Caution for Colleges Contracting with Online Learning Enabling Companies!

Dear Commons Community,

The Chronicle of Higher Education has an article cautioning colleges and universities when entering into relationships with companies that provide online learning services.

The growth of online higher education, the breakdown of competitive borders, and the decline of public support for colleges have caused traditional institutions—even sturdy ones—to reflect on their strategies for survival. In the soil of this anxiety, online “enablers” have taken root.

Enablers are companies that help brick-and-mortar colleges build online programs as quickly as possible. The companies, some of which have been around for a decade or more, have positioned themselves as experts in all the things that allowed for-profit online colleges to flourish: marketing, technology, and customer support.

The individual deals between enablers and colleges are complex, but the proposition for colleges is simple: Benefit from the business savvy of the for-profit sector without relinquishing the soul of the university. It is an enticing offer for a growing number of traditional institutions. For some, it seems like the only option.

The article specifically reviews three important issues.

1. The companies usually take the lion’s share of revenues.

Colleges may consider teaching to be the core of higher education, but when it comes to dollars and cents, the services provided by the companies—recruitment, retention, and customer support—are often more valuable.

2U, a Maryland-based enabler, , stands to collect up to $39,000 each year for every full-time student enrolled in a data-science master’s program that it runs with the University of California at Berkeley. That’s about 65 percent of the gross tuition revenue.

“It sounds like a ton, and it’s a lot of money,” says AnnaLee Saxenian, the dean of Berkeley’s School of Information. But the university thought it would be too risky to wait for prices to go down. “If we had waited a couple years,” she said, “I think we would have missed an opportunity.”

Either way, the decision to go with an enabler was inevitable. “Even if the campus had said, ‘We will loan you $5-million to launch this,’ nobody on this campus has that experience base,” said Ms. Saxenian, adding that the goal was to get the data-science program up and running “in record time.”

Bisk Education claims 80 percent of the gross revenue from the three-course, online certificate program in executive education the company runs with the University of Florida. The contract, which was signed in 2012, projects that after five years the program will have made about $1.6-million for the university and $6.3-million for Bisk.

George Straschnov, chief strategy officer at Bisk, says that the revenue split is not always as lopsided as the 80-20 deal with Florida but that his company typically claims more than 50 percent of revenues from the programs it helps run at colleges.

The reason, he says, is that Bisk assumes most of the financial risk up front.

Creating courses for a new degree program—which is the university’s responsibility—costs a lot, but building an infrastructure for those courses and filling them with students costs more, says Mr. Straschnov. Bisk bears the bulk of those start-up costs, and takes a bigger hit if the online program doesn’t pan out, he says. Therefore, the company is able to negotiate for a bigger slice of the pie if, and when, tuition revenue starts coming in. Or, as Mr. Straschnov puts it, “The share of revenues is generally reflective of the proportion of responsibilities.”

2. The Education Department is cool with the enablers.

The U.S. Education Department has spent the last few years reining in for-profit colleges, and it has taken an interest in their recruiting practices in particular. Online “enablers” have managed to avoid government scrutiny, even though their revenues are tied to how many students they can persuade to enroll.

In a 2011 “Dear Colleague” letter, department officials outlined their attitude toward enabler companies:

“The department does not consider payment based on the amount of tuition generated by an institution to violate the incentive-compensation ban if that payment compensates an unaffiliated third party that provides a set of services that may include recruitment services. The independence of the third party (both as a corporate matter and as a decision maker) from the institution that provides the actual teaching and educational services is a significant safeguard against the abuses the department has seen heretofore.”

In other words, government regulators see no problem with enablers as long as they are not in charge of admitting, teaching, and awarding degrees to the students they recruit. Regardless of how involved the companies are in the peripheral aspects of higher-education business, the college that grants the degrees—and receives the financial-aid payments—is on the hook for any violations.

3. The deals can go wrong.

The biggest cautionary tale involving an online enabler is that of Cal State Online, the California State University system’s ambitious plan to build a centralized online campus for its 23 universities. The system, desperate to strengthen its online presence, struck a deal with Pearson in 2012 to help get Cal State Online up and running as swiftly as possible.

Under the deal, the company would do the marketing and recruiting, rent the office space, and pay to have the website built. The university agreed to pay the company a fee for every student who enrolled. It also agreed to make LearningStudio, Pearson’s learning-management product, the standard platform for Cal State Online, while giving the company an opportunity to push its other products as add-ons.

The two parties anticipated that in 2013, the first full year of the contract, nearly 17,000 students would enroll in Cal State Online programs.

They didn’t come close. By June 2013, Cal State Online had two programs running and only 138 full-time enrollments, according to university documents compiled by the blog e-Literate.

There was plenty of blame to go around. “The quality of the marketing provided by Pearson was not adequate,” wrote a university advisory board that fall. Not that there was much to advertise; California State had managed to get only a handful of campuses to put courses on the Cal State Online platform.”That same year, the university and the company quietly scaled back their agreement so that individual campuses would not have to use Pearson’s platform or services in order for their courses to be listed on the Cal State Online website. The company no longer plays a significant role in California State’s online strategy.”

There are words of wisdom in the Chronicle article and it is must reading for any college administrator considering entering into a relationship with an online enabling company.


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