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, left many of its graduates with low salaries and high debt, The Wall Street Journal reported. Its recent graduates who’d taken out federal loans owed a median $112,000. Half earned just $52,000 per 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 online degree programs in exchange for a cut of their tuition revenue. 2U performs an array of services for its university clients, including marketing and recruiting, student support and content creation.
The Journal placed some of the blame for the USC situation on 2U, reporting that the company’s recruiters persistently contacted prospective students and an admissions counselor informed them that the program may be willing to consider GPAs as low as 2.5.
The news triggered debates about who should be held accountable for the program’s poor student financial outcomes. 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 firms, or OPMs — are harming students and taxpayers. The information OPMs provide in response might shape regulations that could affect the sector, higher education experts said. It could also uncover the scale of the OPM market and how much money these companies derive from federal financial aid.
‘An oversized focus’ on for-profit companies?
Critics often take issue with OPMs’ use of tuition-share agreements, in which the companies shoulder the costs of launching online programs in exchange for a portion of their tuition revenue, often somewhere between 40% and 60%. Opponents worry these arrangements are contributing to the rising cost of higher education and can result in colleges losing control over their own programs.
2U publicly shared its response to the January letter on its website Feb. 2, giving a glimpse into the scale of degree offerings the company supports and the types of students it recruits. As of September, it had current contracts with 85 nonprofit universities, 28 of which worked with the company on degree-granting programs. Some of those institutions contracted with 2U for more than 10 degrees, including Simmons University, in Massachusetts, the University of Southern California and Fordham University, in New York.
In its degree programs, 2U said half of students are Black, Indigenous or people of color and 66% are women. In 2020, per-credit prices for 2U master’s degree programs ranged from $352 to $2,592 — costs that the universities decide.
The company also defended its tuition-share agreements, which are in place for virtually all the degree programs it has built at universities.
Higher tuition prices don’t necessarily benefit 2U, as they reduce student demand for programs, 2U argued. That in turn increases marketing costs that 2U alone must pay under its contracts.
“We are, therefore, incentivized to keep programs affordable,” said a letter signed by 2U co-founder and CEO Chip Paucek.
2U has been responding to concerns about the company by attempting to be more transparent, said Trace Urdan, managing director at investment banking and education consulting firm Tyton Partners.
“Their approach has been, ‘Hey, we don’t have anything 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 inquiry said they also responded to the letter but did not share their responses at Higher Ed Dive’s request. When asked about the inquiry, Wiley, Kaplan and Grand Canyon Education said in separate emails that colleges retain control of admissions requirements. Wiley also said the company offers fee-for-service as an alternative to tuition-share deals.
Grand Canyon Education’s client universities set their own tuition prices, according to the company. It recruits students solely based on the instructions clients provide, Grand Canyon CFO Dan Bachus said in an email.
“We fail to understand why Congress continues to place an oversized focus on for-profit education providers which educate or provide services to those that educate a very small percentage of students attending universities in this country,” Bachus wrote. “With that said, we have no problem with them asking these questions as we are very proud of the services that we deliver.”
Fishing for trouble or understanding an industry?
Warren and the other senators are concerned tuition-share agreements disincentivize lower tuition costs, they wrote in their January letter. The senators suggested the arrangements may play a role in rising student debt loads and could lead to aggressive recruiting practices.
Sens. Warren and Brown sent a similar letter in January 2020 to five OPMs, including 2U, that asked for some of the same information. Stephanie Hall, a senior fellow at The Century Foundation, said the information requested by the recent letter could help shine a light on how much colleges are relying on third-party providers to manage their online degree programs. Research from the left-leaning think tank recently found that an OPM brought in more than 40% of enrollment at a handful of colleges — raising questions about whether those institutions were part of a larger trend.
The 2022 letter casts a wide net to understand the sector, Hall said.
“The answers to it can help lead to a diagnosis — or maybe there is no problem to diagnose,” Hall said.
But not all higher education experts agreed about the letter’s intent.
“It depends, I guess, on how cynical you are,” said Phil Hill, a partner at ed tech 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 the lawmakers, who he said now have allies in the Education Department who share their goal of reining in the OPM market. “If you read the letter with that cynical view — which not everybody has, but I certainly do — then it reads as a fishing expedition,” Hill said.
Urdan and Hill argued the OPMs wouldn’t be able to share some of the data requested, as the colleges — not the companies — would have access to the data. Indeed, Wiley and Grand Canyon Education told Higher Ed Dive they could not provide some of the information the 2022 letter requested because it is tracked by their partner institutions. Likewise, 2U said in its response that it could not provide some program-level data because that data belongs to their partner institutions.
“If you read the letter with that cynical view — which not everybody has, but I certainly do — then it reads as a fishing expedition.”
Shortly after President Joe Biden won the election, six think tanks and policy organizations, including The Century Foundation, called on his administration to rescind 2011 guidance from the Ed Department that allows colleges to contract with third-party providers like OPMs for enrollment services — but only if enrollment services are part of a larger package of services. The organizations voiced concerns that this exception, known as the bundled services exception, could incentivize these companies to use predatory tactics to enroll students.
“I don’t think there’s this sense that folks want to crack down on OPMs per se,” Hall said. “The concern that I would assume folks inside and outside of the department have is how much schools are relying on that guidance and to what extent reliance on that guidance has led to pressurized recruitment for online degree programs.”
New letter scrutinizes converted for-profits
While the 2020 letter was sent to just five companies, the senators added three other firms to the new version: Kaplan, Grand Canyon Education and Zovio. Each of those companies formerly owned for-profit colleges that they sold to nonprofit entities. All three now provide services to those spun-off schools in exchange for a cut of tuition revenue.
Kaplan was the first of the set to sell its college. In 2017, Purdue University announced it was purchasing Kaplan University for only $1 upfront and using it to form the basis of its online college, Purdue University Global. As part of the transaction, the college won Education Department approval to convert from for-profit status. A remaining for-profit Kaplan entity sells services back to Purdue Global under a 30-year contract.
But not all of the spun-off colleges successfully converted to nonprofits. In mid-2018, Grand Canyon University split from parent company Grand Canyon Education and continued contracting with the for-profit for services.
Although the IRS approved the university’s request to become a nonprofit, the Education Department did not. In a letter outlining its decision, the agency argued the university’s agreement with Grand Canyon Education was primarily meant to drive shareholder value for the company.
The Education Department is looking more closely at these kinds of arrangements this year under ongoing negotiated rulemaking, where the agency convenes stakeholders and attempts to reach consensus on new regulations. The agency is proposing to update rules to clarify the definition of a nonprofit institution. It proposes listing examples of arrangements that don’t meet the definition, including those where a college enters or maintains a revenue-based servicing deal with a former owner.
If information from the January inquiry is released soon, it could help aid the rulemaking process, said Michelle Dimino, senior education policy adviser at Third Way, a left-leaning think tank. However, the timeline is tight, as the negotiated rulemaking sessions are scheduled to wrap up in March.
“The companies themselves do have good reason to want to comply with the request and be providing the information that the senators want to see,” Dimino said. “These conversations about regulation in the industry are going to be ongoing.”