The chess game behind the senators’ OPM investigation
Last year, a decade-old $115,000 online master’s degree in social work made waves.
The two-year program, at the University of Southern California, has left many of its graduates with low salaries and high debt, The Wall Street Journal reported. Its recent graduates who had taken out federal loans owed an average of $112,000. Half were earning just $52,000 a year or less two years after graduating.
But USC didn’t develop the online program alone — it contracted with 2U, an education company that does business with nonprofit universities such as Georgetown and Rice to launch and run degree programs. online in exchange for a reduction in their tuition income. 2U offers a range of services to its university clients, including marketing and recruitment, student support, and content creation.
The Journal placed part of the blame for USC’s situation on 2U, reporting that the company’s recruiters were constantly contacting prospective students and an admissions counselor informing them that the program might be willing to consider students. GPA as low as 2.5.
The news sparked debates over who should be held responsible for the poor financial results of students in the program. It also caught the attention of Democratic Sens. Elizabeth Warren, Sherrod Brown and Tina Smith, who sent a letter last month to 2U and seven similar companies requesting information about their contracts with colleges and the types of students they recruit.
Their request is the latest development in an ongoing argument over whether these companies — called online program management companies, or OPMs — are hurting students and taxpayers. Information provided by OPMs in response could shape regulations that could affect the sector, higher education experts said. It could also reveal the size of the OPM market and how much money these companies are making from federal financial assistance.
An “oversized focus” on for-profit businesses?
Critics often take issue with OPMs’ use of tuition-sharing agreements, in which companies bear the costs of launching online programs in exchange for a portion of their tuition revenue, often between 40% and 60%. Opponents fear that these arrangements contribute to the rising cost of higher education and can lead to colleges losing control of one’s own programs.
2U has publicly shared its response to January letter on its website on February 2, giving an overview of the scope of degree offerings the company supports and the types of students it recruits. As of September, it had ongoing contracts with 85 nonprofit universities, 28 of which were working with the company on degree-granting programs. Some of these institutions have contracted with 2U for more than 10 degrees, including Simmons University, Massachusetts, University of Southern California, and Fordham University, New York.
In its curriculum, 2U said half of the students are black, Indigenous or of color and 66% are women. In 2020, prices per credit for 2U master’s programs ranged from $352 to $2,592 – costs that universities decide.
The company also defended its tuition-sharing agreements, which are in place for virtually every degree program it has implemented at universities.
Higher tuition fees do not necessarily benefit 2U because they reduce student demand for the programs, 2U argued. This in turn increases the marketing costs that only 2U has to pay under its contracts.
“Therefore, we have an incentive to keep the programs affordable,” reads a letter signed by 2U co-founder and CEO Chip Paucek.
2U has responded to concerns about the business by trying to be more transparent, said Trace Urdan, managing director of investment banking and education advisory firm Tyton Partners.
“Their approach was, ‘Hey, we have nothing to hide, we’re proud of what we do, and you can have the information,'” Urdan said.
Several of the other OPMs named in the January survey said they also responded to the letter but did not share their responses to Higher Ed Dive’s request. Asked about the investigation, Wiley, Kaplan and Grand Canyon Education said in separate emails that the colleges retain control over admissions requirements. Wiley also said the company offers service fees as an alternative to tuition-sharing agreements.
Grand Canyon Education’s client universities set their own tuition prices, according to the company. It recruits students solely based on instructions provided by customers, Grand Canyon chief financial officer Dan Bachus said in an email.
“We fail to understand why Congress continues to focus on for-profit education providers who educate or provide services to those who educate a very small percentage of students attending universities in this country,” Bachus wrote. . “Having said that, we have no problem with them asking these questions, as we are very proud of the services we provide.”
Fishing for trouble or understanding an industry?
Warren and the other senators are concerned that tuition-sharing agreements will discourage lower tuition fees, they wrote in their January letter. The senators suggested that the arrangements could play a role in increasing student debt loads and could lead to aggressive recruitment practices.
Senses Warren and Brown sent a similar letter in January 2020 to five OPMs, including 2U, who requested some of the same information. Stephanie Hall, senior researcher at the Century Foundation, said the information requested by the recent letter could help shed light on how much colleges rely on third-party vendors to run their online degree programs. Research from the left-leaning think tank recently found that an OPM attracted more than 40% of enrollment at a handful of colleges, raising questions about whether these institutions were part of a larger trend.
The 2022 letter casts a wide net for understanding the sector, Hall said.
“Answers can help lead to a diagnosis — or maybe there’s no problem to diagnose,” Hall said.
But not all higher education experts agreed on the intent of the letter.
“It depends, I guess, on how cynical you are,” said Phil Hill, partner at education technology consultancy MindWires. “If you read it on its surface, the data requested would be very valuable data.”
But Hill interprets the January letter as a political calculation by lawmakers, who he says now have allies in the Department of Education who share their goal of reining in the OPM market. “If you read the letter with that cynical perspective — which not everyone has, but I certainly do — then it reads like a fishing expedition,” Hill said.
Urdan and Hill argued that OPMs would not be able to share some of the requested data because colleges — not businesses — would have access to the data. Indeed, Wiley and Grand Canyon Education told Higher Ed Dive that they could not provide some of the information requested by the 2022 letter because it is tracked by their partner institutions. Similarly, 2U stated in their response that they cannot provide some program-level data because this data belongs to their partner institutions.
“If you read the letter from this cynical perspective – which not everyone has, but certainly me – then it reads like a fishing expedition.”
Shortly after President Joe Biden won the election, six think tanks and political organizations, including the Century Foundation, called on his administration to rescind Department of Education Guidance 2011 which allows colleges to contract with third-party vendors such as OPMs for enrollment services, but only if the enrollment services are part of a larger service package. Organizations have expressed concern that this exception, known as the bundled services exception, could encourage these companies to use predatory tactics to enroll students.
“I don’t think there’s this feeling that people want to crack down on OPM per se,” Hall said. “The concern I suspect people inside and outside the department have is to what extent schools rely on these councils and to what extent reliance on these councils has led to recruitment under push for online degree programs.”
New letter examines converted for-profit corporations
While the 2020 letter was only sent to five companies, the senators added three more companies to the new version: Kaplan, Grand Canyon Education and Zovio. Each of these companies previously owned for-profit colleges that they sold to non-profit entities. All three now provide services to these spin-off schools in exchange for reduced tuition fees.
Kaplan was the first of the set to sell his college. In 2017, Purdue University announced that it was buying Kaplan University for just $1 upfront and using it to form the basis of its online college, Purdue University Global. As part of the transaction, the college received Department of Education approval to transition from for-profit status. A remaining for-profit Kaplan entity resells services to Purdue Global under a 30-year contract.
But not all spin-off colleges have successfully converted to nonprofits. In mid-2018, Grand Canyon University spun off from parent company Grand Canyon Education and continued to contract with the for-profit company for services.
Although the IRS approved the university’s application to become a nonprofit, the Department of Education did not. In a letter outlining its decision, the agency argued that the university’s deal with Grand Canyon Education was primarily to generate shareholder value for the company.
The Department of Education is taking a closer look at these types of arrangements this year as part of ongoing negotiated rulemaking, where the agency is convening stakeholders and trying to build consensus on new regulations. The agency is propose to update the rules clarify the definition of a not-for-profit institution. He offers to list examples of arrangements that do not meet the definition, including those where a college enters into or maintains a revenue-based service agreement with a former owner.
If information from the January survey is released soon, it could help ease the rule-making process, said Michelle Dimino, senior education policy adviser at Third Way, a left-leaning think tank. . However, the schedule is tight, as the negotiated rulemaking sessions are scheduled to end in March.
“The companies themselves have good reason to want to comply with the request and provide the information that senators want to see,” Dimino said. “These conversations about regulation in the industry will continue.”