Arizona State University’s deal with Starbucks to give baristas a discount on the university’s online courses is inspiring imitators — and that’s not surprising.
Colleges see the deals as a way to reduce their costs of providing distance education. That’s because, in theory, deals with companies can help colleges more efficiently reach and enroll bigger pools of students, which can lower the cost. But the jury’s still out on how effective the tactic is.
In business it’s common for companies to measure what it costs them to win each new customer, or cost per acquisition. Historically, that hasn’t been true for higher education. Many colleges “have no idea of that cost,” says Kim Taylor, co-founder and chief executive of Ranku, a company that advises colleges on distance-education recruitment. In traditional higher education, she adds, “no one measures it.”
But clearly, colleges are becoming increasingly aware of the potential for cost-of-acquisition savings made possible by giving discounts to a company’s employees.
That’s one reason ASU went ahead with the Starbucks partnership. Phil Regier, who oversees ASU’s online-education ventures, says the deal also created more opportunities to experiment in other ways and “stretch the university in rethinking its systems and processes.”
Concern about the cost of winning new students also explains some of the economics of a new Strayer University Degree@Work program with Fiat Chrysler Automotive in the United States, where the fees the university will get could end up actually being much less than the standard tuition rates.
Recruiting Funnel
Saving on student-acquisition costs is also part of the rationale for a new recruiting channel that Southern New Hampshire University announced this month for its College for America, which uses a competency-based model. The college hopes the new program, which it calls a co-op, will allow it to sign up smaller employers through a streamlined system without having to create individualized materials for each small company. More than 30 employers have already signed up to enroll their employees in the college’s competency-based degree programs via the co-op.
As with College for America’s other deals with larger employers — its biggest one, with Anthem Inc., accounts for nearly half of the college’s 3,000-plus students — it will rely on the co-op partners to bear many of its recruiting expenses.
College for America charges $1,250 per student for every six months. That doesn’t leave a lot of margin for advertising, marketing, and recruiting. With limited resources, “we’re trying to focus on the larger employers,” says Kristine Clerkin, executive director of the college. The benefit of working with companies is “they can really get behind it” and promote the educational option to their employees.
Strayer’s deal with Fiat Chrysler also relies heavily on the company’s serving as a recruiting funnel. Under the program, participating dealers pay $500 to $1,500 a month, depending on the number of people they employ. The sum covers all tuition costs for an unlimited number of employees and their family members. In other words, a dealership pays a maximum of $18,000 a year even though Strayer’s annual tuition for just one student pursuing a B.A. is $10,500.
That may seem to make little economic sense. But an executive at Strayer and analysts say even that financial arrangement can be advantageous. In part that’s because the regular tuition price has a comfortable margin of profit already built into it, and Strayer’s costs for adding more students is nominal. Each new student is profit for the company, an analyst says. And for Strayer, there could also be “a halo effect” for having signed a deal with a well-known corporation.
What’s more, for-profit colleges have found that retention rates for employed students tend to be higher because they’re often older and more mature than traditional students, which means the company won’t have to spend money replacing the student the following year. Arizona State found that retention rates for Starbucks students were higher than for non-Starbucks students who enrolled with similar levels of credits.
Cost of Acquiring Students Rises
For all colleges, for-profit and nonprofit alike, the cost of acquiring students is generally on the rise, due in part to the expansion of distance education. “The number of online programs is growing faster than the number of students,” says Richard Garrett, chief research officer at Eduventures, a consulting company.
That’s a far cry from the situation a decade ago, when for-profit institutions like the University of Phoenix had more of the online market to themselves. In 2004, according to estimates by one Wall Street analyst, the University of Phoenix’s student-acquisition cost was no more than $1,500 per student, or about 12 percent of its average annual tuition at the time. By 2010 that cost had risen to $2,900 per student, and a year later it was up to $4,800. Today, with Phoenix’s enrollment in decline, he estimates it at roughly $5,700, more than half the current average cost of annual tuition. It’s no wonder, then, that the university, like many others, has been looking to land more corporate partners.
But Mr. Garrett says the student-acquisition-cost advantage inherent in a corporate partnership seems to have a significant effect only when colleges have created exclusive arrangements with companies or when companies make the educational program a clear priority, since that creates more external incentives for the employees to enroll. So far, he notes, “I don’t see lots of examples of big companies’ looking to universities to do big human-development deals.”
As for the co-op idea that College for America is now pursuing, Mr. Garrett says the approach could work for other colleges. Each employer might send along just a few students, but those could be students who otherwise wouldn’t have enrolled, and the college could “get them much more cheaply than through consumer channels.”
Ms. Taylor, of Ranku, is even more skeptical. “It sounds better on paper than it actually performs,” she contends. She says colleges that want to improve their student-acquisition costs should instead focus on things like streamlining their admissions and credit-transferring processes.
Strayer says its exclusive partnership with Fiat Chrysler will pay off, even if only indirectly. The university’s infrastructure, including its online capacity, can handle at least twice as many students as the 40,000 or so it now enrolls, says Strayer’s chief executive, Karl McDonnell. (Like most other for-profit colleges, Strayer’s enrollment has fallen off in recent years; in the fall of 2010 it was nearly 61,000.)
He also points to one financial advantage of the arrangement: No federal student aid is involved, which saves the company the costs of administering the awarding of that aid. During the pilot phase, when the program was offered to a limited number of dealers, enrollment hit no higher than 400.
Strayer set its price based on estimates of enrollment. The only risk in that approach, says Mr. McDonnell, is if unexpectedly large numbers of students enroll as the program expands. And that would cause a problem only for up to a year because the price is renegotiable annually.
Too many students is a problem he’d love to have.
Correction (1/28/2016, 9:28 a.m.): The surname of Strayer’s chief executive was mistakenly rendered as McConnell; it is McDonnell. This article has been updated to reflect that correction.
Goldie Blumenstyk writes about the intersection of business and higher education. Check out www.goldieblumenstyk.com for information on her new book about the higher-education crisis; follow her on Twitter @GoldieStandard; or email her at goldie@chronicle.com.
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