The Education Department Acts on OPMs: Misleading Students About Online Degrees Could Cost Colleges Their Federal Aid

For-profit companies that help colleges create and recruit students into online programs cannot represent themselves as part of those institutions, nor can they claim that their virtual credentials are equivalent to in-person ones, the U.S. Department of Education announced Tuesday.

Doing so would likely be considered misrepresentation and could result in the Education Department fining or even cutting off offending colleges’ access to federal financial aid, according to a "Dear Colleague Letter" the agency published.

A Dear Colleague letter provides policy guidance to federally funded colleges — in this case, it takes aim at their relationships with online program managers, or OPMs. These companies, in addition to marketing online programs, often also provide colleges with curricula and faculty, in exchange for a hefty cut of tuition money, even up to 80%.

However, this dynamic often spurs OPMs to employ any and all tactics to bring in new students – in some instances even predatory recruitment methods – as their share of tuition revenue rises as more students enroll.

OPMs, including one of the most prominent in the market, 2U, have faced allegations that they harass students into enrolling, and that their employees represented themselves as college officials during recruitment. OPMs have also presented their online programs as the same as on-campus offerings.

However, the quality of OPM-led programs is highly questionable. Unlike their in-person counterparts, they often rely on prerecorded lectures or are taught by inexperienced faculty, rather than the faculty employed to teach in-person courses. Low-income and other vulnerable students are frequently drawn to these programs, marketed as flexible and cost-effective, only to graduate with ruinous debt and degrees that lead to low-paying jobs.

One of the most infamous OPM-run programs was a master’s degree in social work at the prominent University of Southern California, created by 2U. USC and 2U marketed the OPM-led master’s and the on-campus program as the same, despite that resources in each, like course offerings, field placements, and academic advising differed drastically, according to a lawsuit filed in 2023. USC and 2U walked away from their arrangement later that year.

The Education Department is aware of “multiple instances” of colleges and OPMs having “apparently engaged in making these types of statements to misrepresent, allow to be misrepresented, or facilitate the misrepresentation of, aspects of programs,” according to the Dear Colleague Letter.

The department in its letter called out three circumstances that likely qualified as a misrepresentation and thus a consumer protection violation. OPM marketers cannot pass themselves off as college admissions counselors, and would likely be misrepresenting themselves if they didn’t disclose they worked for an outside company, according to the letter. OPMs also can’t wrongly advertise their programs as being “the same as” an on-campus version.

The Education Department said it knows of cases of students in OPM-run programs that lack the same access to resources as their on-campus peers, such as instructors, advisers, and registrars. Advertising these programs as offering equivalent resources would likely be deemed misleading, according to the Dear Colleague Letter.

The letter also stresses the three examples are not “an exhaustive list” of circumstances in which colleges or OPMs could be misleading students.

Colleges, or their contractors, that engage in misrepresentation open the door for student loan borrowers to apply for them to be discharged under a program called borrower defense to repayment. Borrower defense forgives loans of students whose colleges defrauded them — and institutions could be on the hook if the Education Department sought to recoup funds to cover those discharges because they’re responsible for OPMs’ actions.

As the Trump administration takes power, it should ensure this new common-sense check on predatory OPMs remains in place.

Further, it can shut down the policy loophole in federal law that allows OPMs to operate as they do now.

The federal Higher Education Act generally bans “incentive compensation,” meaning college recruiters can’t be paid bonuses for enrolling more students. These incentives prioritize profits over students, as college officials could pressure them into programs they may not be ready for or suited to.

OPMs can however, receive this sort of incentive compensation if they provide other services in addition to recruitment, such as marketing or academic course design. This is according to a Dear Colleague Letter that the Obama administration issued in 2011.

If the incoming administration revokes the 2011 guidance, OPMs could instead turn to a fee-for-service system, which some institutions and OPMs already use in their contracts.

Under this model, colleges pay OPMs a set fee for their service. And it doesn’t invite the same sort of predatory playbook as when colleges share their tuition revenue with OPMs.

The Biden administration could have nixed the Obama-era guidance, but decided not to.

"Rescinding that guidance would address the problem at the root," said Stephanie Hall, senior director for higher education policy at the Center for American Progress. "While the Education Department opted to leave it in place for now, today's announcement is an important reminder to schools that they are responsible for providing truthful information to students, even if that information comes from an outside party."

Congress can also exercise its oversight to ensure the Education Department enforces a full ban on incentive compensation. By doing so, federal officials — including Elon Musk and Vivek Ramaswamy, heads of the newly established Department of Government Efficiency (DOGE) — can prevent tuition and taxpayer dollars from being squandered on non-compliant programs while also protecting marginalized students.