Institutions of Higher Education Continue to Avoid Accountability, Allowing Online Program Management Partners to Harm Students While Raking in Millions of Dollars
By Ella Azoulay | July 25, 2024
Over the last few years, our team at the Student Borrower Protection Center has been sounding the alarm on the risks of university partnerships with Online Program Management (OPM) companies and how these for-profit entities harm students. Just today, after years of financial distress, news broke that one of the largest OPMs, 2U, Inc. (2U) has formally filed for Chapter 11 bankruptcy protection in coordination with its largest creditors, confirming many of our most dire warnings and underscoring the risks that come when schools partner with these firms. In response to these risks, which were evident for years, we applauded a decision last year by the University of California (UC) to ban fully online degree programs and encouraged them to also ban fully online non-degree programs, including coding bootcamps. Together, these moves would have made the UC system a leader in protecting students from the growing dangers of OPMs. Unfortunately, in a blatant and rather shocking about-face, university administrators chose to reverse this decision earlier this year, giving OPMs a green light to continue preying on their students while hiding behind UC’s name and brand.
Now, a report released by the California State Auditor has confirmed many of the worst concerns SBPC and our partners have raised over the years, and it has unveiled even more damning evidence of the lengths some UC schools have gone to use these partnerships to pad their bottom lines at the expense of their students. The report was commissioned after six California lawmakers urged the auditor’s office to examine potential misuse of funds by California public colleges involving their partnerships with OPMs.
These findings should trouble state and federal policymakers alike. Here are just a few of the most concerning takeaways:
The State Auditor’s report found that a majority of students surveyed felt their school misrepresented information about their OPM program in some manner.
According to the report, more than 6-in-10 students surveyed by the auditor said that their school misrepresented some manner of information about an OPM program. The auditor found that a majority of students surveyed reported having no idea that their instructor was not university faculty. Meanwhile, many of these students were taking on massive levels of debt to attend these UC-branded, high-priced online programs in order to improve their employment situation. But more than two-thirds said the OPM-instructed program “did not impact [their] job situation.”
The State Auditor’s report further illustrated how lucrative these partnerships are for colleges, with one campus receiving advances totalling $300,000 in one year alone.
The auditor’s report found that UC Berkeley received $25,000 in advances each month from its OPM partner over the course of the first year of its online Master of Information and Data Science program. These monthly advances totaled $300,000 and were in addition to program revenues received from student tuition. These advance fees are relatively small compared to the long-term revenue OPMs can generate from a tuition-sharing agreement, which gives OPMs a share of students’ tuition from their UC-branded programs. These tuition sharing arrangements are also lucrative for schools. In the OPM contracts reviewed, one university’s share of the tuition revenue was as high as 72.5 percent. In fact, the university earns as much or more than the OPM in roughly half of the contracts where the revenue is split by a percentage. For its share of tuition from technology bootcamps run by the scandal-plagued and financially-struggling OPM 2U, in one year, UC Berkeley received roughly $3.4 million, UCLA received over $1.1 million, and UC Davis and UC San Diego received nearly $1 million each. Both OPMs and institutions are profiting off of the backs of students, and both must be held accountable.
In one year alone, UC students borrowed nearly $3 million in private student loans to attend OPM-run and UC-branded bootcamps.
In fiscal year 2021-2022, the State Auditor report found that UC students borrowed nearly $3 million in private student loans to attend just 15 OPM-run bootcamps across the UC system. UC Berkeley raked in three-quarters of a million dollars in revenues stemming from private student loans during this time period. The auditor’s report found that nearly half of students surveyed reported that the program was simply not worth the money invested. We have written extensively on the risks associated with private student loans and how they can leave students particularly vulnerable if a student hits hard financial times. Private student loans often carry high interest rates and contain fewer rights and protections for borrowers, so borrowers face a substantially heightened risk of harm as predatory actors are allowed to flourish in an under-regulated market.
Worse yet, a UC Berkeley/edX (2U) co-branded website encourages students to specifically consider Sallie Mae’s private student loans as an “investment” in their career and way to pay tuition. As SBPC raised in its recent letter to the U.S. Department of Education (ED) and the Consumer Financial Protection Bureau (CFPB) about 2U, such encouragement could indicate a potential violation of Preferred Lender laws. The State Auditors report shed new light on just how financially beneficial such arrangements can be for both colleges and OPM partners alike.
The report found that schools and system-wide administrators relied on OPMs for course instruction in violation of UC accreditor and ED guidance— suggesting the need for increased oversight.
While the UC systems’ accreditor already provided its schools basic guidance and best practices to protect students when partnering with OPMs, the audit indicated that UC schools failed to comply with these recommendations. One of these suggested practices, which is also a requirement in ED regulations, was to not rely on an OPM for course instruction. The report revealed that 100 percent of the UC contracts it reviewed pertaining to bootcamps listed OPMs as responsible for course instruction—not the school as students may believe when they enroll in a UC-branded course or program. UC Santa Barbara admitted that it wasn’t even reviewing bootcamp instructors’ qualifications; the auditor’s report notes the school thought it “could potentially impact the economic benefits of using OPMs.” The Auditor noted vetting instructors could take as little as 90 minutes, but UC Santa Barbara failed to take the necessary steps to ensure program quality for its bootcamp students.
Federal and state regulators and policymakers must step in before it is too late.
Last week, ED announced it would conduct negotiated rulemaking to consider regulations related to third-party servicers broadly, and that it would delay the long-anticipated Third-Party Servicer (TPS) guidance, which would have clarified that OPMs are third party servicers. But based on the existing guidance from August 2016, any entity that provides a covered service is already subject to the TPS rules, including the joint and several liability provision. ED should enforce the existing guidance as it applies to OPMs, while it moves quickly through the rulemaking process to implement even stronger regulations. The auditor’s report, in addition to today’s bankruptcy announcement involving 2U, underscores the need for stronger federal enforcement. The auditor’s report shows that UC schools heavily rely on OPMs—2U in particular. SBPC has been sounding the alarm about 2U’s financial challenges and impending collapse. While 2U may be able to temporarily protect itself through bankruptcy, students will surely bear the brunt of the fallout should they collapse. Schools must take responsibility when these sham online programs and OPMs precipitously close.
State and federal regulators should work together to conduct thorough oversight of OPMs as an industry, and make public a list of OPMs that includes their school partners, programs, and copies of their contracts. State policymakers can follow the example set by Minnesota lawmakers, who recently passed a bill that bans some of the more harmful practices seen across the industry and requires transparency-focused improvements for school partnerships with OPMs. Additionally, state lawmakers should also consider banning OPM involvement in program design and instruction, and requiring schools to publish information about the students’ debt levels, job placement, earnings upon program completion compared to on entry, and more.
Finally, ED and CFPB should get to work on the next steps we outlined in our letter to protect students deceived by any school-OPM partnership, especially the bootcamp students who, as evidenced by the report, are most harmed by these programs.
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Ella Azoulay is the Research & Policy Analyst at the Student Borrower Protection Center. She joined SBPC from the Center for American Progress where they worked on higher education policy and advocacy.