Future of OPMs in Flux as Regulations Loom

After months of uncertainty about whether the federal government would revise its guidelines for how colleges work with online program management firms and other outside providers, the Education Department said last month that it would do so early next year.

Depending on how it is written and what is ultimately approved, the guidance could dramatically alter the relationships between colleges and OPMs, which offer an array of services to help institutions build, market and operate their online academic programs.

Another policy change under consideration could compel the companies to shift away from paying the institutions up front in exchange for a share of tuition revenue over time, instead adopting a fee-for-service model that would require campus leaders to use their own money to fund projects. It could also lead to even more consolidation in the OPM market, experts say.

“Most colleges and universities don’t have a lot of free money sitting around,” said Joshua Kim, director of online programs and strategy at Dartmouth College and a blogger for Inside Higher Ed. “Universities tend to spend everything they take in, and resources are really tight everywhere. If that [revenue] share goes away, colleges and universities will have to pay for all the services on their own, up front, before tuition dollars start coming in—which will be a challenge for many.”

But critics of the outsourcing of online programs say the government needs much more information about how the arrangements between colleges and companies work. Applying the third-party servicer guidance to OPMs and other external providers would require audited statements from colleges about every outside partner deemed to fall under the expanded definition.

“With this guidance, we’ll get more oversight into how much funding is going into third-party relationships,” said Amber Villalobos, a fellow at the Century Foundation. “We just need more clarity into the relationship: how funding is being used, the amount. That clarity can be improved with this guidance.”

What’s at Stake

There has been an uptick in debate surrounding OPMs over the last decade as their purpose has evolved. More institutions, such as the University of Southern California, turned toward offering online programs themselves. While they are still the outliers, the pandemic forced many institutions to go online, leaving some to question the new role of the OPM.

“OPMs were created to grow and scale online programs,” said Chris Gardiner, a senior analyst at Eduventures, a research and consulting firm. “With so many institutions building the [internal] capacity, expertise and funding” in the wake of the COVID-19 pandemic, “there’s [uncertainty] of what the OPM will look like” going forward.

Partnering with OPMs began as a way to help universities break into the online world and compete with for-profit institutions. However, the online providers’ relationships with institutions gradually expanded, both in the number of colleges working with the providers and the broader scope the companies took on. With that expansion came outcry from some opponents of OPMs, accusing them of predatory practices, including driving up the price of online programs.

In February, following encouragement from the U.S. Government Accountability Office, the Department of Education announced it would review two potential federal policies that could affect OPMs in the industry: one regulation governing third-party service providers and another policy known as the bundled service exception to incentive-compensation rules.

The third-party service review focuses on oversight of universities’ arrangements with OPMs and other external providers of services to universities. The Education Department issued a proposal in February that drew significant blowback from college groups and a lawsuit from 2U, a prominent online program manager, to first delay implementation, then narrow its scope and delay it again.

The guidance on third-party servicers was released at the same time the department announced that it would seek public comment on the bundled service exception, a federal policy that since 1992 has largely restricted colleges from paying recruiters based on how many students they enroll. Revenue-sharing agreements with recruiters can be exempted from the ban if the provider “bundles” nonrecruitment services with the recruitment work it does, under 2011 guidance from the Obama administration that many consumer advocates believe has enabled online program managers and others to evade the intent of the restriction on incentive compensation.

“It’s long overdue, which is why it makes it a bigger task to take on,” said Stephanie Hall, acting senior director of higher education at the left-leaning think tank the Center for American Progress. “Our concept of what a third-party servicer is needs to shift, because the way colleges do business has changed over the last 10 years.”

If the department invalidates the bundled-services exception—analysts aren’t sure what to expect—OPMs would not be able to operate under a revenue-sharing model. If the revenue-share model is prohibited or significantly restricted, OPMs could still operate under a fee-for-service model, in which institutions pay per service rather than paying a share of student revenue along the way. Many companies offer that as an option today, “although few universities choose that approach,” according to Kim, because they prefer to have the companies make the up-front investment. (Note: This paragraph has been updated from an earlier version to clarify that the third-party servicer guidance would not undermine the revenue-sharing model.)

Hall speculated that universities use the revenue-sharing model to help battle budget woes while undergoing pressure to fill enrollment.

“You have pressure from above to keep revenue coming in, grow enrollment, and the pressure to not present things to the board that cost new money,” she said. “It’s a lot of short-term thinking, which is no fault of the administrators; the nature of their job is crazy right now, and they’re in a tight spot.”

If the ruling were to go through, much of the onus would fall on the universities to achieve compliance, which would be required due to the audits under Title IV.

“It requires the schools to say, ‘We have a relationship with 2U or [another OPM]’; depending what the services are, that would determine what audit the OPM itself would subject itself to,” Hall said. “I do not think this guidance will be the death knell for OPMs. The only impact it may have is their auditors may have to look at additional forms. It’ll be a small lift, especially considering the size of some of these companies.”

It could create strain for some universities, according to Eduventures’ Gardiner.

“The ones that are the most challenged with [regulations] are the smaller players, and it goes not only for OPMs but also institutions,” he said. “If you’re a small college relying on an OPM and have to get contracts reviewed and published, there’s some of the regulatory burden, which has been part of the pushback. But ultimately the industry will probably be OK.”

OPM Space Already Changing

Last month’s announcement of the coming federal policy changes followed weeks of activity in the OPM space. In November, 2U announced that its long-standing contract with the University of Southern California—one of the biggest original deals between a university and an online program manager—would largely end after 15 years. A week later, Academic Partnerships announced it was acquiring Wiley’s online education business in a $150 million deal.

More consolidation could be coming.

“I think there will be only a few companies that really specialize in the industry,” Kim said, pointing toward Academic Partnerships’ focus on regional public institutions and Coursera’s focus on STEM programs like computer science and engineering to draw in working adults.

It remains to be seen how, or if, the policy change could impact the relationship between OPMs and institutions.

“I think it’ll still be around in 10 years but will have to evolve and change to help universities scale lower-cost online programs,” Kim said. “I think that’s key. In doing that, they can offer advantages that universities can’t do on their own.”