OPM Watch: How Regulators Can Protect College Students

Over the last several months, the higher education world has seen significant developments around online program managers, or OPMs. These are for-profit companies that generally help colleges create and market virtual degrees and bootcamps in return for a slice of tuition revenue.

For instance, 2U, once the industry’s dominant OPM, filed for Chapter 11 bankruptcy protection — but for now will remain operational.

The most egregious problems with OPMs still stand, though. Colleges often don’t pay OPMs unless they recruit students into the online programs, incentivizing them to employ predatory recruitment tactics to boost enrollment. OPMs have badgered students to enroll, in some cases peddling high-tuition, low-quality programs.

To conclude New America’s multi-week series on OPMs, we have developed recommendations for policymakers, who can help weed out pernicious practices.

The U.S. Department of Education must close the loophole in federal law that allows OPMs to operate as they do now.

Federal guidance the Obama administration issued in 2011 enables OPMs’ business model.

That’s because the Higher Education Act bans what’s known as “incentive compensation” for locking in student enrollment or financial aid, except in extremely limited cases, like recruiting international students.

Essentially, admissions recruiters can’t be paid premiums for boosting enrollment. Offering those sorts of incentives prioritizes money and increasing enrollment over students, who may be pressured to sign up for programs they’re ill-prepared for or might not fit them.

However, the 2011 Obama-era guidance created the loophole to the incentive compensation ban. That comes into play if a third party — like an OPM — provides other services in addition to recruitment, such as marketing or academic course design.

This bundled services exception allows colleges to pay OPMs based on how many students the companies recruit. These are called-tuition share agreements. These can be problematic for several reasons. For example, OPMs take a large portion of tuition — often upwards of 50% — resulting in institutions sometimes jacking up pricing to ensure the deals are lucrative. This in turn can lead to more students taking on bigger loan debt.

The Education Department should rescind the 2011 guidance by the end of the year and allow colleges one year to renegotiate their OPM contracts and come into compliance with the new restriction.

This would enable institutions — some of which are already interested in reworking or exiting their contracts — to wind down their work with these companies or modify their contracts to use a legal pricing scheme.

The department can instead support what’s known as the fee-for-service system, which some institutions already use in their OPM contracts.

Under this model, colleges pay OPMs for a set fee for services rendered. This could help shield colleges’ budgets, as they can better plan for how much they’ll spend on OPMs.

Meanwhile, Congress should exercise its oversight function once the Education Department walks back the 2011 guidance by making sure the agency enforces the incentive compensation ban.

Federal lawmakers can also monitor colleges to guarantee they’re also following the Education Department’s policy as it intends.

A few years ago, the Education Department issued guidance reminding colleges of accreditors’ responsibility to oversee contracted arrangements between colleges and OPMs or other outside entities. But only one accreditor thus far has drafted robust policies specifically on supervising OPMs, even though the companies often provide recruitment and instruction, two areas in which accreditors have rules with which colleges must comply.

The Middle States Commission on Higher Education, or MSCHE, last year created rules on third parties that work with colleges, including OPMs.

The policy MSCHE created doesn’t limit the number of OPM or third-party contracts that colleges can enter into, but it does urge against “excessive outsourcing of key business operations or functions.” It also indicates MSCHE would scrutinize contracts dealing with marketing, recruitment and advertising much more closely — all services OPMs provide.

Overall, the guidelines state institutions should manage the key areas of their operations, like marketing, admissions, tuition, curriculum planning and academic advising.

Other accreditors should follow suit to MSCHE and not only formulate similar guardrails, but also ensure colleges will abide by them.

Policy action can be notoriously sluggish at the federal level, but states can also take a role in monitoring OPMs.

For one, states can outright ban tuition-share agreements. Minnesota this year became the first state to block its public colleges from entering into OPM tuition-share deals. That was after legislators discovered an OPM was siphoning off half of tuition money from programs it set up for a public college, St. Cloud State University.

Minnesota lawmakers did not want a for-profit company — not even based in the state — taking such a high share of tuition dollars

The bill that college faculty unions help develop alongside lawmakers can serve as a legislative roadmap for other states.

Also this year, California audited the University of California, one of the largest public college systems in the country, finding its campuses had not properly overseen OPM-run programs.

Several UC campuses allowed distribution of misleading marketing materials and one didn’t even vet instructor credentials for OPM-led programs.

So despite seemingly not having a major part in OPM oversight, states — and policymakers of all stripes — can act as watchdogs.

They can ensure these arrangements have transparency, require colleges to maintain control over core institutional operations like instruction, and prohibit revenue-sharing agreements that have accelerated predatory recruitment behaviors. By doing so, they can protect students from investing time and money into shoddy programs that may leave them with crushing debt loads. And they should act now.