Last year, a decade-old online Master of Social Work program—with tuition as high as $115,000—drew widespread attention. Offered by the University of Southern California, the two-year program left many graduates facing low salaries and high debt. The Wall Street Journal reported that among recent graduates who took out federal loans, the median debt was $112,000, and half earned $52,000 or less per year two years after graduation.

However, USC did not develop the program independently; it contracted with 2U, an education company that partners with nonprofit universities such as Georgetown University and Rice University to launch and operate online degree programs in exchange for a share of tuition revenue. 2U provides a range of services to its university clients, including marketing, enrollment, student support, and content creation.

The Wall Street Journal attributed part of the blame for the USC situation to 2U, reporting that the company's recruiters persistently contacted prospective students and that an admissions counselor told an applicant the program might consider GPAs as low as 2.5. This news sparked a debate over who should be held responsible for the program's poor student financial outcomes and caught the attention of Democratic Senators Elizabeth Warren, Sherrod Brown, and Tina Smith, who sent a letter last month to 2U and seven similar companies requesting information about their contracts with universities and the types of students they enroll.

This request is the latest development in an ongoing debate over whether these companies, known as online program managers, or OPMs, harm students and taxpayers. Higher education experts say the responses from OPMs could influence future regulations and may also reveal the size of the OPM market and the amount of federal financial aid these companies receive.

Undue focus on for-profit companies?

Critics generally oppose the tuition revenue-sharing agreements used by OPMs, in which the company bears the cost of launching an online program in exchange for a portion of tuition revenue, typically 40% to 60%. Opponents worry these arrangements drive up the cost of higher education and may lead universities to lose control over their own programs.

2U publicly responded to the January letter on its website on February 2, showcasing the scale of the degree programs it supports and the types of students it enrolls. As of September, 2U had active contracts with 85 nonprofit universities, 28 of which partner with it on degree-granting programs. Some institutions have contracted with 2U for more than 10 degrees, including Simmons University in Massachusetts, USC, and Fordham University in New York.

2U stated that among its degree programs, half of students are Black, Indigenous, or people of color, and 66% are women. In 2020, the per-credit price for 2U's master's programs ranged from $352 to $2,592, with these costs determined by the universities. The company also defended its tuition revenue-sharing agreements, which cover nearly all its university degree programs. 2U argued that higher tuition does not necessarily benefit the company, as it reduces student demand, thereby increasing the marketing costs the company must bear alone. The letter, signed by 2U co-founder and CEO Chip Paucek, read: "Therefore, we are incentivized to keep programs affordable."

Trace Urdan, managing director at Tyton Partners, an investment bank and education consulting firm, said 2U is responding to concerns by increasing transparency. "Their approach is, 'Hey, we have nothing to hide, we're proud of what we do, and you can get the information.'"

Several other OPMs named in the January inquiry said they also responded to the letter but did not share their responses at Higher Ed Dive's request. When asked about the inquiry, Wiley, Kaplan, and Grand Canyon Education each said in emails that universities retain control over admissions requirements. Wiley also said the company offers fee-for-service arrangements as an alternative to tuition revenue-sharing agreements. Grand Canyon Education said its client universities set their own tuition, and the company only recruits students based on client instructions. Grand Canyon CFO Dan Bachus wrote in an email: "We do not understand why Congress continues to focus undue attention on for-profit education providers, which educate or serve only a small fraction of all U.S. college students. Nevertheless, we do not mind them asking these questions because we are proud of the services we provide."

Seeking problems or understanding the industry?

Warren and other senators said in their January letter that they worry tuition revenue-sharing agreements discourage efforts to lower tuition and may encourage aggressive recruiting practices. Warren and Brown sent a similar letter in January 2020 to five OPMs, including 2U, requesting some of the same information. Stephanie Hall, a senior fellow at The Century Foundation, said the information requested in the recent letter could help reveal the extent to which universities rely on third parties to manage online programs. Research by the left-leaning think tank found that in a small number of institutions, OPM-driven enrollment exceeded 40%, raising questions about whether these institutions are part of a larger trend. Hall said the 2022 letter was broad in scope and aimed at understanding the industry. "Responses to the letter help diagnose a problem—or perhaps there is no problem to diagnose."

But not all higher education experts agree with the letter's intent. Phil Hill, a partner at the ed-tech consulting firm MindWires, said: "It depends on your level of suspicion. If taken at face value, the requested data would be very valuable." However, Hill interprets the January letter as a political calculation by lawmakers, who he believes now have allies in the education sector with a shared goal of limiting the OPM market. "If you read the letter with that skeptical eye—not everyone does, but I do—then it's like a fishing expedition."

Urdan and Hill noted that OPMs may not be able to share some of the requested data because universities, not the companies, hold that information. Indeed, Wiley and Grand Canyon Education told Higher Ed Dive they could not provide certain information requested in the 2022 letter because it is tracked by their partner institutions. Similarly, 2U said in its response that it could not provide some program-level data because it belongs to its partner institutions.

"If you read the letter with that skeptical eye—not everyone does, but I do—then it's like a fishing expedition."

— Phil Hill, Partner at MindWires

Shortly after Joe Biden won the presidential election, six think tanks and policy organizations, including The Century Foundation, called on his administration to rescind the Education Department's 2011 guidance that allowed universities to contract with third-party providers like OPMs for student recruitment services, provided those services were part of a larger package. These organizations worried that the provision, known as the "bundled services exception," could incentivize these companies to use predatory recruiting tactics. Hall said: "I don't think people want to crack down on OPMs per se. I suspect the concern, both inside and outside the department, is the extent to which schools rely on that guidance and whether that reliance leads to high-pressure recruiting in online degree programs."

New letter examines transformed for-profit institutions

The 2020 letter was sent to only five companies, while the new version adds three: Kaplan, Grand Canyon Education, and Zovio. Each of these companies once owned for-profit universities that were later sold to nonprofit entities. All three now provide services to these divested schools in exchange for a share of tuition revenue.

Kaplan was the earliest among these to sell its university. In 2017, Purdue University announced it would acquire Kaplan University for a $1 down payment and use it to establish an online college, Purdue University Global. As part of the deal, the college received approval from the Education Department to convert from for-profit to nonprofit. A remaining for-profit Kaplan entity sells services to Purdue Global under a 30-year contract.

But not all divested colleges successfully transitioned to nonprofit status. In mid-2018, Grand Canyon University separated from its parent company, Grand Canyon Education, and continued to contract services with the for-profit company. Although the IRS approved the university's nonprofit application, the Education Department did not. In a letter explaining its decision, the agency argued that the university's agreement with Grand Canyon Education was primarily designed to create value for shareholders.

The Education Department is examining such arrangements more closely in its ongoing negotiated rulemaking this year, a process in which the agency convenes stakeholders and attempts to reach consensus on new regulations. The agency has proposed updating rules to clarify the definition of a nonprofit institution and has proposed listing examples of arrangements that would not meet the definition, including universities entering into revenue-based maintenance agreements with former owners. If information from the January inquiry is released promptly, it could aid the rulemaking process, said Michelle Dimino, a senior education policy adviser at Third Way, a left-leaning think tank. However, time is tight, as the negotiated rulemaking sessions are scheduled to conclude in March. Dimino said: "The companies themselves do have reasons to comply with the request and provide the information senators want to see. Discussions about industry regulation will continue."