By Laura Hamilton and Christian Michael Smith | July 19, 2022
It has become increasingly common for public and private non-profit universities to contract out some portion of their online services to so-called “online program managers,” or OPMs. OPMs are private, for-profit companies that provide a broad range of services that may include instructional design, marketing, student recruitment, curricular provision, operational services, technological platforms, and more. These arrangements can help schools expand their course offerings, but they can also pose risks when OPMs’ incentives don’t align with students’ best interests.
In a new paper, we analyzed 229 contracts between third-party service providers that operate as OPMs or in a similar fashion to OPMs and 117 unique two-year and four-year public universities to better understand the agreements schools are getting into and the dangers they may involve.
What our analysis revealed about the risks OPMs might pose to students, as well as the powers schools are handing over to private contractors, is concerning. In particular, we identified five key problematic features that frequently appear in contracts between public universities and OPMs, each having the potential to hurt students while aiding OPMs’ bottom lines:
- Targeting marginalized students;
- Predatory revenue extraction;
- Operating in ways that are hidden from students (referred to as “Invisibility”);
- Leveraging their position to upsell schools (referred to as “Expansion”); and
- Building in contract terms that lock schools into working with OPMs, regardless of university satisfaction (referred to as “ University Captivity”).
Our findings also show that these risky features are much more common when OPMs are backed by private equity and/or venture capital investors. Money managers in these fields tend to prioritize shareholder value and may more aggressively pursue profit in ways that disadvantage students—something scholars have warned about before.
Overall, our research underscores that students may be at risk. With investors increasingly looking at higher education as a moneymaker and schools entering into potentially harmful deals, it may be time for a course correction to protect students.
Read our paper, “The Private Side of Public Universities: Third-party providers and platform capitalism,” here.
Schools’ Contracts with OPMs Contain Several Characteristics and Terms that Could Put Students at Risk
OPMs are a huge and growing part of the higher education ecosystem. Major firms include 2U, Academic Partnerships, All Campus, Bisk Education, Education Dynamics, Keypath, and Pearson Online. Several large for-profit colleges have also become OPM providers for large public universities, as in the case of Kaplan and Purdue Global or Ashford/Zovio and the University of Arizona Online. In addition, several Massive Open Online Course companies, such as edX and Coursera, are now OPMs or operate in ways that are virtually indistinguishable from OPMs. Third-party providers of learning management systems, like Blackboard and D2L, also share many similarities with OPMs.
Because OPMs are, by design, invisible to students, they often escape public attention. In May of 2022, however, the U.S. Government Accountability Office (or GAO) released a report urging greater monitoring of universities’ arrangements with OPMs. Greater monitoring along these lines will require better knowledge of how contracts with third-party providers can be risky for students and their public universities. To date, though, the nature of these contracts has been troublingly opaque.
To address this opacity, we analyzed hundreds of agreements forged between schools and OPMs or other third-party companies that provide services similar to those of OPMs. These documents were originally obtained through the Freedom of Information Act by The Century Foundation, and they were analyzed by team members in the Higher Education, Race, & the Economy (HERE) Lab at the University of California-Merced.
Our analysis of these contracts identified the following risky features:
Targeting Marginalized Students: many OPM contracts reveal troubling marketing practices
Universities frequently hire OPMs to target and recruit students for online programs, and in most of these cases, OPMs directly profit from recruiting more students. This echoes past episodes where for-profit schools have padded their bottom line by getting as many students in the door as possible through high-pressure sales tactics—regardless of what might have been best for students. Often, this marketing was specifically focused on students from traditionally marginalized backgrounds, including Black and low-income students.
The contracts we analyzed reveal that companies are using targeted ads focused on “underrepresented” students, “non-traditional students,” “working adults,” and “diverse populations.” They utilize aggressive recruitment services designed to actively “convert” these populations into paying students. “Prospecting services” often cross multiple channels, including direct response TV advertising, search engine optimization, cold-calling home and cell numbers, targeted emails, and social media blasts. Some OPMs also explicitly target students who do not qualify for admission to in-person campuses. These students are more likely to be economically and/or racially marginalized.
Revenue Extraction: OPMs can aggressively pursue profit
OPMs do not just target marginalized groups—they also engage in revenue extraction from these populations. The “revenue share” payment structure that underlies the OPM business model allows these firms to collect a percentage of the overall tuition and fees paid by students. In our data, the revenue shares OPMs extracted from schools ranged from 20 percent to 94 percent of tuition and fees. Revenue shares create incentives to increase tuition/fees and raise student enrollment, as both lead to more profit for OPMs.
Bundled contracts with OPMs also frequently allow for-profit providers to play a role in setting costs such that pricing will be determined by “mutual agreement” between an OPM and a public university. Contracts may build in annual increases for the same services. Many OPMs continually extract more revenue by prescribing aggressive enrollment growth plans (with annual growth rates as high as 25 percent). These contracts can also stipulate university marketing requirements that make recruiting even more aggressive (e.g., dedicating a minimum of promotional catalogs to OPM courses). OPMs may also specify additional student fees—such as course change fees—for services that non-profit colleges typically render for free.
Invisibility: OPMs have perfected the art of staying hidden
On their webpages, universities almost universally fail to provide a reasonably transparent picture of their OPM partnerships. This and other conduct allows OPMs to be “invisible” to students and families.
Contracts between schools and OPMs often dictate that OPM employees will be provided with university email addresses and that OPMs will utilize the university web domain, making it impossible to differentiate contact from an OPM or OPM-provided courses from emails or courses provided by the university. Contracts reveal efforts to conceal OPM involvement in courses by using university branding and customizing marketing materials to have the “look and feel” of the university. In some cases, contracts grant for-profit providers the ability to market and recruit on the behalf of the university, without revealing that the individuals involved are employees of the OPM, not the university.
Expansion: many OPMs become increasingly entangled with partner universities
Many university contracts show OPMs gradually expanding their involvement with universities, moving deeper into the organization’s operations.
Over time, universities frequently offer new types of degrees or courses with a particular provider, or significantly expand the scope of initial services with the provider, perhaps suggesting increased dependence on the OPM. Once they become involved with one OPM, universities will sometimes contract with multiple for-profit providers, often for seemingly overlapping services.
University Captivity: OPM contracts may lock in universities
Contracts with third-party providers can hold universities captive. They may auto-renew for specified terms—a year, or even a decade—and can be indefinite, making it more difficult for universities to terminate a deal if they feel that an OPM is offering substandard services.
Frequently, school-OPM contracts require that the university announce its intent to terminate a contract six months or more in advance, a lead-time requirement that The Century Foundation considers “very risky” and indicative of captivity. Additionally, there may be substantial costs associated with termination. Contracts tend to layer on impediments, such that, for instance, an auto-renew contract might also include significant lead-time needed to terminate and costs associated with termination. Third-party providers may even determine the terms on which a university may work with other providers, often through a “right of first refusal” clause that allows contracted OPMs to determine or shape conditions of university involvement with other OPMs. This makes it even harder for the school to choose a different OPM if it feels that its existing partner is putting students at risk.
When Private Equity and Venture Capital Investors Back OPMs, Student Risks Rise
Our research indicates that contracts with service providers backed by private equity or venture capital are more likely to include problematic contract features, including those detailed above. Contracts with OPMs that are backed by private equity or venture capital dollars are:
- 30 percentage points more likely to include recruitment services, which typically target marginalized students;
- 50 percentage points more likely to have a revenue share structure, which provides a problematic incentive to charge students more and grow enrollment at a rapid clip;
- 16 percentage points more likely to include expanded involvement with an OPM provider over time, potentially due to upselling; and
- 13 percentage points more likely to include terms that make it difficult for the school to terminate a contract with an OPM.
Of the problematic features we investigate, the only one not tied to private equity or venture capital financing is invisibility, as virtually all OPM-university partnerships are invisible on web domains.
Recommendations
Our research suggests several policy solutions.
- Students, families, and policymakers need to know when a public university program is, in reality, for-profit. Universities receiving federal loans should be required to publicly disclose who runs their online programs, and they should have to do so in a way that is visible and comprehensible to the typical prospective student. OPM providers should not be allowed to engage in deceptive practices, such as utilizing university web domains, email addresses, or branding, which blur the line between the school and for-profit service providers.
- The 1992 reauthorization of the Higher Education Act included language intended to block manipulative recruiting by third-party providers seeking profit, but a “bundling loophole” currently allows OPMs to engage in recruiting along these lines if they also deliver other services to schools. The U.S. Department of Education (or Department) should enforce the Higher Education Act’s ban on incentive compensation to contractors by rescinding the “bundling loophole.” This could be swiftly accomplished by Department leadership, without action in Congress or the need for a full notice-and-comment rulemaking.
- Beyond just blocking OPMs from performing recruitment, the Department could also more generally ban the use of revenue share agreements that allow OPMs to receive a percentage of student tuition and fees in return for any services they provide. These agreements may lead third-party providers to push for higher tuition and more enrollment than the program can reasonably manage.
- Regional accreditors need to better examine OPM contracts. Accreditors act as gatekeepers to determine which schools can access federal student aid. But only one accrediting agency, the Northwest Commission on Colleges and Universities, has a policy that requires review of third-party contracts with OPMs. Terms that trap schools into deals with OPMs, such as auto-renew and indefinite contracts, should be strongly discouraged or prohibited by accreditors.
- OPMs backed by private equity and/or venture capital financing should receive particular scrutiny by the Department, regional accreditors, and universities. Companies with this funding structure seem uniquely aggressive in their pursuit of profit, making them a poor fit for public universities, which taxpayers fund in order to invest in the welfare of students, families, and communities.
- Non-profit colleges and universities receiving Title IV funds should be required to report their student enrollment and outcome data for OPM-involved programs separately to the National Center for Education Statistics. This will make it more difficult for schools to obscure differences in who is attending online and in-person, as well as highlight potentially troubling student outcomes in OPM-run programs.
- OPM programs in public universities should be subject to the same oversight and regulation as for-profit colleges. Arguably, OPMs are not meaningfully different than for-profit colleges, and they often involve the same actors.
###
Laura Hamilton and Christian Smith are part of the Higher Education, Race, & the Economy (or HERE) Lab at the University of California-Merced. The HERE Lab seeks to explain uneven racial and class distributions of resources and risk in higher education systems and economies—and to help reverse those inequalities.