Hiring these online program managers is quicker and easier for public and private nonprofit universities than building and marketing their own online graduate education programs. But in exchange, the institutions are giving up what is often a large share of the money the programs bring in.
Experts say this is likely keeping prices for students higher than they would be if the universities didn’t have to pay such a large share of revenue.“The profit incentive is just something that needs to be monitored in these kinds of arrangements,” said Stephanie Hall, a fellow at The Century Foundation, a progressive New York City think tank. “It warrants scrutiny figuring out who is setting the price, who is taking what percentage of that money and doing what with it in return.”
OPMs take a significant cut of revenue brought in by graduate programs
While attention is often paid to for-profit universities and colleges whose students sometimes end up with worthless degrees or no degrees at all, this other kind of profit-driven business has more quietly inserted itself into higher education.
The OPM industry started in earnest about 15 years ago, as more public and nonprofit colleges were looking to ramp up their online programming, and educational technology companies saw a business opportunity in helping them.
In the years since, the industry has expanded and evolved, but the arrangements between colleges and OPMs in their most traditional form — still widely in use today — look something like this: OPMs market the programs, recruit students, counsel them through the admissions process, enroll them, provide the software and tech support needed for the programs to function and even help instructors design online-friendly courses.
Though the faculty teach the courses and the universities control admission standards and confer the graduates’ degrees, much of the work of building and managing the courses is done by the companies.
Even though the companies are often taking the bulk of the tuition revenue the degree programs pull in, the firms still aren’t profitable in many cases. That’s because as the companies add more programs, they need to shell out large sums to ramp them up, said Brett Knoblauch, an equity research analyst at Berenberg Capital Markets, who follows companies like 2U. It takes a few years for the programs to turn profitable, he said.
Online program managers take anywhere between 30% and 80% of the revenue that online degree programs bring into colleges and universities with which they work. The challenges of this rapid expansion strategy were laid bare this summer, when Chip Paucek, chief executive officer of 2U, told investors on a call that the company would slow down its rate of launches after 2019 to “support our path to profitability.”
The July call also offered a sign that colleges may be pushing back on sharing so much revenue. 2U has historically given colleges only the opportunity to partner through a traditional revenue share, in which it offers its full suite of services in exchange for a cut of the tuition. But Paucek told investors on the call it will soon give at least one school, the University of North Carolina at Chapel Hill, the opportunity to use a fee-for-service model for some programs.
Nick Hammerschlag, president of Entangled Group, an education consulting and investment firm, suspects that shift may be a recognition on the company’s part that asking universities and colleges to give up a large share of the programs’ revenue may make it harder for 2U to hold on to its partners once they reach the end of their agreements.
Companies that offer revenue share arrangements make significant investments in the programs they help to launch up front, Hammerschlag said, but they also get “an extraordinary deal on the back end. I think people realized that ultimately they didn’t need to give up as much opportunity.”
Graduate students are an attractive market
For many reasons, graduate programs make up a particularly attractive market both for these companies and for universities looking to shore up their bottom lines, said Kevin Carey, vice president for education policy and knowledge management at the think tank New America.
One is that there’s no limit to how much the federal government will lend to graduate students to pay for school — they can borrow up to the entire cost of a program. In addition, graduate students’ needs are smaller, and likely cheaper to address than those of undergraduates who need more intensive advising and other services, he said.
Submitted September 21, 2019 at 01:38AM by thinkB4WeSpeak https://ift.tt/2Qw3oGC
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