Southern New Hampshire University is probably the fastest-growing nonprofit institution in the country, driven by the expansion of our longstanding online program. When it comes to large-scale online programs, for-profit colleges dominate the list, which includes only a handful of national nonprofit players.
That may change soon. Eduventures, the marketing research firm, predicts that hundreds of nonprofits will seek to move online more aggressively. A good number of them have been visiting us.
From small private tuition-dependent colleges to flagship public universities to elite high-brand schools, we have hosted institutions that are exploring how they might enter the online education market or expand their existing programs. It’s not as easy as it was even just a few years ago, and with some frequency they ask if we might contract with them to help them grow their online programs.
We thought about offering such a “services business” and partnering with these institutions to provide everything from marketing expertise to call center support to advising to course development and more, but discovered that we can’t. U.S. Department of Education rules prohibit one institution from offering “bundled services” to another for a share of tuition revenue (the only sensible way to be paid since services contract and expand with enrollments). Ironically, while the rule was designed to thwart for-profits institutions trying to circumvent prohibitions on incentive compensation for enrollment activities, it inadvertently keeps nonprofits from working together while protecting that market for a new breed of for-profit players.
While Southern New Hampshire has abandoned the idea of creating a services business, we learned in investigating it that major for-profit companies are rushing into the breach, claiming millions of tuition dollars, and blurring the boundaries between them and their nonprofit partners.
Though for-profit colleges themselves are reeling and seeing steep declines in enrollment, bundled services providers, as I call these entities, represent a new for-profit sector quietly gaining substantial ground in higher education. Because this sector is doing so in willing partnership with nonprofit institutions, its presence is largely unrecognized and poorly understood.
A new generation of owners and shareholders is being enriched with tuition dollars, and the nonprofit higher education sector may well be compromising its integrity and values. This major new for-profit presence is now becoming established, is a magnet for investors, and in many ways raises more difficult questions for higher education and for regulators than did the for-profit institutions that have been so often vilified.
Bundled services providers are for-profit companies that help institutions establish and grow online programs. While they can help with course development and conversion, platform and IT needs, compliance and reporting, their real added value is marketing and student recruitment. As more and more nonprofits look to expanded online programs as a way of extending their reach and offsetting loss of other revenues (state support for publics, shrinking net student revenue for privates), the BSP industry has heated up.
Publishing behemoth Pearson acquired EmbanetCompass for $650 million. John Wiley & Sons acquired Deltek, another BSP, for $220 million. A number of new BSPs have entered the market place in the last few years -- companies like 2U, Learning House, and Academic Partnerships -- joining longer-term players such as Bisk; heavyweights like Blackboard have announced plans to jump in.
For-profit institutions also have a stake in this business, with Kaplan owning Colloquy and Ivy Bridge College being owned in part by Altius. Udacity, best known for MOOCs, recently announced a partnership with Georgia Tech that really looks like a bundled services deal if you read who will provide what, based on details provided in this recent Inside Higher Ed article.Coursera this week unveiled partnerships with nine state university systems and flagship campuses in which it will provide a suite of services and products including its MOOC platform, entire courses, technical assistance consulting, and analytics – in short, bundled services.
While for-profit institutions have yet to earn much respect from traditional higher education, the BSPs are working with scores of highly reputable nonprofits. EmbanetCompass works with Boston University, Deltak with Purdue, 2U with the University of Southern California and Georgetown, Pearson with Arizona State University, Bisk with Notre Dame -- and the list goes on.
Eduventures estimates that about 200 nonprofits have partnerships with BSPs and another 500 will entertain such partnerships in the next 12 to 24 months. BSPs generally take 50 percent of all tuition revenues for their services, so this is a very lucrative market.
How lucrative? According to the Texas Observer, Academic Partnerships collects 70 percent of the tuition revenue from partner Lamar University, the third-fastest growing university in Texas (it started at 80 percent), more than $33 million in fiscal 2012.
In its partnership with Arizona State, Academic Partnerships collected just short of $4 million or 50 percent of tuition, over $10 million in its partnership with Florida International University, and $18 million, or 50 percent of tuition, for Ohio University’s nursing program. With hundreds of nonprofits hoping to grow online programming and finally shaking off their hesitancy about online education (the real gift of elites offering MOOCs), the bundled services market stands to outgrow the for-profit higher education sector over time. In short, it could be huge.
Why do nonprofits turn to BSPs for help and thereby surrender huge amounts of tuition revenue (and effectively pass through to the for-profit world federal and state financial aid dollars)? There are three primary reasons:
They have tried to launch online programs and had limited success, or they have never done an online program, so they know there is a lot they do not know;
They do not have the internal capacity, whether it be the right people (often the case), technology, systems, data analytics, or processes;
They do not have the financial resources to build capacity and support a necessary marketing effort.
So while the prospect of giving up so much of their tuition revenue is not attractive, these institutions have little other recourse. The BSPs, on the other hand, recognize that they will make major investments to launch and grow these online programs and that over time the institutions will learn from them, so they insist on long-term contracts. Ten years is not uncommon.
Outsourcing parts of what we do is not new to nonprofit higher education. We often outsource food service, bookstores, and maintenance. We increasingly outsource IT, or portions of it anyway. Outside vendors often create our marketing materials. We may outsource some HR functions, such as payroll.
There is little tradition of outsourcing core academic functions and the key engagement with students that begins with recruitment/admissions and extends through the learning experience and advising. Yet nonprofits are increasingly doing just that in their partnerships with BSPs.
I have elsewhere written about the disaggregation currently under way in higher education and could argue that this is the best example of the phenomenon. Essentially, BSPs do the marketing, student recruitment, data analytics, course conversion, and other functional processes far better than most nonprofits can. Disaggregating those functions and paying an entity more expert than you to do them makes a lot of sense, and I could argue that doing so provides access to more students, strengthens the participating institutions by building enrollments and increasing revenues (even if they give up a good portion of them), and ostensibly allows the institution to stay focused on what it does best: develop intellectual assets that the BSPs then help to extend to the world.
Yet, the rise of the BSP industry raises a number of important questions that invite exploration by policy makers, higher education leadership, reporters, and others. To my mind, they are as follows:
Are for-profit companies in the process of claiming another large portion of the higher education pie and doing so largely under the radar screen?
Are BSPs important enablers that will allow nonprofit higher education to reclaim the online marketplace from the huge for-profits, or we trading one kind of for-profit – institutions that are easy to recognize and understand - - for another that is more insidiously embedded within our sector?
What does it mean for any institution to give over so many of its activities to a third-party provider?
How will accreditors and regulators come to think about these disaggregated structures given that the regulatory environment is largely built on the notion of the integrated institution?
Are institutions that enter into BSP contracts sufficiently safeguarding their authority over key functions and decisions and against the recruitment abuses that plagued so much of for-profit higher education?
Are we comfortable with so much tuition revenue leaving our institutions to enrich shareholders and owners of for-profit companies? Put another way, how much do we give away to for-profits before our institutions lose their standing as nonprofits and become fronts for what in reality become much more mixed entities?
BSPs make their profits and meet shareholder expectations by driving growth, and one could argue that when an institution contracts with a BSP there is a perfect alignment of goals: both want to see more enrollments and more tuition revenue. If the BSP is making a lot of money, so too is the institution: an ostensible win-win. Conversely, when a BSP so entirely takes over the management of a nonprofit’s program, how much nonprofit is left?
If non-profit Institution X contracts for a BSP to:
convert its courses for online delivery;
provide all learning materials;
market and recruit students;
process admissions files;
hire faculty and oversee the teaching of the courses; and
what is then left for Institution X to provide? Its name, accreditation, Title IV approval, and intellectual property in the form of the syllabuses and program. Is that not then a kind of franchising in which the student largely engages with the for-profit side of the partnership and very little with the nonprofit? Is such an effective hybrid program truly nonprofit?
On the other hand, many nonprofits have little alternative. They lack the combination of know-how, capital, and infrastructure they need and a BSP contract gets them in the game and generates new tuition revenues. While the contracts may be lengthy, the arrangements give them time to learn what they need and to eventually take back some or all of that for which they contract. There is an alternative.
I propose a BSP cooperative, a nonprofit entity in which nonprofit institutions can be owner/members. From such an entity an institution could buy all the services it needs at a lower cost with a number of benefits:
Because it is a co-op it would have to distribute any “profits” back to the members, thus keeping all tuition dollars within the nonprofit sector;
Institutions would have not have to surrender such large portions of their tuition revenues and, by extension, federal financial aid dollars would stay within the nonprofit sector;
All co-op “profits” could be funneled back into institutions as need-based scholarship support.
Because all members are owners, the earlier cited Department of Education bundled service affiliate rule would prohibit a co-op as just outlined, but I think the idea is compelling enough that (a) the department should find a way to make such a co-op possible and (b) institutions would readily sign on if they could. In the end, a partnership of accredited nonprofit institutions might not address all the boundary and definitional questions that the new for-profit BSP sector raises, but I would find such a partnership more reassuring than our current state of affairs.
Paul LeBlanc is president of Southern New Hampshire University.
This month's edition of the Pulse podcast features an interview with Max James, national sales manager for education at Citrix, which provides GoToMeeting, GoToWebinar, and other web conferencing tools.
This being spring conference season, I’ve attended a number of higher education events in recent weeks, as well as a number of smaller gatherings where higher education leaders have congregated to reflect on the present moment and what it might mean for the future of our colleges and universities. Needless to say, many of the discussions at these various meetings have featured liberal use of the word “innovation.”
Indeed, as keynotes drifted from one into the other, as PowerPoint slides clicked by with dizzying speed – chock-full of numbers presented in just such a way as to persuade us that a vast and disparate array of trends pointed pretty much down one path (the inevitable road to innovation) – and as numerous hallway conversations, tote bags emblazoned with seemingly hopeful messages about “disruption,” and yet another banquet chicken came and went, I began to wonder what we really talk about when we talk about innovation.
Is innovation, I wondered, just a euphemism for anxiety?
In one small-group conversation I sat in on recently, for example, a colleague observed that when she arrived at her new institution, a meeting was called summoning all those individuals on campus who, like her, possessed the word innovation in their job titles – 90 people attended the meeting, she said.
That’s a lot of innovation. Or is it something else?
The contemporary moment poses many questions about the future of our industry (if I may call it that). Should higher education be free? That’s a fairly big one for a start, and yet we find ourselves asking it at a moment when public contributions to our colleges and universities seem bent on an ineluctable downward slide.
Can students learn without the direct assistance of faculty? Another fairly challenging brain teaser, particularly as we explore the potential for artificial intelligence, machine learning, personalized learning, adaptive learning, and so on, to – at the very least – “flip” the classroom. And what about the near cousins of this question: Are peer grading and computer grading as effective as traditional models of assessment? At one event I attended recently, Bill Bowen, the former president of Princeton University and a trustee of the research organization Ithaka, bluntly observed, "the faculty governance model is not well suited to online learning." Little surprise, then, that faculty organizations have met recent legislative proposals suggesting that selected MOOCs be judged credit worthy in California and Florida with strongly worded counter arguments.
Will the federal government award Title IV funding for direct assessment? Yes, it turns out. And thus guaranteed student loans are officially untethered from the credit hour. How long before other seemingly unshakeable barriers crumble? The recently proposed bill in Florida, for example, recommends that unaccredited organizations be considered among those that might deliver these credit-bearing online courses. It almost makes you wonder which state will be the first to declare that higher education can be undertaken entirely without the aid of an institution higher education.
Maybe all of this talk about innovation is, in part, an effort to domesticate and tame these challenging and threatening questions. But what if masking our fears with more positivist rhetoric about innovation actually narrows our options and leads us to make false choices – between “freemium” and premium pricing models, between faculty-led and faculty-free instructional models, between academic institutions having the authority to award degrees and almost anyone?
As we sip conference wine and watch the sun stretch out across the close-cropped lawns at golf resorts, we may feel like we’ve got a good seat on the innovation bandwagon, and we might very well be enjoying the ride. But in the end, we may come to realize that we’ve been following rather than leading, and copying rather than innovating, and pretty much just hoping for the best – until the bandwagon hits a ditch.
Perhaps the next time we find ourselves at one of these conferences, mingling at one of those receptions, having one of these conversations about innovation, we should ask ourselves: Are we really talking about our anxieties? That might help to bring some of these conversations back down to earth a bit, away from the atmospheric fizz of so many PowerPoint slides racing by, and away from the blurry feeling that change is inevitable so any change will do. That can’t be right when the stakes are so high. Innovation is one thing, after all, but anxiety is something else.
Peter Stokes is executive director of postsecondary innovation in the College of Professional Studies at Northeastern University, and author of the Peripheral Vision column.
Although massive open online courses have been gathering substantial recent attention, future histories of education will likely only note them as a harbinger of change or transitional step into an educational model that is organized around learning. In most cases, MOOCs operate on a grand scale but use a traditional form in which a faculty member (or two) is responsible for most aspects of course design, delivery, and assessment. The real threat to traditional higher education embraces a more radical vision that removes faculty from the organizational center and uses cognitive science to organize the learning around the learner. Such models exist now.
Consider, for example the implications of Carnegie Mellon’s Open Learning Initiative. More than 10 years ago, Herb Simon, the Carnegie Mellon University professor and Nobel laureate, declared, "Improvement in postsecondary education will require converting teaching from a solo sport to a community-based research activity." The Open Learning Initiative (OLI) is an outgrowth of that vision and has been striving to realize it for more than a decade.
Teams of cognitive scientists, technology consultants, designers, and disciplinary specialists are designing interactive, online courses that are available now from OLI. The program uses the latest research in cognitive science to inform course design, and it tests each element of the design by evaluating its effectiveness in promoting student learning. As more students take courses and the integrated assessments, the OLI team gathers more data that allow team members to further refine the course. Creating such courses is capital-intensive, but since students interact solely with the computer when taking the course, the marginal cost to deliver the course to each additional student is minimal.
OLI in its current incarnation is a proof-of-concept endeavor, and in 2012, Ithaka S+R published findings that demonstrate it has succeeded. A rigorous study comparing student learning in a traditional face-to-face statistics course to that of students in a hybrid OLI course found that the hybrid courses were at least as effective in promoting student understanding of statistics as traditional courses. Further, students in the hybrid courses learned as much even though they spent significantly less time in learning activities, which echoes earlier work by OLI showing that Carnegie Mellon students learned statistics with OLI in half the time that students in traditional courses did. We should note that the hybrid courses were not offered fully online. Students worked through the material using OLI’s online interactive materials and met as a group once weekly with a course tutor.
With the Ithaka S+R finding, OLI has reached a milestone, and it is reasonable to assume that continued investment in refining its courses will yield additional gains in student learning or efficiency. We can howl in protest, but the question is no longer whether computer-based, intelligent agents can prompt learning of some material at least as well as instructor-focused courses. The question is whether the computer-based version can become even more effective than traditional models, and the implications for higher education are sobering.
Let us suppose, for example, that Southern New Hampshire University (SNHU), which is already pioneering competency-based credentialing, partners with OLI to create New Way College (NWC) within SNHU. New Way College supports community-based educational initiatives through which students can earn an associate degree while paying significantly less than is available to eligible students receiving the maximum Pell Grant. (I want to stress that this is a hypothetical example generated to demonstrate how things might play out. It is not based on any plan announced by SNHU or on any inside information from SNHU or the other real organizations mentioned in this essay.)
With backing from foundations or venture capitalists, NWC will pay OLI $25 million to develop 30 interactive, online courses that will form the basis of NWC’s educational program. In addition, NWC will provide OLI $40 for each student enrolled in an NWC course in exchange for ongoing course development and support. The courses themselves are taught in hybrid fashion in classes with no more than 20 students. Classes are sponsored in local communities by host organizations. Any nonprofit or educational organization — a public library, YMCA, school district, religious or service organization — could apply to be a host organization. Hosts would be responsible for providing a meeting space, recruiting classes of students, and identifying tutors for each class but not traditional faculty members.
To support program administration, NWC might then forge a long-term contract with Pearson Education, making Pearson responsible for recruiting, assessing, and supporting host organizations. Tutors are vetted, trained, and evaluated by Pearson to meet standards established by NWC, although host institutions would be responsible for paying those tutors who were not volunteers. As part of its services, Pearson would run a social media site that included tools for students to rate individual hosts and tutors, much like eBay and Amazon rate sellers in their marketplaces. The same site would also provide pass rates broken down by course so that prospective students could identify effective hosts near them.
Pearson would provide assessments aligned with NWC’s standards and a secure test site for mid-course and end-of-term assessments that would determine whether a student earned credit for the course. Classes would typically span 12 weeks and have limited enrollment to ensure that every student received the support he or she needed to succeed. Students would pay $100 per credit for courses, with the standard course carrying four credits and 64 credits required for an associate degree. Students who needed no remedial work could easily complete the program in two years and pay the minimum tuition of $6,400.
At the scale typical of most higher education institutions, this model makes no sense whatsoever, but at web scale, the model is compelling: Students would pay $400 to enroll in a typical four-credit class section, and courses would be designed so that there are minimal additional costs beyond online access. Of that $400, we assume $40 goes to OLI, $120 goes to the host institution, Pearson collects $200 for its services, and SNHU keeps $40. A 15-person class would generate $600 for OLI, $1,800 for the host (some of which might be used to pay a tutor), $3,000 for Pearson, and $400 for SNHU. If NWC offered 30 four-credit courses in a typical year — each of which enrolled a minimum of 10,000 students annually — OLI and SNHU would each collect at least $12 million in annual revenues,
Pearson would collect $60 million, and local hosts would collectively receive $36 million. Since the marginal cost of adding additional students would continue to decline as the number of students grows, early entrants using this model could quickly attain market dominance, much like Amazon, Apple, Walmart, Google, and eBay dominate much of their respective markets. If NWC could achieve similar market dominance in the two-year college market, annual revenues to be split among the partners would exceed $1 billion. A much larger sum might be lost by community colleges and other institutions, which charge more for courses leading to the same credits.
By unbundling the learning experience — separating local support, course design, delivery, assessment, administrative support, and advising — the NWC model achieves superior outcomes at lower cost, at least when outcomes are measured by exam or other task performance. Local organization and student support is provided by entities with deep roots in their communities, missions aligned with the educational endeavor, existing meeting spaces that are often underutilized and could readily be used to house weekly class meetings, access to volunteer or relatively low-cost tutors to provide student support, and budget constraints that create incentives to leverage these resources to market and support classes for their communities. A public library with an appropriate meeting space and quality volunteers who would be willing and able to support a class in exchange for $500 per class could expect to earn $1,000 per course after accounting for incidentals. A robust program offering 10 or more courses annually could afford to support a part-time program administrator.
Through OLI, expert teams design and deliver course content, assess course effectiveness, and continuously refine the interactive online tools to optimize student learning. Logistics, independent and verifiable testing of student learning, marketing, and social media tools for community-sourced assessment of host institutions and tutors are outsourced to a corporation with expertise and facilities that can sustain that work. The sponsoring college or university provides curricular structure, advising services, student tracking through its student information system, access to accreditation and federal financial aid, and legitimacy that connects the endeavor to the larger higher education landscape. Students can earn essential credentials in a supportive program whose standards would be widely understood and appreciated.
What is missing from this picture are professors at the center of course design, delivery, and assessment. Some might argue that is its fatal flaw, others that it is the mark of its genius. I consider it a reminder that other realities than the one in which we now live are possible. Should NWC or a similar organization gain market dominance and public acceptance for delivering two-year degrees, Clayton Christensen’s model of disruption suggests it will move up market and take on the bachelor degree, which could underwrite the demise of any four-year college that was unable to articulate its value apart from the credential its students earn for passing exams.
If those of us at liberal arts colleges believe there is something of value in our current model, something that cannot be replicated by online programs in which students interact primarily with a machine rather than with an instructor, then we need to articulate what that is and demonstrate its value. Something essential is lost when the news industry is unbundled and newspapers, which historically had the resources to support extensive reporting staffs, are replaced by online news sources with much smaller budgets, and journalists find it hard to support themselves and their families by exercising their craft. Bemoaning that loss and advocating for journalists’ crucial civic role has not stopped the steady erosion of the news industry and the livelihoods of those who work in it. Traditional higher education, faculty, and others who work in the higher education face similar threats. We would be wise to consider how to respond while there is still time.
Richard Holmgren is chief information officer and associate dean of the college at Allegheny College.
This month's edition of The Pulse podcast examines various services that instructors can use to capture their handwriting or voice to embed into learning modules for the flipped classroom or massive open online courses.