What are Online Program Managers and Why Do They Exist?
Online Program Management Companies (OPMs) are a company
that sells services to higher educational institutions to support the
development and delivery of online learning. I have had a few inquiries from
market research firms interested in understanding this market, but because I
have never actually worked at a school that used an OPM, they tend not to be
interested in talking to me. I have been active in online learning for over 20
years and worked in several universities that were heavily online. I was
even the president of one. I have many colleagues that have or currently work
in OPMs, and I consider myself to be an expert on the business of higher
education. From my perspective as an outsider to OPMs and a higher ed, online
learning insider, I have a unique perspective on OPMs.
First, it is important to understand that there are two
kinds of OPMs. The first OPMs were companies formed to support non-profit
colleges and universities develop and market online programs. I will talk about
the whys and how’s of that for most of this article. Later, a new model of an
OPM emerged where a for-profit university has split itself into two entities: a
non-profit university and a for-profit OPM with a long-term contract to the
university.
During the Obama administration, for-profit higher education
was under attack from the Department of Education. One solution to this attack
is to convert a university from for-profit to non-profit status. The change is
a legal process of creating a new non-profit entity than selling (or donating)
the assets of the for-profit to the new non-profit. My first higher ed employer
did this in the 1970s. It requires approval by accreditors and the Department
of Education, and as part of the change, there are requirements about how the
university will be governed. Specifically, as a non-profit, the organization
cannot be used to further the interests of an individual or organization. A
non-profit must serve public interests.
The problem with for-profit to non-profit conversion is that
what was a business with owners becomes a new entity without owners. Sometimes
it is enough to pay owners, but often the business hopes to maintain ongoing
revenues from the university. The way to accomplish this is to create a new OPM
that provides a variety of functions to the non-profit university in exchange
for a share of tuition revenue. From a regulatory perspective, the university
is a non-profit and treated differently be federal and state law. From a
business perspective the business continues as a for-profit concern making
money for its owners. This type of OPM is created by taking existing operations
and not moving them when the new university is created.
The more common type of OPM is a business created to serve
multiple university clients. Most of the first type of OPM state a business
goal to service other clients, and some have had some success in doing so, but
their primary focus is on serving the university they gave birth to. OPMs such
as Pearson and 2U were created from the start to serve multiple customers. They
had to convince a university to enter into a partnership without having a
previous history.
The Changing Higher Education Environment
Traditional higher education is designed to serve young adults
transitioning from high school to a career. When we think of college, we think
of students living on campus, experiencing a limited amount of freedom and
independence from parents, and football on Saturdays. Demographically, that
population has been decreasing in the United States. In many states, the number
of high school students graduating is decreasing each year. In addition, the
number of high school seniors where one or both of their parents graduated from
college is decreasing even faster. In other words, the market for traditional
college students is decreasing. As a consequence, traditional colleges have to
find new populations of students to offset the losses in the traditional
students.
One source of non-traditional students are working adults
who do not have a college degree. This population was the basis for the growth
of the University of Phoenix and other universities both for-profit and
non-profit. In its early years, often these universities only enrolled students
with some previous college work. In time, they expanded their recruiting to
people without any college credits. A second population are those who have a
bachelor’s degree but are interested in a graduate degree. Both groups are typically
working often with families and often unable to take a break from employment to
come to a campus to study.
For the first three decades of the growth in non-traditional
higher education, the primary delivery model was creating campus and
instructional sites closer to where students worked and lived. Courses were
offered on evenings and weekends to accommodate working adult schedules. My
entry into higher ed in 1996 was teaching night classes. Every university I
have worked for since also grew through offering courses at multiple locations
to increase access to students.
By the late 1990s, online education was emerging as an
alternative for campus-based programs. Until 2000, the federal government did
not allow universities to have more online students than they had on campus
students. This regulatory change along with growing access to Internet at home
and in the workplace created new opportunities for students. Even if they would
prefer being in a classroom, many students found the convience of taking
classes without ever stepping foot on campus or having to be in class at a specific
time offset the downsides of virtual classes. Institutions where I have worked and
consulted, we have seen a huge transition away from campuses and off-campus
locations to online learning, driven by student preferences.
The market reality for the last twenty years has been that
few colleges and universities can compete for the decreasing numbers of traditional
college students. Instead, many have added programs for non-traditional
students, and increasingly that has required online programs. OPMs were born of
a need for traditional colleges to enter into this new market and delivery
model.
OPM as a Financial Solution
The most important need that an OPM solves for is the least
talked about, finances. Non-profit higher ed institutions public private and
public have limited access to capital markets to raise money to invest in
developing online programs. A for-profit company can raise money by taking on
investors, offering ownership in the company in exchange for investment in the
company. For-profit companies can go public, effectively raising more money by
taking on more investors. A non-profit does not have owners, so this is not an
option. They can raise money by selling bonds or taking on other debt, but the
credit market means that debt has to be paid back starting shortly after the
loan is made. Investors often expect it to be years before they see a return on
their investment. It is not unusual for companies to be valued as a good
investment when they are losing money.
Most colleges ae not financially healthy enough to be able
to raise much money by borrowing to invest in online programs. It is one thing
when bonds are used to buy property or build buildings which have some residual
value. Borrowing money to spend on developing online programs is a much riskier
investment with no attached collateral.
This is where an OPM can provide value. The OPM can offer
money to start programs, including resources for course and program development
as well as support services that otherwise a university would have to build on
their own. The OPM is a pathway to accessing capital markets for non-profit
institutions. Several of the larger OPMs are publicly traded companies.
The investment from an OPM makes sense because the usual
partnership is a revenue share agreement. The OPM will receive 50% of revenue
from students, while the university retains 50%. (The actual arrangement can
vary higher or lower than 50%, but 50% is a standard.) As enrollment increases,
the revenue for the OPM will also increase. Over time, the initial investment should
pay for itself and reap a profit that the OPM can use to create more online
programs, further increasing revenues.
Some colleges and universities have avoided the need for OPM
capital by bootstrapping online programs. These institutions begin small, and
then reinvest the revenue from the first online programs to develop more online
programs. This approach was used very effectively in the early days of online
learning, but I am not sure it would be as effective today in a much more
competitive environment. In many cases, institutional budgets lack even the
resources to start one online program.
OPM as a Source of Organizational Capacity
The other driver behind contracting with an OPM is that most
colleges do not have capacity for online delivery. My research using federal
data found that less than half of U.S. colleges and universities had at least
one fully online program as of 2019. Online programs require a different
approach to marketing, enrollment of new students, student advising, course
development, and delivery of courses. Traditional colleges and universities do
not have the knowledge or human resources to support online programs.
Marketing and enrollment require a different approach than
traditional higher education. Online marketing is often nationwide or regional.
As more programs have been moved online, competition has become more intense. A
common source of potential students is lead aggregators that sell contact
information to colleges and universities. Often the key to successful
enrollments is being the fastest to contact a student. To achieve this, one
needs an outbound call center with software for dialing prospective students.
This is the type of capacity than an OPM can provide that a traditional college
and university cannot provide.
Instructional design is another issue that colleges and
universities often fall short. In the traditional model, faculty design a
course to be delivered face-to-face. This includes a lecture, maybe a class
discussion, reading assignments, papers, and exams. Faculty are expected to
create these on their own. When you move teaching online, though, this approach
does not work. Materials have to be prepared for online delivery and loaded
into a learning management system. Faculty usually lack the technical expertise
to do this. Faculty are also not trained in effective learning design, so many
OPMs provide instructional designers to work with faculty to adapt materials
for online delivery.
Student advising and other support services are another
dimension of the student experience where an OPM can provide knowledge and people
that institutions lack. On campus, advising is often a faculty function,
supported by an advising office. When offering an online program, students need
access to advisors by phone, email, and chat at times outside of normal campus
business hours. An OPM will typically provide these services as part of a
contract.
Regulatory Issues with OPMs
There are two critical regulatory issues related to OPMs.
First, federal financial aid regulations limit how much of
an educational program can be provided by a third party. If a university is
offering a class and students can use financial aid to pay for it, the
university needs to be delivering the majority of the class. A
university-employed faculty member should be grading student work, assigning
grades, and answering student questions. It is common to use a textbook in
courses, but online, course lectures can be videos. These videos could be
university faculty or content created by an OPM or other source. This is a
tricky area, as accreditors must approve third party content used in delivery
beyond textbooks. OPMs usually avoid providing content as part of their
services to minimize these risks, instead relying on the university to provide
faculty and content.
Second, federal financial aid regulations prevent colleges
and universities to compensate staff based on how many students they recruit or
retain. Until around 2011, there were safe harbors that allowed schools to
effectively get around this requirement, but changes in federal regulation
closed those harbors. OPMs avoid this limitation because while they are funded
based on how many students they enroll, they are being paid for a bundle of
services. An OPM that simply provided marketing and enrollment services that
was paid by number of students would probably be a violation. An OPM that
provides these plus other services is permissible. This allows the OPM more
latitude in how it manages marketing and enrollment services than the
institution could on its own.
There is growing interest in Congress and potentially the
White House in regulating OPMs. Time will tell if and how this is accomplished.
If OPMs are so great, why do we need colleges and universities?
College and university accreditation is expensive and
requires meeting certain standards. An OPM cannot offer on its own accredited
courses and degrees without becoming a college or a university. Federal
financial aid requires meeting additional requirements. OPMs need colleges and
universities to provide accreditation and access to federal financial aid. By
extension, universities and colleges need faculty to meet the requirements of
accreditation.
Some colleges and universities have brands that are well
known regionally if not nationally. That also provides value to an OPM.
In some cases an OPM will focus on taking an existing
program and converting it to online delivery. In this situation, the university
is providing content and curriculum. In other cases, though, the OPM will want
to focus on developing new programs that match market demand for online programs.
Higher Education Decision Making Model
Higher education institutions have complicated decision-making
process that can influence the decision to partner with an OPM. Traditionally,
higher education has shared governance with faculty. Depending on the institution,
the faculty may be directly involved in approving a partnership with an OPM.
Universities typically consist of many loosely coupled
colleges and schools. In some schools, an OPM will partner with one college,
school, or even department. It might be possible for an OPM to use a limited
partnership to expand into other areas.
The university president will always be a key decision maker
in any institution-wide implementation. In some institutions, the president maybe
the sole decision maker. In other cases, the president will need support from
other senior administrators especially the chief academic officer and provost. Depending
on the institution, the vice presidents of enrollment and marketing maybe
important influencers. The chief financial officer is always important to
evaluate the financial opportunity. Key faculty leaders may also be critical.
In some institutions, the board might be engaged as well. The bottom-line is
that every college and university is different.
By definition, an OPM is a partnership. The purchasing
decision is not going to be about features or prices. It is getting married to
someone. The key issue will be whether the OPM appears to be the type of
partner that the institution wants to marry its fortunes to. Launching an
online program is a speculative activity. No one can guarantee that it will
work until you try it. No OPM can guarantee results. They can use social proof
of working with other clients, but in reality the people who worked with those
clients will not be the same ones working with a new client. The university has
to have faith in the OPM that they select. Because the decision makers are
multiple, the OPM has to successfully woo a variety of administrators, faculty
members, and board members. The story that the OPM proposes must match the story
that the university sees for itself. How can the OPM support the university
mission? How will what makes the university unique on campus be carried over
into the online environment?
For an OPM, the first challenge is in helping the
institution understand why it needs an OPM. Many institutions, especially
faculty, are resistant to the idea of online learning. The university must see
how online learning provides an opportunity to expand the reach and impact of
the mission of the university. For some universities, that will simply be about
economics. The university needs more revenue to survive. For most universities,
though, that is not enough. The OPM who can connect online delivery to mission,
history, and institutional identity will be successful.
It maybe that an OPM finds itself in competition with another
OPM. Even in these cases, the final decision will come down to the
relationship. Even if an institution creates a scoring rubric to support the
decision, human biases will distort scores to match the emotional reaction.
This is why job interviews are poor indicators of job performance. Future
performance cannot be determined in advance, so decision making defaults to emotional
impressions.
Future of OPMs
The need for OPMs is only going to increase. The pandemic
has forced universities to move online, and from that experience, they are
likely to realize their own limitations and the costs of online delivery. The financial
pressures to increase revenue are only going to get worse, creating motivation
for universities to offer online programs.
The challenge for OPMs will be from new regulation. Many
leaders in DC see OPMs as a new for-profit incursion into teaching and
learning. This is likely to lead to new regulation that may make the OPM model
less successful financially.
In normal markets we would expect to see consolidation
around a few players. This is likely to occur within the OPM space as existing
companies take over new incumbents or merge with existing partners to achieve
greater scale and return.
The future of higher education is another challenge to OPMs.
There is a limited number of potential students for a college degree. We can
expect continued changes in labor markets that will require reskilling of the
labor force, but it is not clear that higher education is the best model to
meet those needs. Some OPMs are developing capacity in alternative educational
programs.
One of the critical challenges of higher education is affordability.
The current model is expensive, and OPMs take advantage of pricing to carve out
a successful business model. An OPM that can develop a low-cost model that provides
access to quality education at scale could be an effective long-term strategy.