GAO’s Online Program Managers Report Was Just the Beginning (Notice)
Last week’s report from the US Government Accountability Office appropriately takes aim at online program management companies, noting several concerns that many of us have been warning about for years. As the Department of Education contemplates solutions to these issues, it must act forcefully to resolve these issues and, more importantly, the booming marketing and recruitment expenditures for everything online degree programs.
The current regulatory environment dates back to 2010, when the Ministry of Education decided to help traditional universities create and scale online programs that could compete with those of for-profit institutions. A letter from Dear Colleague created an exception to incentive pay regulations, allowing universities to partner with OPMs – companies with the capital and expertise to do so (in 2008, I founded the largest large of these companies). The move worked; today, half of mature and graduate students study online, and the vast majority attend programs run by traditional colleges and universities that are far superior to those offered by for-profit organizations.
However, by 2015 it was clear that the model had overstayed its welcome. First, for-profit companies realized they could circumvent regulations by splitting into two entities: a non-profit school and a single-client OPM (I call them FauxPM) that serves it in exchange for most income. Some of these schools, in turn, have licensed state university brands to gain marketing influence.
Second, the model has encouraged a rigidity and opacity that has served neither students nor schools. Third, as online program enrollment continued to replace, not simply supplement, on-campus enrollment, it forced schools to pay 50-80% of tuition for a decade (even though the cost of online connection has dropped), putting these establishments at risk.
Finally, the revenue-sharing model has encouraged OPMs to promote the programs generating the greatest profit: the most expensive, the least selective.
The GAO report is a good start to the conversation, and the best reports they recommend would be a good start, but it’s time when we need to tackle a bigger problem: the phenomenal growth in costs marketing and recruitment in online education.
First, marketing is becoming more and more expensive, using up financial resources that would be better spent on education, innovation, or financial aid. It’s no longer just for-profit companies spending heavily on student acquisition; even non-profit online colleges typically spend around 25% of tuition, and some traditional public universities now spend over 35% of tuition on their online programs, more than they spend on online programs. ‘education.
Education is not the first sector to be sucked down this rabbit hole – Big Pharma spent three times more on sales and marketing than on R&D, but it’s time to ask what higher education wants to be.
More importantly, marketing spending—both by OPMs and by individual schools—is actively driving students away from good schools. Over the years I have objected to a number of things about US News and World Report(full disclosure: I created my own original ranking at Princeton Review), but the intention has always been to guide students to the schools that serve them best.
The bulk of ad spending, on the other hand, comes from many of the worst schools in the country, like the now closed Corinthian. Google doesn’t help here; results for “online college” are dominated by paid ads, and organic results (all below the fold) relate to the schools’ search engine optimization skills, not their quality or suitability students.
The OPMs are an integral part of this circus. They make sure their client schools handle SEO competently, and they allow schools that have little digital marketing expertise to trade higher expenses (many OPMs charge 35-40% of tuition for SEO). marketing and recruiting, keeping half of their profit) for reduced risk and upfront expense. But getting rid of this traditional school support system without discouraging others from continuing to spend lavishly on student acquisition only disarms them in an increasingly existential battle.
That said, I should note that Noodle, which I founded and run, is a kind of OPM, and therefore also part of the problem. And while we typically take no revenue share and our model emphasizes transparency and flexibility, our schools have, to date, spent 16% of tuition on student acquisition.
What we need to do is discourage everyone – for-profit, non-profit online schools, traditional universities and FauxPMs – from making higher education more expensive and worse through marketing and recruitment .
For starters, we can leverage and enhance IPEDS, the primary source of federal data on higher education. Each program should be required to disclose what percentage of tuition is spent on marketing and recruiting (and, for for-profit companies, profit). Then we would have to decide how much of those costs and benefits should be subsidized by taxpayers through Title IV financial assistance programs.
Of course, nothing is as simple as that. For example, some believe that Division I universities should view their football team expenses as marketing. Others note that new programs have to spend a lot because they struggle to let people know they exist. And no one in higher education wants to make it harder for universities — traditional and new — to compete with boot camps and other unaccredited schools. It is a complex situation that needs to be nuanced.
Whatever we do, we can be sure that schools and enterprising companies will seek to circumvent this problem, so we cannot simply solve this problem once a decade. It’s like cybersecurity; For the market to work, Department of Education staff will need to monitor this situation in real time and change regulations, perhaps through new Dear Colleague letters, as new attacks arise.
The OPM track was created for a good reason, but as the GAO points out, it’s time to polish it. Doing so thoughtfully and keeping the overall goal of robust competition with minimal student acquisition cost will finally allow technology to work harder to better support higher education while reducing its costs and, by ultimately, tuition.