GAO takes moderate stance on online program management firms

A long-awaited federal review of companies that many colleges contract with to help design and manage their online academic programs was anticipated—by those who favored such a move as well as those who did not—to potentially eliminate the legality of the revenue-sharing agreements that underlie some of those deals.

The report released Thursday by the Government Accountability Office, after a year and a half of study, suggests that some of those arrangements with online program management (OPM) companies may federal law that prohibits student recruits being compensated based on their success in recruiting students, as some congressional Democrats and consumer groups strongly assert.

But the GAO report largely affirms the view that revenue-sharing arrangements are legal as long as a company or other provider “bundles” recruiting help with other services such as instructional design or student support (as laid out in 2011 guidance from the Obama administration) . The agency focuses on urging the Education Department to require more and clearer information from colleges about the extent and nature of these outsourcing agreements, to help auditor and others analyzing the deals better understand whether or not the companies and their recruiters are being compensated based on how many students they recruit. (It’s important to note here that some online program management firms have abandoned or de-emphasized their use of revenue-sharing arrangements, charging fees for direct services instead.)

“To protect students from predatory recruiting practices, it is important for [the Education Department] to ensure that OPMs that provide recruiting services for colleges, as well as OPM recruiting staff, do not receive incentives based on their success enrolling students,” the GAO said in its report. “Without clearer instructions to auditors and colleges about the information on OPM arrangements that must be assessed during compliance audits and program reviews, there is a risk that Education will not have the information it needs to detect incentive compensation violations.”

While the report failed to produce the sort of eye-opening finding some may have hoped for (or feared, depending on their perspective), it did offer some insights. First, the GAO includes in its definitions of “education” that OPMs deliver not just degree programs taken by students qualifying for federal student aid but also shorter courses, such as microcredentials or boot camps, that may not qualify for federal assistance.

And the report includes acknowledgment from the Education Department that it is considering revising the federal guidance on incentive compensation to “strengthen” its ability to identify possible violations.

Background

The market of providers that help colleges and universities develop, market and manage online academic programs have emerged over the last 15 years.

It began with a group of established companies like Pearson and a set of new players that invested up-front funds to provide an array of services (admissions and enrollment support, marketing, online course development, and student services) in exchange for a large share of the subsequent return.

The companies began taking off as nonprofit colleges (public and private) began trying to compete with the for-profit universities (think University of Phoenix and Kaplan) that dominated the first major wave of online postsecondary education. Many of those new entrants turned to outside providers because they did not think they had the internal expertise to compete in key areas such as digital marketing and virtual student services.

The market of online program managers further expanded through the emergence of companies created by for-profit colleges such as Kaplan and Grand Canyon University to sell the expertise they’d developed in online learning to nonprofit peers trying to enter the market. Those companies drew special scrutiny from consumer advocates and think tank analysts who are generally skeptical about for-profit colleges, who asserted that outside providers with a profit motive would pressure colleges to build online enrollment at the expense of quality control.

One such critic, Robert Shireman, who engineered the Obama administration’s increased regulation of for-profit colleges, in a 2019 essay in Inside Higher Ed called for the federal government to revoke the aforementioned 2011 guidance that permitted tuition-sharing payments for recruitment as long as a contractor provided nonrecruitment services as well.

That’s the direction that some observers were hoping the Government Accountability Office would point in when it began its review in early 2021.

What GAO Said

But that’s not quite where the agency went.

The report provides some data about the size and scope of the OPM imprint in higher education, although there is little that hasn’t been provided in numerous previous reports. The bottom line of that information: hundreds of colleges use outside enablers to run thousands of online academic programs, most of the arrangements involve colleges paying companies to help them recruit students and many share revenue based on enrollment (with companies garnering roughly half of tuition revenue on average).

Most of the rest of the report focuses on how the government could and should go about gauging whether those revenue-sharing violates the ban on incentive compensation. The GAO doesn’t suggest at all that the 2011 guidance that permitted the “bundled services” exemption is ill-advised or should be invalidated; Instead, it focuses on whether the Education Department and its auditors have enough information to decide whether colleges’ relationships with an OPM are legal.

Based on interviews with auditors, college administrators and federal officials, GAO concluded that the Education Department isn’t asking for—and therefore institutions aren’t providing—enough information for federal officials to reasonably judge the legality of the arrangements. First, the government’s instructions to auditors fail to specifically mention online program management companies or the 2011 guidance on incentive compensation. Second, the agency’s instructions to colleges about the information they must share about their OPM arrangements are incomplete, “and consequently colleges do not always report such arrangements,” GAO said. That is especially true related to arrangements for nondegree academic programs, which are proliferating through boot camps and other providers.

The GAO report directs the Education Department to strengthen its guidance to auditors and colleges to ensure that it has better information with which to judge the legality of these arrangements. Education Department officials told GAO investigators that they planned to do so.

Eyes of the Beholder

Because the GAO report was evenhanded, observers with different points of view found different things to like about it.

Trace Urdan, director at Tyton Partners and an analyst of education technology, said he believed the GAO report did not “invalidate or destroy” the use of revenue-sharing agreements or drop other “bombshells” that would threaten the online program management companies.

“There will be more scrutiny in general that will likely have a slightly dampening effect on new contracts, and I can imagine risk-averse schools being made more risk averse by the added scrutiny,” Urdan said. “But there’s an implicit acknowledgment that this thing is important and is here to stay.”

Indeed, some critics of online program management companies and revenue-sharing agreements in particular expressed disappointment. Shireman’s colleague at the Century Foundation Stephanie Hall said via email that she was “pleased to see the [Education] Department agree with the GAO that it must bring its oversight of college outsourcing into harmony with the incentive compensation ban.”

But the GAO recommendations “do not go far enough,” Hall said. “The GAO is silent on the legality of the department’s 2011 subregulatory guidance that opened up a loophole in the ban on commission-based payments to student recruiters. That loophole has put students and prospective students at risk of exposure to pressurized sales tactics disguised as recruitment into online degree and certificate programs. On top of improving its oversight of college-OPM arrangements, the department should close the loophole once and for all.”

Senator Patty Murray, the Washington Democrat who requested the GAO report, looked on the bright side.

“With so many for-profit companies helping run—and recruit students for—colleges’ online education programs, we must make sure students are protected,” she said. “This report makes clear the Biden administration needs to conduct proper oversight to protect students, prevent abusive recruiting practices and improve transparency of these business arrangements—and I’m glad they are committed to taking action.”

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