Analyzing OPM Contracts

The Century Foundation released a report Thursday detailing the “deeply unsettling picture” of online program management companies' involvement in higher education.

The report adds to recent scrutiny of the companies. And the progressive think tank advised colleges to steer clear of for-profit OPMs that incorporate tuition sharing, lengthy terms and bundled services in their contracts.

“If schools act quickly and effectively, they can make a lot of progress in curtailing this crisis, protecting their students and themselves in the process,” the report said.

After analyzing 41 contracts between private OPMs and public colleges and universities, Stephanie Hall, a fellow at the foundation, and Taela Dudley, a policy associate, laid out five “don’ts” for college administrators who want to pursue online education responsibly.

Don’t buy bundled services, they advised, and instead purchase specific, necessary ones. Insist on contracts that prohibit changes to pricing, recruiting or admissions standards based on enrollment in the program.

Don’t bypass your own faculty members or let an OPM wrest curricular control of a program from the college, they wrote. In one example cited by the report, the University of North Dakota could not make curriculum changes to its online program in cybersecurity without appealing to Pearson, which managed the program.

Don’t sign lengthy, unbreakable contracts with OPMs, the report said, citing a binding contract between Boise State University and Academic Partnerships. The university agreed to give two years' notice to keep its contract from automatically renewing. Boise State also agreed that if it terminated the five-year contract early, they would not work with another OPM for the remainder of the contract term.

Don’t share tuition revenue, authors said, and don’t facilitate aggressive recruiting.

These two issues go hand in hand. Forking over tuition can undermine a college’s status as public or nonprofit and creates perverse incentives for predatory targeting of students, the report said. Over half of the analyzed contracts included tuition-sharing agreements, and 41 percent tasked the provider with recruitment. In the most outstanding example of revenue sharing, the University of West Florida agreed to ferry 80 percent of tuition for relevant courses to the Learning House, an OPM company.

A representative from the Learning House's parent company, Wiley, said this contract expired in April. Under the current contract, the University of West Florida shares an average of 38 percent of revenue with the company. (Note: This paragraph has been added to a previous version of this article to include new information from Wiley.)

Hall referred to tuition sharing as "the most problematic arrangement” she and her co-author analyzed. “You don't really know exactly what portion of that tuition revenue is going to which services once the revenue is handed over,” she said.

Revenue Sharing or Fee for Service

In taking aim at OPM companies that employ tuition-sharing contracts, such as 2U, Wiley and Academic Partnerships, the report suggested that the fee-for-service model, in which a college pays a flat rate for specific services it requires, is a better approach for colleges that want to pursue online education responsibly.

Paxton Riter, CEO of iDesign, an OPM company that charges a fee for services instead of a portion of tuition, said he can understand why some companies prefer tuition sharing, but he finds the approach opaque.

“I do see [the report] as validation that the fee-for-service model really does bring more transparency to universities, and that's always been a fundamental piece of our company and our organization,” he said. "We just felt like the fee-for-service model and the approach we've taken has always been more consultative.”

Defenders of tuition sharing typically say developing a program for a university with little experience in online learning requires a lot of capital up front. The long contracts that typically accompany tuition-sharing agreements (many the report analyzed went to 10 years) enable the company to recoup some of its up-front investment.

Trace Urdan, managing director at Tyton Partners, said the margin that fee-for-service providers make doesn’t differ from what revenue-sharing providers make over a contract’s term. “I don’t think there’s any evidence that students are better protected by the fee-for-service model,” he said. “It’s not a fundamentally different model that matters in a material way to students or student outcomes.”

Phil Hill, cofounder of MindWires, a consulting firm focused on ed tech, said the difference between the two models is a “false binary.”

“Several companies, such as Noodle [Partners], which is a major proponent of this argument against revenue sharing, do revenue sharing,” he said. And the market is seeing more of hybrid between the two, said Hill.

Hall said that no matter what the model is, OPM companies need to be more transparent.

“In the situations where the company is -- whether they're fee for service or not -- they are for-profit companies, I think there needs to be greater accountability,” she said. “For-profit companies that receive some portion of revenue from public and nonprofit institutions, they need to be held accountable for the use of that revenue and what students get in return.”

Urdan took issue with what he saw as the report’s assumption that universities are blameless for the high prices of online degrees.

“This idea that, left to their own devices, institutions would have low-priced programs and with OPMs they have high-priced programs, there's no evidence for that,” he said. “The buyers have an enormous amount of power in this situation.”

Urdan also said the OPM market mostly focuses on graduate degrees, and that the notion that these students, who already have earned a bachelor's, are being taken advantage of is “silly.”

Hall said the decision to address the report to colleges was in part because administrations don’t often talk to their counterparts at peer institutions to share their experiences. She said that over time, more colleges will instead choose to develop online programs themselves.

“Institutions to varying degrees are discovering the capacity that they have internally for managing online programs. So as they figure out what their capacity is, I think we might see them taking on more of the online program management themselves in-house,” she said. “For the few elements of an online program that they cannot develop in-house or run in-house, at least from the beginning, I think we might still see those services contracted out.”

Hall said that, for now, online degrees are not going anywhere.

"Students clearly are demanding online degrees,” she said. “We need to make sure that there's a quality, valuable set of options for students who are looking for this flexible way of gaining a new skill or earning a credential or even a full degree.”

Hill said the future for OPMs will include both increased scrutiny and more competition. “There's going to be downward pressure on pricing, both in terms of tuition for online programs and in terms of lower revenue-share percentages over time,” he said.

“We have more options today than we did five years ago. The university has more options to choose from,” said Hill. “I think you've had good players, and I think you've had bad players.”