GAO takes moderate stance on online program management companies

A long-awaited federal review of the companies that many colleges contract with to help them design and run their online college programs was expected — by those who favored such a move as well as those who did not. – to potentially undermine the legality of the revenue sharing agreements that underlie some of these agreements.

The report published Thursday by the Government Accountability Office, after a year and a half of study, suggests that some of these agreements with online program management (OPM) companies may violate federal law that prohibits student recruiters from being paid based on their success in recruiting students, as some congressional Democrats and consumer groups strongly assert.

But the GAO report broadly affirms the view that revenue-sharing agreements are legal as long as a company or other provider “bundles” recruiting assistance with other services such as instructional design or student support (as outlined in the 2011 Obama administration guidelines) . The agency is focused on urging the Department of Education to demand more and clearer disclosure from colleges about the extent and nature of these outsourcing arrangements, to help auditors and others analyzing the agreements better understand whether companies and their recruiters are paid or not based on how many students they recruit. (It’s important to note here that some online program management companies have discontinued or reduced their use of revenue-sharing agreements, instead charging fees for direct services.)

“To protect students from predatory recruitment practices, it is important that [the Education Department] to ensure that OPMs who provide college recruiting services, as well as OPM recruiting staff, do not receive incentives based on their success in enrolling students,” GAO said in his report. “Without clearer instructions to auditors and colleges about what information about OPM agreements should be assessed during compliance audits and program reviews, there is a risk that education will not have the information it needs to detect incentive compensation violations.”

While the report didn’t produce the kind of eye-opening discovery that some were hoping for (or fearing, depending on their perspective), it did provide some insight. First, the GAO includes in its definitions of “education programs” that OPMs offer not only degree programs taken by students eligible for federal student aid, but also shorter courses, such as microloans or boot camps, which may not be eligible for federal assistance.

And the report includes the Department of Education’s acknowledgment that it is considering revising federal incentive pay guidelines to “strengthen” its ability to identify possible violations.

Background

The market for vendors that help colleges and universities develop, market, and manage online academic programs has emerged over the past 15 years.

It all started with a group of established companies like Pearson and a set of new players who invested initial funds to provide a range of services (admissions and registration support, marketing, online course development and students) in exchange for a significant share of subsequent income.

Business began to take off when nonprofit colleges (public and private) began trying to compete with the for-profit universities (think University of Phoenix and Kaplan) that dominated the first big wave of online post-secondary education. Many of these new entrants turned to outside vendors because they didn’t believe they had the in-house expertise to compete in key areas such as digital marketing and virtual student services.

The market for online program managers expanded further with the emergence of companies created by for-profit colleges such as Kaplan and Grand Canyon University to sell the expertise they had developed in the learning to nonprofit peers trying to enter the market. These companies have come under particular scrutiny from consumer advocates and think tank analysts who are generally skeptical of for-profit colleges, who have argued that outside for-profit providers pressure colleges to create online enrollment at the expense of quality control.

One such critic, Robert Shireman, who engineered the Obama administration’s increased regulation of for-profit colleges, in a 2019 essay in Inside Higher Education called on the federal government to revoke the aforementioned 2011 guidelines that allowed tuition-sharing payments for recruitment as long as a contractor also provided non-recruitment services.

This is the direction some observers hoped the Government Accountability Office would point when it began its review in early 2021.

What the GAO said

But that’s not quite where the agency went.

The report provides data on the size and scope of OPM’s footprint in higher education, although there is little that has not been provided in many previous reports. The end result of this information: Hundreds of colleges use external facilitators to run thousands of online college programs, most arrangements involve colleges paying companies to help them recruit students, and many share revenue based on enrollment (companies raising about half of tuition revenue on average).

Much of the rest of the report focuses on how the government could and should assess whether these revenue-sharing agreements violate the incentive pay ban. The GAO is not at all suggesting that the 2011 guidelines that allowed for the “bundled services” exemption are misguided or should be struck down; instead, it focuses on whether the Department of Education and its auditors have enough information to decide whether colleges’ dealings with an OPM are legal.

Based on interviews with auditors, college administrators, and federal officials, GAO concluded that the Department of Education was not requesting—and therefore institutions were not providing—enough information for officials to federal authorities can reasonably judge the legality of the arrangements. First, the government’s instructions to auditors do not specifically mention online program management companies or the 2011 guidelines on incentive pay. Second, the agency’s guidance to colleges on what information they should share about their OPM arrangements is incomplete, “and as a result colleges don’t always report those arrangements,” the GAO said. This is especially true when it comes to arrangements for non-degree college programs, which proliferate through boot camps and other providers.

The GAO report directs the Department of Education to strengthen its guidance to auditors and colleges to ensure it has better information to judge the legality of these arrangements. Education Department officials told GAO investigators that they plan to do so.

The eyes of the beholder

Because the GAO report was unbiased, observers with different viewpoints found different things to like about it.

Trace Urdan, managing director of Tyton Partners and an education technology analyst, said he believed the GAO report had not “invalidated or undermined” the use of revenue-sharing agreements or jettisoned d other “bombs” that threaten online program management companies.

“There will be more scrutiny in general which will likely have a slightly dampening effect on new contracts, and I can imagine that risk-averse schools will be made more risk-averse by the additional scrutiny,” Urdan said. “But there’s an implicit acknowledgment that this thing matters and is here to stay.”

Indeed, some critics of online program management companies and revenue-sharing agreements in particular have expressed disappointment. Shireman’s colleague at the Century Foundation, Stephanie Hall, said via email that she was “delighted to see the [Education] The Department agrees with the GAO that it must align its oversight of college outsourcing with the prohibition on incentive compensation.

But the GAO’s recommendations “do not go far enough,” Hall said. “The GAO is silent on the legality of the department’s 2011 sub-regulatory guidelines that breached the ban on commission payments to student recruiters. This loophole has exposed students and prospective students to high-pressure sales tactics disguised as recruitment into online degree and certificate programs. In addition to improving its oversight of the arrangements between the college and the OPM, the department should close the loophole once and for all.

Senator Patty Murray, the Washington Democrat who requested the GAO report, looked on the bright side.

“With so many for-profit companies helping to manage and recruit students for college online education programs, we need to make sure students are protected,” she said. “This report makes it clear that the Biden administration must conduct appropriate oversight to protect students, prevent abusive recruiting practices, and improve the transparency of these trade deals — and I’m glad they’ve committed to taking action.”

Karen O. Fielding