Colleges are increasingly turning to for-profit companies to develop and manage their online programs. The value of the online-program-management, or OPM, market is now estimated to be more than $4 billion.
With that growth has come increased scrutiny, not only from higher-education observers but also from the federal government. In January, Sen. Elizabeth Warren and Sen. Sherrod Brown wrote an open letter, following up on one they sent in 2020, to several ed-tech companies. The letters sought more information about how the businesses operate, specifically highlighting accusations of overly aggressive student-recruitment practices and their role in the student-debt crisis. In May the Government Accountability Office released a report pointing out the lack of available information about the arrangements and recommending how the Education Department should better monitor them.
While the threat of new regulations is sure to affect the future of the OPM market, the current financial picture of the companies themselves might give us more insight into where the sector is heading. Consider what has happened to some of the biggest players since the beginning of the year:
- Grand Canyon Education said, in a recent quarterly earnings report, that while its services revenue increased year-over-year, enrollment at its partner colleges was down 4.5 percent.
- Pearson reported in a quarterly update that while its OPM business was growing, next year it will lose its largest customer, Arizona State University. (ASU, by many estimates, represents roughly one-third, or $110 million, of Pearson’s OPM revenue.)
- Wiley said in its annual report that its OPM business saw decreasing revenue year-over-year, based on an 8-percent drop in online enrollment.
- Coursera said in its second-quarter report that it had missed its estimates for revenue. It also dropped its estimates for revenue growth, with its OPM business losing 4 percent in year-over-year revenue.
- Zovio’s finances have declined to the point where it was better for the company to sell its OPM assets to the University of Arizona Global Campus for just $1, in a deal in which Zovio will also send UAGC more than $14 million in cash payments.
- 2U said in its second-quarter report that its OPM revenue had dropped 2 percent year-over-year, and it lowered full-year 2022 estimates for overall revenue by 10 percent. Total enrollments for degrees also dropped — both from fewer students and from fewer credit hours attempted per student. The company, which acquired edX last year, laid off roughly 20 percent of its staff this summer as part of its strategy to focus on profitability.
- FutureLearn — the company created by the Open University and acting as a Europe-centric MOOC and OPM — is in a dire financial position and might not survive the next year without a new source of a cash infusion.
It turns out that the OPM business is a difficult one. And colleges with online programs — whether or not they use OPMs — can take a handful of important lessons away from the recent developments.
Overly optimistic growth plans are a mistake. While online enrollments have risen over the past two years, new dynamics are in play that are not fully understood. The combination of declining overall enrollments and the proliferation of online programs (there are more than 350 online M.B.A. programs alone) means that many online programs are having real trouble hitting their growth targets. Online programs should focus instead on how to be sustainable at current levels, or even with decreases. It’s time to move beyond the “keep investing for growth, we’ll figure out profitability later” mentality.
Long-term contracts might not be viable. What happens to an online program if the OPM company helping manage the program with complicated contractual terms gets bought or starts operating at a reduced level? That is no longer a theoretical question. Colleges need to become much more sophisticated when they enter into contracts, coming up with real contingency plans and terms that can end partnerships without harming the underlying academic programs.
Increased public scrutiny of graduate programs is having an effect. Online master’s programs have been the sweet spot for the OPM market. Graduate programs play an outsize role in saddling students with debt, and the colleges that use them as cash cows (by charging excessive tuition) risk harming their reputations. The public pressure isn’t going away, so colleges would be wise to withdraw this strategy before regulations force the issue.
Flexible credentialing is a good strategy. Several ed-tech companies have offsetting business lines that make the decline of degree programs more tolerable. Non-degree programs that have shorter terms and can fit into working professionals’ busy lives are growing for a reason. Students are demanding more flexible credentials that can help them in their careers without requiring multiple years of study before any payoff. Ed-tech companies employ many strategies that colleges should avoid, but flexible credentialing is an exception.
Traditional institutions haven’t, as a whole, welcomed the sudden incursion of for-profit companies into the higher-education landscape, but there is one clear benefit to colleges: the requirement that publicly traded companies disclose their business performance quarterly. We are in a period of increased uncertainty, especially about enrollment and tuition revenues, and the institutions that take advantage of this valuable information from the OPM market will be in a much better position to come out ahead.
