Opinion

Why are colleges and universities handing over more than half of their tuition to online program managers?

In three years, no one will be able to explain why it was that colleges and universities continued to hand more than half of their tuition to companies marketing and supporting their online programs – the online program managers.

It will be even more challenging to explain why some agreed to contractually share their tuition for the next ten or fifteen years.

As the founder of a leading online program manager, I remember how this all started. Ten years ago, there were no high quality online programs, no best practices, no proven platforms and very few school leaders willing to take the financial and reputational risk of going online. Online program managers established expertise in instructional design and learning technology, borrowing student recruitment ideas, tricks and talent from for-profit schools to drive enrollment. We built fine online programs that ran a surplus for both schools and ourselves.

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But like a great many things that made sense at one point, the model needs replacement. While universities still struggle – much as traditional companies struggle – to remake their programs to take best advantage of technology, there are a growing number of ways to do so without taking out a payday loan, and paying millions for some basic technology and marketing services.

The great majority of money schools pay to online program managers goes for marketing and recruiting services. Like the for-profits, online program managers spend 15 percent to 20 percent of tuition on finding students.

Even worse, some online program manager contracts do nothing more than recruiting; we’ve seen several large contracts in which an otherwise prudent school is paying an online program manager 35 percent of tuition to market their programs. A current RFP from LSU seeks just such a contract, flouting Title IV prohibitions against incentive compensation.

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These relationships blur the lines separating what’s best for the student and what’s best for the recruiter. Most importantly, this sort of (mostly advertising) spending is counter to the effort by universities, organizations, governments, and companies to lower the cost of higher education.

Universities have traditionally spent 1 percent to 2 percent of tuition on marketing and recruiting; an arms race to 20 percent will cost our students over $100 billion a year, and add $10,000-20,000 to every student’s student loan payments. This is a fact.

The model exacerbates this problem. Following their perceived fiduciary duty, these companies target spending to steer students to schools and courses that cost more, have lower selectivity and pay a larger percentage of tuition. The winning schools will achieve a pyrrhic victory.

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I’m not suggesting profit motives alone are at fault. Without profit incentives, we would not have invested billions of dollars in education technology and online learning that we now take for granted. Profit-seeking allowed us to develop best practices, scale innovation and expand opportunity to thousands of students.

I’m suggesting the time for the ‘share the bounty’ approach to online education is over. This approach is driving up education costs (and student debt) and fueling a marketing race as schools and online program managers spend more and more to recruit and retain online students.

That online program managers continue to sell their outdated and misaligned tuition-sharing model fuels the suspicion and mistrust educators have for for-profit education companies.  Those of us who believe for-profit investment and innovation can improve the quality and accessibility of education are obligated to raise our voices when things go off the rails or become ineffective or outdated – as the revenue sharing model has.

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At the same time, deans, provosts and trustees will better serve their students and save precious resources by avoiding tuition-sharing deals. Like that payday loan, the benefits may be immediate but the costs are steep. And this isn’t simply a policy problem; as schools with smarter financial arrangements start competing with them, the universities paying online program managers a large percent of revenue will be at an enormous disadvantage in terms of attracting faculty or students.

Few, if any, institutions can afford to share their tuition and none can afford the all-out marketing war that outside companies will be all too happy to wage for a cut of the action.

The good news is that the market knows a change is coming. Tuition-sharing percentages are trending down and contracts are getting shorter. More colleges are investing in in-house solutions to recruit and manage their online offerings. And fee-for-service management options like the one my company offers are also becoming more abundant. That’s progress.

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Forced reform may be on the horizon as more education and policy leaders ask why the government – through student loans and grants – should subsidize profit and recruitment. As it currently stands, the system is one scandal away from a major embarrassment that will almost certainly be followed by increased regulation and changes to the system. In truth, reforms such as limiting how federal funds can be used would be beneficial anyway.

Until the market adjusts or regulations are imposed, the current system of online program manager tuition sharing is a plague. We may all understand how we got here. But few will understand why it took so long to get out.

John Katzman is the chief executive officer of Noodle Education and a former chairman and chief executive officer of The Princeton Review.

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John Katzman

John Katzman is the chief executive officer of Noodle Education and a former chairman and chief executive officer of The Princeton Review. See Archive