powerful congressional committee is urging the U.S. Department of Education to no longer allow colleges to have tuition-sharing agreements with for-profit companies that help them run and recruit students into online programs.
- The U.S. House Committee on Appropriations released a report Wednesday accompanying a fiscal 2023 funding bill for the Ed Department and other agencies. The report said the committee was “deeply concerned” about online program management companies, or OPMs. These companies contract with colleges to provide services — including marketing, recruitment and course design — for their online programs. In exchange, the companies often get a cut of the programs’ revenue, usually between 40% and 60%.
- The committee took a harsh stance against OPMs, arguing that the tuition-share agreements they hold with colleges create “perverse incentives that drive up costs, waste taxpayer dollars, and rip off students.”
Dive Insight:
The OPM industry has exploded over the past decade. More than 500 colleges — largely nonprofits — have entered into contracts with these companies to quickly grow their online offerings. Tuition-share models can be attractive to colleges because they don’t have to make a heavy upfront investment.
But lawmakers have increasingly questioned the business models, arguing that they incentivize OPMs to aggressively recruit applicants and prioritize profit over student needs. This year, several Democratic lawmakers, including Massachusetts Sen. Elizabeth Warren, asked some of the largest OPM providers for information about their contracts with colleges and suggested that tuition-share agreements may not comply with federal law.
U.S. law bars colleges that receive federal funding from giving incentive-based compensation to employees or companies that recruit and enroll students into their programs. This restriction is meant to prevent abusive recruiting practices.
The Ed Department considers tuition-sharing to be one form of incentive compensation. But the agency released guidance in 2011 that carved out an exception for OPMs using these agreements.
Under the 11-year-old guidance, OPMs can provide recruiting services under tuition-share contracts — but only if they are offered as part of a larger bundle of services, such as with online course support and career counseling. Colleges must also retain control of their admissions decisions and set the number of students who can enroll.
A recent report from the U.S. Government Accountability Office, an auditing agency for Congress, concluded the Ed Department hasn’t been doing enough to ensure OPM contracts comply with that guidance.
The House Appropriations Committee, in this week's report, called on the Ed Department to rescind the guidance altogether, calling it a loophole to the incentive compensation ban. The committee also recommended the agency establish a process to roll back “institutions’ inappropriate reliance on wasteful, abusive OPM tactics.”
The Ed Department did not immediately respond to a request for comment on the committee report Thursday.
The committee urged the department to ensure OPMs weren’t engaging in practices that overstep the 2011 guidance. Those practices include having contracts that pay OPMs higher shares of revenue as enrollment increases.
“The Committee is committed to vigorous oversight of relationships between universities and for-profit OPMs and urges the Department to crack down on OPM waste and abuse to protect students and the overall integrity of taxpayer-funded Federal student aid programs,” lawmakers wrote in the report.
The report drew a link between rising graduate student debt and the proliferation of OPMs. It cited a November investigation from The Wall Street Journal into an online master’s degree in social work at the University of Southern California that left recent graduates with six-figure debt loads and low salaries. The university developed the degree with 2U, an OPM that takes around 60% of the program’s tuition revenue.
Stephanie Hall — a senior fellow at The Century Foundation, a left-leaning think tank — said in an email that the report clearly connects the student debt crisis to policies “that have allowed an unchecked market of online degrees to emerge which are supercharged by for-profit third parties that get paid per student they recruit.”
Changes to the Ed Department’s OPM policies would have to be “phased in and orderly,” Hall said. Colleges would have time to revise their agreements with these companies and provide input to the department, she said, creating a “win-win for students and colleges.”
The committee also urged the department to make OPMs jointly liable with colleges in borrower defense to repayment claims, which allow students to have their federal student loans forgiven if they were defrauded by their institutions. The agency should develop ways to determine when liabilities stemming from borrower defense claims should be shared between an institution and an OPM, the report says.
The Biden administration is expected to release a new version of the borrower defense regulation this summer.
