Has the OPM Market Already Imploded?

Colleges’ interest in partnering with outside companies to run their online programs has plummeted, according to newly released data from market researcher Validated Insights.

In 2023, 147 contracts and partnerships with online program managers expired or were terminated, according to the data, the most of any year since 2020 and nearly as many as in the prior three years combined. At the same time, new partnerships are down by 53 percent from 2023 to 2024. In the first quarter of 2024, only eight new OPM contracts were inked, the fewest since before the COVID-19 pandemic whetted institutional appetites for online programming—though there was a slight bump of 21 new partnerships established in the second quarter.

Enthusiasm for OPMs from investors has dried up as well. Total funding for OPMs has dropped by 97 percent since peak interest in early 2021, and venture capital investments in the companies have all but disappeared.

Brady Colby, Validated Insights’ head of market research, has been researching the online education space for five years, with a particular focus on OPMs. He told Inside Higher Ed that the data shows the once-flush sector in a death spiral.

“It’s just falling off a cliff,” he said.

Ben Kennedy, the founder and CEO of higher ed consulting firm Kennedy & Co., was less apocalyptic. But he said that whatever emerges next in the third-party online program space will look completely different.

“It’s a very clear indication of an industry that is maturing and evolving rapidly,” he said. “The [OPM] market isn’t dead, but it is forever changed.”

OPMs’ downfall may come as no surprise to close observers of the postsecondary online education marketplace. Early last year, federal regulators put the companies in their crosshairs over their aggressive and legally murky recruitment practices, and large education companies like Pearson shed their OPM arms. Ed-tech market analyst Phil Hill told Inside Higher Ed last October that the sector was “on life support.” It was far from its peak in 2021, when market leaders were so bullish they could spend $800 million on ill-fated acquisitions.

The past year has only brought more bad news for OPMs. Onetime market leader 2U declared bankruptcy and faces a protracted legal battle over its alleged failures to recruit students for online social work programs. Fordham University filed to end its long-standing partnership with 2U early last month, after seven years of what the institution described as “incompetence” and “negligence." Minnesota passed the first state law restricting OPM growth in May. And just a few weeks ago, a student legal advocacy group sued the University of Maryland Global Campus, challenging the legality of the OPM business model.

“There is a general disillusionment that’s been building for a while,” Colby said. “OPMs haven’t been doing themselves any favors.”

Regulatory Specter or Just Bad Business?

For the past two years, the Education Department has threatened to regulate the OPM space more strictly, primarily by updating guidance for third-party servicers that has for years allowed OPMs to share revenue with colleges. After delaying the planned update multiple times, the department pushed it off again in July; now new rules could be enacted early next year—or never, depending on the agenda of the next administration.

Even without concrete regulatory action, the specter of oversight has hung over the OPM market for years. Colby said that alone has been enough to cause a chilling effect on new ventures and hamper companies’ ability to market themselves to colleges.

“This is really the higher ed market assuming for two years now that [third-party servicing] is over,” he said. “That’s an existential threat to the [OPM] sector.”

Kennedy doesn’t think the looming threat of a TPS walk-back was the primary driver of the sector’s deflation. In reality, he said, it was a case of a new market strategy, buoyed by the pandemic, that turned out to be financially unsustainable. Specifically, he said OPMs’ revenue-sharing model—through which the companies took a percentage, usually a majority, of tuition and fees for every student they recruited—was a “fundamental issue.”

“There was never any real profit made from the 2U model … Knowing what we do now, it’s clear that a 50, 60 percent revenue-sharing plan was never viable in the long term,” Kennedy said. “More than anything the Education Department could do, that was the nail in the coffin.”

Jeremy Bauer-Wolf, higher education investigations manager at the progressive think tank New America, said he thinks the strict regulatory environment has played a role in the sector’s downturn, as have the lackluster returns. But colleges appear to simply be disenchanted with OPMs more broadly.

“Colleges were sold snake oil during the pandemic, and they’re starting to realize that,” he said. “The grift has caught up to them.”

OPM Afterlife

Kennedy said OPMs have already begun pivoting away from the revenue-sharing models and recruitment practices that led to many of their regulatory and legal troubles. From what he’s seen, the sector appears to be ”morphing into program-management” firms that offer bundles of course design, technology and—yes—recruitment services.

Many of the larger institutional partners that helped cement the OPM market in the 2010s have developed their own internal online enrollment and recruitment infrastructure, especially since the pandemic amplified the importance of online programming.

Some have even spun off their institutional capacity into semi-autonomous OPMs—like Arizona State University, which ended its decade-long contract with Pearson’s Online Learning Services in 2023, a move that precipitated Pearson’s sudden exit from the OPM business. ASU’s EdPlus service signed a $11.5 million agreement with the University of Tennessee at Knoxville this summer.

“It used to be that 2U or some other OPM could ink a 15-year agreement at a 70 percent revenue share,” Colby said. “Those days are over. Institutions now have the upper hand at the negotiating table.”

Colby said he thinks there’s room for the current hodgepodge of OPM companies to adapt to the new, far smaller market by adopting fixed fees for bundled services instead of revenue-sharing agreements, or entering into consortium agreements as opposed to single-institution contracts.

He also said there will likely be a persistent market for OPM services among smaller institutions that lack the brand recognition to expand their new online programming ventures on their own, or alternative credential providers.

“Many colleges, especially small privates and regional publics who are desperate for online enrollment, still need help navigating this complicated new market,” he said. “They don’t want what [OPMs] offered out of their toolbox yet.”