Does Revenue Sharing Have a Future in Online Education?

In today’s competitive higher education market more schools are turning to online education to provide alternate revenue and growth.  According to a recent poll from the National Center for Education Statistics, 25% of college and university students are taking some form of distance education courses.  Colleges and universities often partner with third party entities, known as Online Program Managers, to cut overhead costs.  OPMs are companies that design, run, and market online education programs for colleges and often receive a percentage of a student’s tuition in compensation.  According to Online Report Card, this figure averages around 50%, and in some cases, is as high as 85%.

But why do non-profits turn to OPMs in the first place, thereby surrendering large amounts of tuition revenue?  According to Inside Higher Education there are three basic reasons.  Many schools have never tried distance learning in the first place, so they have a lot to learn.  Some institutions do not have the internal expertise, whether it be the right people, systems, or technology.  Lastly, most schools do not have the financial resources to sustain a program while supporting the necessary marketing effort.  Though giving up high amounts of tuition revenue seems unappealing, most schools do not have a choice.

OPMs almost always operate on a tuition-splitting basis, but according to John Katzman, who opened one of the most successful OPMs in history, a new OPM model is taking hold.  His company, Noodle Partners, uses a flat fee for services instead of tuition-sharing.  Katzman says, “For a fee, we help schools assemble the tools, services, and tech to run great programs without taking money from students – it’s more flexible and transparent and wildly less expensive.”

According to Online Report Card, from 2013 to 2014, private not-for-profit institutions distance enrollments grew by 11.3%.  For-profits saw enrollments drop by 2.8 %.  An estimated 80% of online education programs are being outsourced to online program managers.  According to research by Online Report Card, 85% of students who study at least partially online are at public schools and receive federal compensation.  Millions of dollars in federal loans are being used to finance OPMs.

When the Obama administration decided to crack down on questionable for-profit market compensation, certain OPMs asked if tuition-sharing would still be allowed.  The Department of Education agreed to continue to allow tuition sharing in public and nonprofit schools as a reaction to the notion that it had previously been allowed for for-profit schools.  As a result, it now seems that nonprofit and public institutions are engaging in the same strategies that for-profits once used; aggressive, income driven marketing.

According to The Atlantic, Robert Shireman, a former Department of Education deputy in the Obama administration, believes that eventually public pressure and school leaders will bring change to the tuition-sharing process.  John Katzman also believes in the transition, saying, “The only real question is, how quickly will the old revenue-sharing model die?”

Big Data and Student Performance

A growing number of colleges and universities are using big data to identify student performance and whether a student is in danger of failing. Known as predictive analytics, colleges are analyzing thousands upon thousands of student’s academic and personal records in an effort to save the average college student from dropping out.

With less than half of college students graduating in four years, institutions are facing increased pressure from parents and lawmakers to improve success rates. Is big data the answer? The New York Times reports that predictive analytic companies are growing in number, and currently work with around 200 universities. These companies, as noted by The New York Times, identify trends in a backlog of student data and create computer programs that identify student progress and alert counselors when students are at risk of being left behind. The idea being that a student’s performance in a certain course may predict the student’s future at the school.

Civitas Learning is a predictive analytics company that has been hired by dozens of colleges and universities across the country. The New York Times reports that data analysts at Civitas found the likelihood of graduating dropped if students received less than an A or B in a basic course pertaining to their major. The Times notes that at the University of Arizona, English Comp was essential to a student’s performance. Less than half of students who received a C in the class ended up graduating, while close to 70 percent of students with A’s and B’s received a degree. As a result, The University of Arizona began to provide more resources for its incoming freshman in writing. Frederick Corey, Vice Provost at Arizona State, said the school has been using big data to recommend possible courses for students. This helps students pursue classes that may otherwise not count toward their major, saving wasted tuition and crucial credit hours.

The payoffs in predictive analytics have been worth it at Arizona State University. Since beginning the program nearly a decade ago, the school has seen its graduation rate grow by 20 percent. At Georgia State, in 2016 the four-year graduation rate rose 5 percent and the six-year rate rose 6 percent. By monitoring graduation rates, big data helps keep tuition coming in by keeping students from dropping out. Predictive analytics is still in its infancy, as only a few hundred institutions are currently using the system. However, as technology and data continue to integrate themselves into higher education, colleges and universities are becoming more open to the idea of its use.

The Small College Struggle


In the wake of the recession, a growing number of small liberal arts colleges are facing major financial challenges.  These small schools share specific traits: high tuition, minimal endowments, and locations in rural or suburban areas.  Today’s students continue to shy away from expensive, liberal arts schools that leave them in debt and are considering larger, public universities.  Moody’s recently released a report about college closures, and said the amount of colleges closing this year is expected to triple with small colleges the most at risk.

The recession has forced many students to think more about value.  In recent years, larger schools have been able to offer better rates of financial aid and lower tuitions.  With less students choosing smaller, more expensive universities, revenue from tuition has fallen.  Bigger schools have bigger endowments, allowing for flexibility.  Smaller, private schools don’t always have the assurance of large endowments to fall back on.  When budgets are stretched, the first thing to go are specialized programs and facilities.  Eventually smaller schools may be forced to lay off faculty and staff, thus decreasing overall value in the eyes of potential students.

Most recently, due to “financial challenges” St. Joseph’s College has announced that it will cease operations at the end of the spring semester.  The school has lost $4 to $5 million each year since 2012.  Board Chairman Benedict Sponseller says the school took out a large mortgage in hopes of increasing enrollment. When enrollment did not increase St. Joseph’s began to spend its endowment, around $24 million in 2015, to stop the bleeding.  Currently the endowment is about $6 million; money the school plans to use for employees’ severance packages.

St. Joseph’s is not alone as Dowling College, St. Catharine College, and Marian Court College are among others who have shut their doors in recent years.  David Warren, head of the National Association of Independent Colleges and Universities, says small schools must understand their own value and cut costs to survive.  With larger schools offering what today’s students want- generous financial aid, access to urban areas, and numerous school programs backed by large endowments- small liberal arts schools have a lot of value to make up.


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Illinois’ Public Universities Face A Difficult Year Ahead

State budget and enrollment issues are plaguing public universities across Illinois. February will be the twentieth straight month state officials have not agreed on a budget, and the standoff between lawmakers means that Illinois’ 48 community colleges and 12 public universities are not receiving the usual funding needed to run its institutions. Enrollment is also taking a hit. In 2016, freshman enrollment at regional public universities declined as much as 25 percent compared to the year before. Schools such as Eastern Illinois University and Northern Illinois University have both seen drops of over 20 percent. The Chicago Tribune reports that Senator Laura Murphy has spoken to students who are “not even considering Illinois Schools because nobody wants to put up with uncertainty.”

Cuts in state funding have forced Illinois schools to raise prices and cut programs. Chicago Mag reports that Illinois-Urbana has raised instate rates by 59 percent in the past 10 years. Rising tuition, along with grant based funding issues, isn’t allowing money to stretch as far is it used to. The Chicago Tribune interviewed Senator Bill Cunningham, whose daughter is a freshman at Illinois state. He said, “I know more than a few (students) were warned by their college counselors that perhaps the school they were looking at might not offer their major in a year or two,” referring to schools cutting programs because of budget issues. He continued saying, “the General Assembly and the governor are forcing state universities to make very difficult decisions about what programs to keep.”

The lack of confidence with the state budget situation, rising tuition, and recruiting from nearby states is compelling many potential students to study out of state. Neighboring state schools are able to attract students with scholarships while still earning more than they would from in-state students. States like Missouri are also allowing out of state students to become eligible for residential status after one year, insuring a better rate of return.

Governor Bruce Rauner said he’s ready for change and compromise. “Well, I’m pushing every day to get a balanced budget with more resources for education. For me, education is the number one priority,” Rauner said. The governor has said a budget deal has been discussed and sent to party leaders, but negotiations are still ongoing.

The bottom line is colleges across the state are guessing on what to do. Do schools raise tuition and fees while waiting for appropriation? Will they receive appropriation in the near future?   With a budget deficit approaching $12 billion only time will tell for the colleges and universities in the state of Illinois.