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.