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How did it come to this? In 2011, in what would prove to be an exercise of spectacularly poor judgment, the U.S. Department of Education issued a “Dear Colleague” letter that remade how colleges do business. The letter, known as “the bundled-services guidance,” created a loophole around a law that had prohibited certain dodgy sales practices by institutions participating in federal student aid programs. That “incentive-compensation ban,” part of the 1992 reauthorization of the Higher Education Act, helped stamp out the 1980s’ epidemic of waste, fraud, and abuse by for-profit colleges. But by 2011 the Education Department wanted to turn back the clock.
The incentive-compensation ban expressly prohibited institutions that participate in Title IV student-aid programs from paying:
Any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance.
The 1992 language did offer an exception for foreign students residing abroad.
In enacting that ban, Congress was addressing one of the most compelling lessons of the 1980s’ feeding frenzy by for-profit operators: Creating incentives for student recruitment with commissions had predictably resulted in heavy-handed sales tactics, the recruitment of unqualified students, and a race to the bottom by unscrupulous colleges to maximize profits by ramping up enrollments and spending as little as possible on actually educating students. In hearings, U.S. senators were stunned by horror stories of commissioned recruiters’ loitering at unemployment lines and busing people from homeless shelters to sign promissory notes. One particularly candid for-profit operator went so far as to declare to Senate staff members: “I am a businessman out to make a profit. Truly I don’t care about the well-being of these students.”
In 2011 the department’s fuzzy logic ignored not only the 1992 law but also the very real risk of allowing student-recruitment practices to degenerate into used-car-salesman-type gimmicks. The 2011 guidance modified the absolute ban on payment of commissions to allow institutions to share a percentage of their tuition revenues — essentially, a commission for every “sale” — with “unaffiliated” and “independent” third parties.
It should come as no surprise that the bundled-services loophole was not thought up by the department itself. Like all profitable schemes to circumvent the law, it was the result of active lobbying by interests that stood to gain from the change. Those entities, today’s OPMs, teamed up with a handful of brand-name institutions to argue for the loophole. As Kevin Carey reported, when a 2U executive met with President Barack Obama’s secretary of education, Arne Duncan, in 2010 to lobby for the exemption, he was accompanied by a Georgetown University nursing dean, presumably to plead the urgent needs of traditional, mission-driven institutions for the expertise of OPMs as enablers of online education.
The theory OPMs successfully sold the department was that they would assume the upfront technological costs of moving high-quality academic programs online, and could provide the specialized internet-marketing expertise that traditional institutions lacked. That would “de-risk” the entry of traditional institutions into online education, the argument went, allowing them to offer an antidote to the proliferation of shoddy online programs peddled by operators like Corinthian Colleges and ITT Tech. It is not difficult to see the appeal of OPMs’ pitch to the department at the time: “Let us help bring trustworthy academic programs online and provide students with alternatives to for-profit offerings.”
An important element of OPMs’ lobbying strategy was to position themselves as tech companies rather than sales and marketing companies. But much in the way Uber used “technology company” cover to circumvent taxicab regulations, the value of OPMs’ technology was eclipsed by their newfound access to a legal loophole. The department naïvely assumed that OPMs’ voracious appetite for revenue would be controlled by caution among the reputable institutions hiring them. Not quite, as it turned out.
The problems that quickly emerged proved twofold: First, colleges, heavily encouraged by their new corporate partners, quickly came to view the deployment of OPMs as a way to make easy money. Second, the department failed to monitor and enforce even the minimal safeguards that it had included in the bundled-services guidance. Most notably, it failed to ensure independent institutional control of admissions standards and program content.
The University of California at Berkeley, a computer-science powerhouse, minted a pricey online master’s through its School of Information in the sexy and somewhat amorphous field of data science (in three flavors: “accelerated, standard, or decelerated”) in partnership with 2U with no lower in-state tuition rates. The school’s dean at the time rationalized the deal as responsive to the pressure she faced from the university to generate revenue. Berkeley Extension also slapped the university’s name on 2U’s Trilogy boot-camp product, which the company cleverly markets under the brands of its various university partners.
It was revealing that when colleges pivoted to online courses during the Covid-19 closures in 2020, few deployed their OPM partners (the supposed experts in just such a transition). Rather, OPMs were reserved for the minting of new and expensive graduate programs, which also happen to be eligible for unlimited federal debt-financing. The secret sauce of this lucrative line of business appears to have been aggressive online marketing nearly identical to that perfected by shoddy for-profits.
And OPMs have been as voracious with their collegiate partners as they have with prospective students, often taking 60 percent or more of online programs’ tuition revenues through multi-decade contracts that allow them to use their university partners as trustworthy facades for diluted and expensive graduate offerings. Those contracts, often predicated on the rosiest assumptions of enrollment growth, have already proved more than institutions bargained for. The 115-year history of Concordia University of Oregon came to an abrupt end in 2020 as a direct result of the extractive tuition-sharing agreement it had signed with its OPM. Eastern Gateway Community College, in Ohio, is being sued by its OPM to enforce a contract for services that the institution believes it no longer needs.
Opaque contracts often allow inappropriate — if not illegal — input by OPMs into strictly academic and financial decisions, and include egregious data-governance and data-ownership practices, such as the marketing of one client’s programs to another client’s rejected applicants. At Purdue University Global, Kaplan, with which Purdue has a systemwide OPM contract, has a contractual right to sit on an advisory committee and make joint budgetary, tuition-pricing, and marketing decisions with the institution. So much for holding unaffiliated third parties at bay by the client’s independent programmatic prerogatives. And only recently have details of a 2013 deal between Berkeley and 2U come to light. The deal provides 2U with access to data on denied applicants so that it can cross-market to them a similar program it runs in partnership with Southern Methodist University.
In retrospect, what the 2011 “bundled-services guidance” ended up producing was a cure worse than the disease. Instead of replacing the low-quality, expensive programs offered by shoddy for-profit operations with high-quality, low-cost alternatives, it simply imported predatory practices into the traditional higher-education sector. It is no wonder that scandal-ridden for-profit mega-universities like Kaplan and Zovio (which owned Ashford University) — the types of actors that OPMs were supposed to help traditional colleges compete with — simply rebranded themselves as OPMs. The toxic tactics that had already destroyed their reputations could still be employed; they just needed to hide behind the names of their client universities. As a bonus, becoming an OPM simultaneously shielded them from the Department of Education’s regulatory reach.
If there is a silver lining in the OPM saga, it is that, like all gimmicks, it seems to have run its course. Institutions are beginning to see the folly of renting out their names and their credibility for pennies on the dollar. The Department of Education is waking up to the future costs of all the subpar online graduate programs it is financing through Grad-PLUS loans. The precarious financial health of OPMs compounds the urgency for the department and other regulators to step in now and take control of the situation before it gets worse. A proper first step would be the recission of the ill-advised 2011 guidance. A second step would be to significantly reform federal accountability and quality-assurance requirements in order to align institutional incentives with the interests of students and taxpayers.
OPM executives and their cheerleaders have peddled their business model to institutions as a sure way to achieve the elusive dream of doing well while doing good. With more than a decade of outcomes in hand, it is increasingly obvious that they can’t produce either outcome for their clients. At a time when higher education is under fierce attack by its ideological and political critics, the last thing we need is to add fuel to the fire by shamelessly chasing phantom dollars with expensive, subpar programs.