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Postscript on Purdue University Global Post

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After my Sunday post “Purdue University Global Loses $43 million in First Full Year Since Kaplan Transfer“, a spokesperson from Purdue University contacted me and provided commentary on several points made in the post. I welcome this clarification, especially as it helps explain the $90 million line item on non operating revenue and whether that is relevant to long-term Purdue Global financial viability. In short, that revenue is relevant, and therefore it is best to interpret the loss last year as $43 million and not $133 million.

I am going to share Purdue’s response in full and then provide my thoughts below.

Purdue University Response

In this section, quotes from my original post are in blue italics, and Purdue’s commentary is in quotation below each quote.

“Strictly speaking, the $43 million number is most relevant for this year, but this amount obscures the effect of one-time or short-term payments from Kaplan that were part of the initial agreement. In other words, the operating losses matter from a long-term viability perspective.”  

This is false. Payments from Kaplan have no impact on the profit and loss and even if they did, they occurred last fiscal year not this one. 

Additionally, “operating losses” are constrained by some accounting rules and they are only one part of Purdue Global’s financial picture.  Due to accounting rules, virtually every university in the country reports an “operating loss” and so the reported number is an insufficient and misleading measure of “long-term viability.” 

However, you do raise an important question regarding what was in the $43 million number?  That included a deliberate one-time, $28.5 million marketing investment as we launched a new university brand.  It also included $9 million in accrued but unpaid KHE fee that won’t need to be paid until the cash flow is positive.  Only $5.5 million was a loss from operations. 

“What is not entirely clear is the breakdown of $90 million in Non-Operating Revenues. Purdue University Global is a public institution, but it does not receive state funding. I believe this revenue includes $30 million in transfers from Kaplan’s parent company, Graham Holdings, that was defined as part of the initial 2017 agreement.” 

This is false.  The $90m is tuition and fee revenue from Pell grants plus a small amount of investment income and gift revenue.  It’s only classified as non-operating due to accounting rules. It’s clearly revenue from student enrollments, not transfers from Kaplan.

“The Purdue – Kaplan deal was never popular among Purdue University faculty and last spring there was an interesting debate in a local paper between three faculty members …”

This is an overgeneralization, especially following our work on campus to dispel myths and to explain the opportunity.  There will always be some vocal critics, but the University Senate is in a much different place than it was a few years ago in regard to Purdue Global. Over the last year, the Senate declined to take up a resolution critical of Purdue Global.  A special ad hoc committee established by University Senate to study a variety of issues related to Purdue Global has effectively disbanded after concluding that any concerns had been addressed.  In addition, faculty from at least four Purdue West Lafayette colleges are now engaged with Purdue Global to offer new educational offerings through the new online university.

“I am not sure the difference between the following numbers (around 29k) and the IPEDS numbers reported by Purdue (see above, around 36k), but nevertheless the following updated numbers indicate a new steady state of enrollment.” 

IPEDS has some unique requirements for Purdue Global since it’s on a quarter system.  The chart you chose is ours and was correct at the time and an easier way to look at the data.  The most up-to-date, year-over year comparison looks even better with enrollment growth from 2018 to 2019.

Updated Purdue Global enrollment numbers for calendar year 2018 and 2019, showing an increase of 5%.
source: Purdue University updates using October 2018 and October 2019 census dates

“… but for now it is not apparent that Purdue Global will be financially viable.” 

Purdue Global had $45 million cash on hand at the end of FY19.  The deficit in FY19 was primarily driven by one-time strategic start-up investments, particularly brand marketing and the development of some new programs that align with Purdue’s strengths and competitive advantages.  For FY20, we have every expectation that Purdue Global will generate an operating surplus.

My Commentary

This response from Purdue is quite helpful in filling in gaps in the public record. Given the importance of Purdue Global, it is important that other schools (and even for-profit companies) understand what is happening with this high-profile initiative, and to understand it accurately.

In particular, the most important clarification is that the “$90m is tuition and fee revenue from Pell grants plus a small amount of investment income and gift revenue”. Additionally, it is useful to see details on the “deliberate one-time, $28.5 million marketing investment” and “$9 million in accrued but unpaid KHE fee that won’t need to be paid until the cash flow is positive”.

In my opinion, the majority of the $90 million non operating revenue is relevant to operations, meaning that the $43 million loss (and not $133 million) is applicable. I disagree, however, with the statement that “only $5.5 million was a loss from operations”.

The $28.5 million marketing investment does NOT imply that Purdue Global spent only that amount on marketing and will not need to in the future. What it means is that based on internal budgeting Purdue Global spent $28.5 million more than what they believe is a steady state marketing level, and that they believe they can go back down to steady state marketing in FY2020. For perspective see this Purdue Exponent article.

According to the May 2 SEC filing, Kaplan will assist PUG in areas including admissions support, technology support, marketing services and international and domestic student recruitment. The filing does not cite expected costs of those services, but according to a fact-finding team from the Higher Learning Commission, Purdue representatives estimated the cost of KHE’s “back office services” to be about $200 million in addition to an estimated $100 million to be spent on marketing. The Higher Learning Commission’s report was published earlier this year.

If accurate, this information indicates that Purdue Global likely spent more than $130 million on marketing in FY2019.

As the chart above and my original post showed, Purdue Global seems to have slowed down or even reversed the enrollment declines of Kaplan University (good for them), but the additional marketing spend was clearly a key part of this change. The total marketing spend, even the amount above steady state, is very relevant to operations.

Furthermore, the accrued but unpaid KHE fee of $9 million is also relevant. The liability has not gone away, it is part of annual operations, and (assuming PG becomes cash flow positive) due to Kaplan Higher Education in the future.

Purdue’s claim about me overgeneralizing that the “deal was never popular among Purdue University faculty” is a fair point, but in the same way I challenge their brushing off of faculty complaints as “myths” and “some vocal critics”. It would be interesting to survey the Purdue faculty on this question to get a better sense of support, but that is not in the cards (at least as public information).

All in all, this is a valuable update from Purdue University. Looking forward, the final statement Purdue provided is the one to watch – “For FY20, we have every expectation that Purdue Global will generate an operating surplus”.

Purdue University Global Loses $43 million in First Full Year Since Kaplan Transfer

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Update 7 Jan 2019: Purdue responded to this post and answered some questions raised below. See follow-up post “Postscript on Purdue University Global Post“. I have adjusted the text below on the new information on non operating revenues.

One of the biggest stories in postsecondary online education in the past few years was the partnership between Purdue University and Kaplan University, where KU was transferred to Purdue and rebranded as Purdue University Global under a 30-year contract. The high-profile move, announced in March 2017 and finalized in April 2018, converted the 30k+ university from a for-profit into a public nonprofit under the Purdue brand while turning Kaplan Higher Education into a single-client Online Program Management (OPM) vendor.

Last year it was reported that Purdue Global was losing money, almost $16 million in the partial year (Purdue’s fiscal year starts on July 1st), and now we have more recent data.

Financial Report

Based on the latest Purdue University Financial Report provided to the Board of Trustees in October 2019 and approved in December, Purdue University Global had $133 million in operating losses and $43 million in net position losses in its first full year of operation. Strictly speaking, the $43 million number is most relevant for this year, but this amount obscures the effect of one-time or short-term payments from Kaplan that were part of the initial agreement. In other words, the operating losses matter from a long-term viability perspective.

The financial report describes its separation of Operating Revenues and Non Operating Revenues as follows (p. 15):

Revenues are classified for financial reporting as either operating or nonoperating. Operating revenues are generated by providing goods and services to our students and other important constituents of the University and include tuition and fees, grants and contracts, and sales and services. Tuition and fees and housing revenue assessed to students are reported gross, with the related scholarship allowance presented separately. Nonoperating revenues are those received by the University without providing a corresponding good or service and include our state appropriations, investment income, and private gifts.

The July 1, 2018 through June 30, 2019 statement of activities (p. 77) shows the revenue and losses. The key numbers are in the Loss before Other Revenues line.

Financial Report 2019 shows increasing losses for Purdue Global

What is not entirely clear is the breakdown of $90 million in Non Operating Revenues. Purdue University Global is a public institution, but it does not receive state funding. I believe this revenue includes $30 million in transfers from Kaplan’s parent company, Graham Holdings, that was defined as part of the initial 2017 agreement. But I have to admit that I’m not sure here, and I can find no public reporting to better explain the numbers.

Falling Enrollment

It should not be surprising that Purdue University Global is losing money, as Kaplan University was already losing enrollments like most of the for-profit sector. Looking at IPEDS data from Fall 2012 through 2018, I have combined all of Kaplan University and Purdue University Global campuses into one institution and showed on the same chart as other large online enrollment institutions. The data show a persistent drop in enrollment since 2014, although the losses may be slowing.

IPEDS data 2012 - 2018 highlighting Kaplan / Purdue Global enrollment dropping from 2014 through the last reported year.

Administration Statements

The Purdue – Kaplan deal was never popular among Purdue University faculty, and last spring there was an interesting debate in a local paper between three faculty members and the Purdue CFO, Bill Sullivan (there is a good summary by Derek Newton in Forbes). In Sullivan’s response to the faculty members’ initial letter, he described the initial losses and expectations moving forward.

While it is true that, in its first year of operation, Purdue Global invested more in startup costs than it offset by revenues, this was a deliberate strategic choice and was, importantly, prefunded by Kaplan Higher Education through the assets it brought to Purdue at acquisition. It is important to note that Purdue Global had more than $66 million in cash at the end of 2018 – a far cry from “bleeding the system dry.”

Another important consideration is that under the acquisition’s terms, Purdue is guaranteed payments of $10 million a year for the first five years. These funds could be reinvested at Purdue Global or they could even be shifted to other areas of Purdue, potentially including the regional campuses. Again, that is a far cry from “bleeding the system dry.”

But perhaps most important is the fact that Purdue has the first claim on any revenue Purdue Global takes in. Recall that Purdue owns and runs the university while Kaplan is reimbursed for its expenses in providing various back office support services as marketing, human resources, admissions and information technology. In the waterfall of cash flow, the last to get paid will always be Kaplan and the first will always be Purdue. That is, as money comes in, Purdue’s side of the operating costs and its $10 million priority payment are paid first.

This is an important point because I expect elevated startup costs to continue into 2019 and more modestly in 2020.

There are signs, also from Board of Trustees report from October, that the enrollment has stabilized since Fall 2018. It is worth noting that Indiana offers a 45% tuition discount to state residents in undergraduate programs at Purdue Global, and that Purdue employees can attend for free. I am not sure the difference between the following numbers (around 29k) and the IPEDS numbers reported by Purdue (see above, around 36k), but nevertheless the following updated numbers indicate a new steady state of enrollment.

Slide from Purdue report to board, showing total enrollments at Purdue Global 2018 - 2019.

Kaplan Higher Education as OPM

Due to the Purdue deal, Kaplan Higher Education changed from a for-profit set of institutions into an OPM provider. In their most recent earnings release, the Kaplan Higher Education division of Graham Holdings showed $238 million in revenue in the first nine months of 2019 from Purdue University Global (I believe Purdue represents the vast majority of this division’s activities), based on p. 28.

Extrapolating this number for a full 12 months, Kaplan HE as an OPM is likely making close to $315 million in revenue from the Purdue agreement, out of Purdue Global’s roughly $437 million in operating expenses. While Kaplan’s case is unique, that is still a large OPM operation, especially from just one client.

Note that the fiscal years of Purdue and Graham do not align, so use these numbers as a rough estimate.

Termination Clause

There is one other item worth mentioning here, in that the original Transition and Operations Support Agreement (TOSA) between Purdue and Kaplan had a clause for either side to terminate the contract based on financial losses. I am not suggesting that either side is considering this option based on the current losses, but it is worth remembering this option. From p. 26 of the TOSA:

Either Party shall have the right to terminate this Agreement in the event that New University generates $25 million or more in annual Cash Operating Losses for three (3) consecutive Fiscal Years, or incurs, during any period of the Initial Term, aggregate Cash Operating Losses greater than $75 million (taking into account gains during such period) (either circumstance being called a “Triggering Loss
”).

Where (p. 2 of Exhibit A):

“Cash Operating Losses”, for any Fiscal Year, means the amount by which: (a) the sum of: (1) the Academic Costs plus the Support Costs incurred in such Fiscal Year, plus (2) $10 million for each of the first 60 months following the Effective Date, exceeds (b) the total Revenue earned by New University in such Fiscal Year.

I believe the “Cash Operating Losses” for any year refers primarily to $43 million. Essentially $43 million plus the annual $10 million priority payment, or $53 million for this year. Clearly this exceeds the clause (i) above for the first year.

More to Come

Enrollment at Purdue Global appears to be improving, but at what cost? There are some real one-time revenue items obscuring the true financial state of Purdue Global, and the enrollment stabilization includes free or reduced tuition offers. I’d like to see details on the $90 million in nonoperating revenues as well as some breakdown of expenses, but for now it is not apparent that Purdue Global will be financially viable.

As it turns out, however, there is a lot more to the Purdue – Kaplan story beyond Purdue Global, as I’ll share in an upcoming post.

US Higher Education Enrollment Trends by Distance Education Type, 2012-2018

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Earlier this week I shared a profile of US online education enrollment based on the new IPEDS Fall 2018 data set. To put the numbers in context, we should look at the trends since IPEDS started tracking online enrollment in Fall 2012.

As a reminder on the data usage:

  • There are multiple ways to filter and select data. For this set (as with previous analyses for consistency’s sake), I have limited to U.S. degree-granting institutions in six sectors – public 4-year, private 4-year, for profit 4-year, public 2-year, private 2-year, and for profit 2-year. For undergraduate totals I have included degree-seeking and non-degree-seeking students (degree-granting institutions can offer non-degree programs). This will give different totals than other reporting methods. In particular, note that the IPEDS data view summary includes less than 2-year degrees and also includes non degree-granting institutions, leading to slightly higher numbers than shown below.
  • For the most part distance education (DE) and online education terms are interchangeable, but they are not equivalent as DE can include courses delivered by a medium other than the Internet (e.g. correspondence course). In this post I use both terms.
  • Exclusively DE is for students taking all courses online; Some DE is for students taking some courses online but not all; At Least One DE, or ALO DE is a combination of exclusive and some DE.
US Higher Ed Enrollment Fall 2012 - 2018 By Student Distance Education (DE) Status

In this view showing total enrollments by DE type, we can see the persistent decline in total enrollment for US higher education, dropping from 20.7 to 19.7 million from 2012 to 2018. Beyond that, we have consistent trends where the number of students taking no online courses has dropped even further, from 15.3 to 12.7 million, while the number of students taking exclusively online courses has risen from 2.6 to 3.3 million, and students taking some but not all online courses has risen from 2.7 to 3.7 million.

Since the total enrollments are changing, it is worth looking at how the various sectors contribute to these changes by viewing the enrollment differences from 2012 data.

US Higher Ed Enrollment Difference From 2012, By Sector

The enrollment changes over the past six years is highly correlated with sector. Public 4-year institutions have increased enrollment by 861 thousand while public 2-year institutions have decreased by 1.2 million – even more than the for-profit sectors.

In this view we look at the percentage of total enrollment per year, and we combine the exclusive DE and some DE categories into students taking at least one online course. The percentage of students taking online courses has risen from 26.1% to 35.3% since 2012.

I noted in the Fall 2018 profile post that the rate of increase for online enrollments has slowed down for the some DE category.

US Higher Ed Enrollment Difference From 2012, By Student Distance Education (DE) Status - grad and undergrad combined

In this view you can see that exclusive DE category is rising more than some DE category over the past year (after the reverse being true from 2014 – 2017), but note that this view combines grad and undergrad degree types. If we separate into each component, there are significant differences.

US Higher Ed Enrollment Difference From 2012, By Student Distance Education (DE) Status - undergrad only

For undergrads, it is far more common to have students in a mixed mode – taking some online courses and some face-to-face courses – and a small amount of decrease in the growth rate.

US Higher Ed Enrollment Difference From 2012, By Student Distance Education (DE) Status - grad only

Now we see the real source of slowing growth for the some DE category – for grad school students. This is a radical change starting two years ago, with the number of grad students taking some but not all online courses suddenly hitting a plateau. In fact, the numbers are 59,099 for 2016, 57,546 for 2017, and 57,544 for 2018. Is this some artifact of data collection? I find it remarkable that the numbers across the US have only changed by 2 students in the past year and only 1,555 in the past two years. If someone can explain this sudden change and consistency in numbers over the past two years, please let me know in the comments.

Update 12/12: Clarified language about exclusive DE rising faster than some DE over the past year.

Fall 2018 IPEDS Data: New Profile of US Higher Ed Online Education

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The National Center for Educational Statistics (NCES) and its Integrated Postsecondary Education Data System (IPEDS) provide the most official data on colleges and universities in the United States. I have been analyzing and sharing the data since the inaugural Fall 2012 dataset, and the Fall 2018 data were just released. Let’s view the numbers for US-based online education enrollment.

Update 12/11: See this post for data trends 2012 – 2018

Data Notes

Please note the following:

  • There are multiple ways to filter and select data. For this set (as with previous analyses for consistency’s sake), I have limited to U.S. degree-granting institutions in six sectors – public 4-year, private 4-year, for profit 4-year, public 2-year, private 2-year, and for profit 2-year. For undergraduate totals I have included degree-seeking and non-degree-seeking students (degree-granting institutions can offer non-degree programs). This will give different totals than other reporting methods. In particular, note that the IPEDS data view summary includes less than 2-year degrees and also includes non degree-granting institutions, leading to slightly higher numbers than shown below.
  • For the most part distance education (DE) and online education terms are interchangeable, but they are not equivalent as DE can include courses delivered by a medium other than the Internet (e.g. correspondence course).
  • Exclusively DE is for students taking all courses online; Some DE is for students taking some courses online but not all; At Least One DE, or ALO DE is a combination of exclusive and some DE.
  • There are two tabs in the interactive graphic – the first shows totals for the US by sector and by level (grad, undergrad); the second shows a map view allowing filtering by sector.

Initial Observations

The headline appears to me that we are seeing the same trends – growth of online, decline of fully face-to-face (no online) enrollment – but that the trends might be slowing down for the Some DE category. More than 35% of all US postsecondary students take at least one online class as of Fall 2018. From 2016 – 2017, however, the percentage of all students taking at least one online course rose from 31.4% to 33.7% (2.3%), but from 2017 – 2018 it rose from 33.7% to 35.4% (1.7%). I plan to do a separate analysis of DE trends over time, but the initial data show a slowdown in growth for online education enrollment, at least for the Some DE category.

  • For Undergraduates, in absolute numbers exclusively online enrollment increased by 93k, some online enrollment increased 126k, and no online enrollment decreased by 362k since Fall 2017.
  • For Graduates, exclusively online enrollment increased 65k, some online enrollment remained unchanged, and no online enrollment decreased 31k since Fall 2017.

Table View

Below is a profile of online education in the US for degree-granting colleges and university, broken out by sector and for each state for the most recent, Fall 2018, data.

Map View

Below is the map view of state data colored by number of, and percentage of, students taking at least one online class for each sector. In the interactive view, if you hover over any state you can get the basic data.

Interactive View

For those of you who have made it this far, you can find the interactive graphic here. Enjoy the data.

Using Arizona nonprofit institutions as an example of data available in the interactive view:

Update 12/8: Added clarification that most of the slowdown in growth comes from the Some DE category.

Update 12/9: Added specific description of IPEDS data view summary.

Christensen Scorecard Update: Data through Fall 2019

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In April I used data from our partners at LISTedTECH to look at the predictions made by Clayton Christensen and Michael Horn about upcoming college closures and mergers. We now have updated data for 2019 as well as new views based on the total number of students affected by schools going out of business. You can see more analysis over at LISTedTECH’s blog post, where Justin breaks out a lot of data.

Prediction Redux

As a reminder, in 2013 Christensen made a bold prediction based on his ubiquitous innovation theory that maybe half of all postsecondary institutions could close within 10-15 years.

(source: https://youtu.be/KYVdf5xyD8I, starting at 6:25)

The scary thing is that 15 years from now, maybe half of the universities will be in bankruptcy, including the state schools. But in the end, I’m excited to see that happen.

Christensen then doubled down on his predictions in 2017, humorously saying it might take nine years instead of ten.

Q. Do you still believe, as you’ve said before, that as many as half of colleges and universities will be bankrupt or closed within a decade?

A. Um, yes. [snip] Whether the providers get disrupted within a decade — I might bet that it takes nine years rather than 10. Maybe I’m too scared about the Harvard Business School to be rational about it. But we should worry.

Read the original post to get a deeper examination of whether the predictions are realistic given the data since 2015. The gist of the data analysis was that the vast majority of closures have been from the for-profit sector (which did not seem to be in scope of Christensen’s comments, but we can’t be sure), but the predictions could be realistic if including for-profits but not if applied only to nonprofit institutions.

Updated Data

Since April we have had quite a few news stories about new closures or mergers. Marlboro College, Southern Vermont College, Green Mountain College, etc. How do the new data affect the trends? Below we share updated running totals of closures and mergers since 2011 and running through Fall 2019.

If you include all degree-granting institutions (i.e. for-profits as well as private nonprofits and publics), then the current trends lines show that the 50% closure prediction by 2028 certainly seems feasible. Note, however, that there are fewer than 1,000 for-profit institutions remaining as of Fall 2017 IPEDS data, and the rate of for-profit closures cannot continue more than another 8-10 years (best case / worst case, take your pick).

If you ignore the for-profit sectors, however, then the trend line for private nonprofit and public institution closures & mergers remains far below that needed to hit the 25% level described by Horn or the 50% level described by Christensen. None of this is to say that the trends moving forward will be linear, however.

Christensen does get credit for the timing of the original prediction, as closures and mergers really accelerated starting in 2014.

Adding Enrollments

Campuses vary in size, and counting the number of schools does not capture the full picture. LISTedTECH has updated their enrollment analysis to look at both numbers of institutions and size of total enrollments in the US over time, based on IPEDS data. We are working to generate a running total view of closures that is based on enrollments (i.e. how many students have been directly impacted by schools going out of business) and will share that with you early next year. Below is a chart shared by LISTedTECH. Read through over at LISTedTECH, as they also break down by degree type and sector.

Institutional Decisions on OPM Market: Upcoming discussions on complicated questions

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Following our recent webinar with WCET on the Online Program Management (OPM) market, I am excited to lead two sessions next week at one of my favorite events of the year – the #WCET19 conference in Denver. As background, see this post addressing the OPM market.

  • Wednesday, Nov 6th at 1:45pm MT in Penrose 2 – #WCETOPM Navigating the OPM Marketplace: Picking the Right Partners While Avoiding Market Chaos This will have some overlap with the webinar but will focus more on the choices and decision-making processes that academic institutions face when evaluating OPM vendors or even deciding whether to use an OPM partner.
  • Wednesday, Nov 6th at 4:30pm MT in Denver 1-2 – #WCETOPMUnconf OPM Unconference Session Our webinar from September is available online, and we had some great questions during the webinar but were restricted by time constraints on addressing them all. During this session we plan to focus on answer the webinar questions and new questions from attendees. Come for a discussion.

Some the topics that we plan to address in these sessions, partially based on webinar questions:

  • Ideas for bringing OPM providers and schools together for more transparency and research on program outcomes;
  • The relationship between the OPM (and broader Online Program Enablement, or OPE) market and all-too-common lack of institutional support/structures vs. demand/competition for online learning programs;
  • Whether OPM critics, analytics, scholars, company leaders, and schools can come together for a collegial discussion;
  • The increasing emphasis on quality course and curriculum design; and
  • Advice for schools to consider with regards to policy, practice, and regulation when entering into a partnership with an OPM/OPE.

I don’t pretend to have simple answers for all questions – come, participate and expect a real discussion at the sessions.

Online Program Management: An updated view of the market landscape for 2019

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Yesterday I had the opportunity to share an updated view of the Online Program Management (OPM) market in a webinar with WCET. There were too many questions to fully address during the session, and we are planning a joint blog post to address additional questions over the next week.

You can view the recorded webinar at https://youtu.be/uMSa3lEn_4I or at the embed below the graphic.

We have a session planned for the annual WCET conference in Denver in early November. We’d love to see you there and continue the conversation in person.

Updates since 2018

As part of the webinar I released an updated graphic of the OPM landscape, taking a broader view of this growing but dynamic market. Since the last version shared a year ago, I added a new sub-category of vendors, for-profit conversions, to capture the Kaplan (Purdue Global) and Grand Canyon Education (GCU) with its recent Orbis acquisition. I expect this group to grow, as Bridgepoint Education (Walden U) is seeking approval to make similar changes.

Some other enhancements to note:

  • The business model axis makes it more clear that there is a range of options between Tuition Revenue Share and Fee for Service.
  • 2U now shows its acquisitions of GetSmarter and Trilogy, while also add its investment and partnership with Keypath. I also am showing the entry into the bachelors degree market the London School of Economics and the more recent Institutional Suite.
  • Wiley shows its acquisition of Learning House.
  • I have adjusted the sampling of fee-for-service vendors based on market activity.

Fall 2019 Graphic

As before, please note that this view is intended to give a visual overview of the market landscape and is not comprehensive in terms of vendors represented. This is particularly true as you approach the bottom of the graphic.

Market landscape of OPM vendors, showing business model from revenue sharing to fee-for-service on vertical, and credential from degrees to certificates on horizontal.

The webinar covers additional context around this graphic.

(Source for video: https://youtu.be/uMSa3lEn_4I)

Expect more coverage soon on the OPM market and the broader world of online and hybrid education.

Update 9/28: Mentioned that 2U’s entry into bachelors degree market started with London School of Economics, which pre-dated the Institutional Suite announcement.

Thursday, Sep 26: Webinar on OPM Market with WCET

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This Thursday I will be presenting and participating in a webinar with our friends at WCET on the topic of the OPM Market – September 26, 10am PDT / 11am MDT / 1pm EDT / 6pm BST.

Navigating the OPM Marketplace: Picking the Right Partners While Avoiding Market Chaos

Online Program Management (OPM) companies have been around for two decades, helping colleges and universities create scalable online programs, in a growing and important market. The OPM market is a chaotic one, however, and it would be a mistake for a school to evaluate the market without understanding the changing vendor landscape and underlying trends. Online education, in general, is entering its next generation, moving beyond traditional course designs and with a new set of stakeholders and institutional capabilities, and it is becoming more difficult to view online and face-to-face as binary choices. Furthermore, there are growing public debates about revenue-sharing vs. fee-for-service pricing as well as emerging regulatory challenges such as those seen in California this summer. In this presentation we share our view of the major trends affecting the OPM market and the implications for colleges and universities. Bring your questions and experiences. WCET is also looking to develop model agreements to share with the community and next steps will be discussed.

You can register for the webinar here (it is free and open to all), and there will be a recording afterwards.

#OPM #WCETwebcast

The Century Foundation on Online Education and OPMs: Position paper masquerading as a study

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The Century Foundation (TCF), a public policy advocacy organization, released a new ‘study’ today about online education and the usage of for-profit service providers such as Online Program Management (OPM) companies. “Dear Colleges: Take Control of Your Online Courses” follows up from the 2017 report loosely based on public records requests for contracts from public colleges and universities. Its intent is clear from the title, as it is hardly a study but more of a position paper against the OPM market in general and tuition revenue-sharing agreements in particular.

As public and nonprofit colleges have sought to expand their online course offerings, a major industry has developed to help them with that task. These private, for-profit developers—including divisions of big publishers, like Wiley and Pearson, and firms like 2U, Academic Partnerships, and Bisk—are known as online program managers (OPMs). They operate on a contract basis, and on terms that endow them with enormous, and, at times, comprehensive control over the services offered in the contracting college’s name. There are downsides to handing over responsibilities to external, for-profit operators—downsides that make the convenience schools receive in return seem a bad bargain indeed.

The Positives

It is valuable that TCF did the legwork to obtain and share 79 new contracts between providers and public institutions, and you can follow links in the report to see a broad range of contracts. OPM, Online Program Enablement (OPE), 1OPM is for bundled service providers including marketing and enrollment services, course and curriculum design, student support, and tech / data infrastructure. OPE is a broader category of enablers that may do a subset of those jobs, often unbundled, but are still directly helping a school develop an online program.LMS, courseware, MOOCs, Continuing Education or Professional Development, and general EdTech – they have them all.

It is also valuable to see TCF’s positions laid out in five warnings to colleges and universities.

1. Don’t Buy Bundled Services

2. Don’t Bypass Your Own Faculty

3. Don’t Sign Lengthy, Unbreakable Contracts

4. Don’t “Share” Your Tuition Revenue

5. Don’t Facilitate Aggressive Recruiting

While items 1, 3, and 4 really just reword the title argument against the revenue-sharing OPM model, items 2 and 5 are worth reading. From item 5:

On average, the universities from whom we’ve acquired contracts share half of their tuition dollars with the partnering OPM, and when that OPM is a for-profit company, as most are, and is also tasked with recruiting, it is incentivized to get as many enrollments as possible. This scenario leads to the same predatory and aggressive recruiting tactics long used by for-profit colleges, but this time under the very different guise of a nonprofit or public university.25

The Negatives

It’s well and good for an advocacy organization to take a position, but for TCF to describe this report as a study is disingenuous. I’m fairly confident that the main points were written ahead of time and are consistent with plenty of TCF advocacy efforts. The data analysis is just there to backup their main arguments and to lend weight to the report and make it feel like an actual study. TCF’s Bob Shireman helped draft the California bills I described a few days ago, where one goal of the bills were to cripple revenue-sharing agreements. He has been a frequent critic of bundled OPM services, long-term contracts, and revenue-sharing. We get it. 2To be clear, I have no problem with his work in this area. I do have a problem when his advocacy leads to harm for the very students the bills are meant to protect and when TCF presents its positions as a study.

If you look at the contracts in the new batch of records released by the report, they are all over the map as described above and often are not directly related to online programs. The LMS category may be a necessary part of the infrastructure for online programs, but at most schools the larger mission is to support traditional face-to-face offerings. The same is true with courseware offerings. And several of the Continuing Education contracts listed have strong face-to-face components. It would have been far better to keep this report focused on the subject – OPMs, OPEs, and perhaps MOOCs and CE / PD companies. Those are the ones that could be argued are relevant to controlling a school’s online courses.

Furthermore, there is a misunderstanding of traditional per-student fixed fees that have long been used by courseware companies, many EdTech companies, and LMS companies (although they tend to use enrollment bands). Tuition revenue-sharing is different, basing itself directly on the revenue brought in by the school with a percentage basis going to the provider.

The TCF report has Blackboard’s contract with Eastern Kentucky University listed as revenue-sharing, but the contract is a standard LMS model. Fixed fees per year based on estimated enrollment bands. The TCF also has courseware contracts with Cengage, MindEdge, Red Shelf, and The College Network listed as revenue-sharing when they are standard courseware versions – fixed fees per student. Two OPE contracts – Smart Sparrow and 352 – are likewise fixed fee per student and not true revenue-sharing. I suspect there are even more cases of false revenue-sharing positives, but I have only have had time for spot checking on this point.

To their credit, the report attempts to focus on those product categories tied to online offerings.

As of August 2019, we received seventy-nine contracts, and of these, forty-one are directly relevant to the management of online courses. These forty-one do not include contracts that only address access to software like learning management systems. Of the relevant contracts, over half (53 percent) entitle the provider to a share of the school’s tuition.

There are two problems here.

  • One is that TCF does not list in their summary spreadsheet which contracts they consider “directly relevant to the management of online courses”. By my hand-coding, I get 14 OPMs, 10 OPEs, 2 MOOCs (and these are not the more-recent MOOC-as-OPM version), and 17 CE / PD, for a total of 43. I’m guessing that my list is fairly close, but who knows.
  • More importantly, these data points are mostly arbitrary, depending on which schools they asked and how successful they were in obtaining public records. Yes, they claim to have targeted schools with large online enrollments, but the data are mixed up between face-to-face and online programs, degree-based and non-degree based programs and courses, and contract years from 2002 to 2019. As a public listing this approach is fine. But to make constant percentage-based claims (53% of contracts, 68% of contracts, etc) implies statistical relevance and is misleading.

There is also a misreading of other reporting, particularly with the story of USC and its School of Social Work. The TCF report states:

Since USC had given over so much control to 2U, it had little control over how the program recruited, or who it enrolled: as revealed by the Los Angeles Times earlier this year, the online social work program admitted students that it was not prepared to provide with a quality education, charging them more than $100,000 for their degree in the process. All the while, USC reportedly lost money on the program, because so much of the tuition went to 2U.

This story is problematic for USC, but the argument made by TCF that the loss of money was “because so much of the tuition went to 2U” is not supported by the source LA Times article.

The university, which has contracted with the company through 2030, said the factors that led to the school’s budget crunch were “much broader” than its relationship with 2U.

“Generally, this partner relationship has been positive,” the university said in a statement. [snip]

There is much to the USC story that deserves further scrutiny, but this claim by TCF is inaccurate or at least unsupported.

Online education and OPM relationships should have greater accountability and transparency, and it is good that TCF has done the legwork to bring contracts into the public view. But it is a mistake to treat this report as anything other than a position paper from an advocacy organization, and a rather poor one at that.

California Taking a Break in Online Education Dance of Elephants

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Back in July I wrote a mini-rant Twitter thread 1Read the terms, I believe you are are required to rant on Twitter, or at least to join a virtual mob. triggered by tens of thousands of California residents losing access to federal financial aid for their online education studies at out-of-state schools. My basic argument was that we were witnessing the consequences of a dance of elephants – triggered by activists who were targeting for-profit institutions, nonprofit conversion institutions, and Online Program Management (OPM) companies – with students caught in the middle.

The issues arose from three legislative actions:

  • California is the only state that has not joined the State Authorization Reciprocity Agreement (SARA) that seeks a common framework for student complaint handling and registration for institutions offering online education to students across the country.
  • Due to a lawsuit from consumer advocacy groups, the US Department of Education was forced to implement 2016-era rules requiring consumer complaint handling in order for students to receive financial aid, despite new rules that resolve the issue as of July 1, 2020.
  • A package of seven bills was introduced in the past year in California increasing regulation and oversight of for-profit institutions as well as online education programs.

The first and second actions led to the July loss of financial aid for students, although under intense pressure, California regulators quickly implemented needed changes to solve the initial problem. Ironically, after California rejected joining SARA due to “this lack of consumer protection for distance education students in California”, yet the entire issue this summer was based on California not having basic consumer protections handling student complaint handling. Tens of thousands of mice not enjoying the dance.

The big news of the past week is on the third legislative action, as the three bills with the most far-reaching implications for online education were put on hold, at least for the remainder of the year. As CooleyED described five days ago:

After returning from recess on August 12, the California Senate Appropriations Committee took up the package of six remaining higher education bills intended to address concerns about private postsecondary education providers in the state, sending three forward for floor action and holding three bills under submission in committee, meaning they will not be considered for further action in 2019. [snip]

Three bills were held under submission, meaning they will not proceed to a floor session or further voting in 2019. Further, unless these bills are placed into “two year” status by the Senate Appropriations Committee, the bills will not be considered in their current form for the remainder of the legislative session, which runs through 2020, requiring them to be introduced anew after the end of this year.

The three bills held under submission:

  • AB 1341, which would have enabled the California Attorney General “discretion to determine that an institution is not a nonprofit entity for California education regulatory purposes, even if it is recognized by the Internal Revenue Service as such”.
  • AB 1342, which would have required California AG review of certain transactions (e.g. sale of college, change of material responsibilities or governance) between nonprofit colleges and for-profit or mutual benefit corporations. This was mostly targeted at recent nonprofit conversions such as Purdue Global, Grand Canyon University, or (if approved) Ashford University.
  • AB 1345, which would have prevented schools from using incentive compensation agreements with for-profit corporations. This one would have had a big impact on OPM companies or any others with tuition revenue-sharing agreements.

In all cases, the scope is based on the Bureau of Private Postsecondary Education (BPPE), which governs both nonprofit and for-profit institutions operating in California, although there are many (changing) exemptions for nonprofit schools to take them out of scope.

The remaining bills going to a house vote deal with gainful employment, expansion of registration requirements for out-of-state institutions, and broadening the scope of student financial relief beyond tuition payments (think Corinthian Colleges and what those students can recoup).

What I’d like to believe happened is that state legislators realized the mistake in outsourcing the bills to activists primarily targeting for-profits and OPMs, rather than focusing primarily on students. In other words, hopefully the financial aid snafu this summer is leading legislators to better understand the stakes involved. The legislative process at work.

The question is not whether to regulate for-profits, nonprofit conversions, or OPM agreements. The question is how to do so – at the state or national level – and whether such regulation can avoid conflicting rules that further complicate the options for institutions with online education programs. And more importantly, whether the regulation helps rather than hurts students. What changed last week is that the state of California backed off from their approach to set de facto national policy, at least for the current legislative session.

By far, the best coverage on these issues comes from the CooleyED blog. I recommend reading their recent post in full for those wanting more details.