A Deep(er) Dive Into OPM Relationships

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When many people think about universities partnering with Online Program Management (OPM) companies to take programs online, they typically think about large universities or at least universities with a large annual revenue. These are the kinds of stories we tend to read about in the news, like the University of Southern California. But, as I began to investigate what kinds of institutions were partnering with OPM’s, I noticed a different trend: they are primarily smaller institutions in terms of revenue, and the value of the contracts they hold with OPMs are relatively modest.

For our purposes, we define an OPM as a the primary partner of an institution to create and run a fully-online program, providing a bundle of services that include marketing and student recruitment, market research, course and curriculum design support, student services, and data infrastructure and analytics; or at least a significant portion of those services. By this definition, we include both companies using both tuition revenue-sharing models and fee for service models (or a hybrid). See this post for additional market information.

What kinds of institutions sign with an OPM?

To get a sense of what kinds of institutions work with an OPM, I cross referenced the list of institutions we have of OPM partnerships with public tax records of nonprofit private higher education institutions to get an idea of institutional revenue. I also looked at university enrollment, which gives a more intuitive sense of  institutional size than revenue does, at least for those who haven’t spent much of the last month poring over university tax documents.

For the purposes of this post, I limited myself to private institutions in part because the second part of my investigation covers the contract value of university-OPM deals where I again used tax data, which is available only for private nonprofits (thank you ProPublica!). This appears to be a valid strategy to provide a high-level overview, as those institutions represent close to 60% of the schools partnering with OPMs.

You could be forgiven for thinking that USC is the only university that has partnered with an OPM, or that it is at least representative of schools that do, given current media narratives. But reality is different and more complex- most institutions with OPM contracts don’t look like USC (enrollment 48,000 and revenue just north of $5,5 billion dollars). The majority look far more like Gwynedd Mercy University (enrollment 2,100 and annual revenue in 2022 $104 million) or even Bethel University in Indiana (enrollment 1,200,  revenue $46 million).

The revenue breakdown for fiscal year-end in 2022 for the private nonprofit university-OPM partnerships is shown below for various institutional revenue bands.

By these data, OPM partnerships are heavily concentrated (80%) in institutions with revenue under $500 million in 2022 and where the student enrollment is typically less than 4,000 students.  These are small institutions, and some of them are in a tenuous financial position, with 29% having a budget deficit in at least one of the last two years.

OPM contract value

I then looked to see if the detailed tax records contained information about the value of the contracts between the institution and the OPM provider. In just under 50% of cases I was able to find the amount that the institution had paid the OPM in the 2021-2022 fiscal year. The tax records list only the amount paid to the OPM, which obviously does not account for total program revenue.

Most annual institutional payments to OPMs are modest - 60% are under $4 million per year and 21% are under $1 million. Some payments are as small as $179,000. The kinds of enormous payments that we see in the press sometimes, often worth tens of millions of dollars, are outliers. Most deals are small and are paid to institutions with low annual revenue, many of whom are in some degree of financial distress.

Implications for Institutions

These underscore the extent to which small and budget-constrained institutions are looking to online learning to help shore up their financial position. I wrote late last year about how online is becoming the new international, in the sense that universities are using online learning as an important source of revenue to address declines in other areas. They are doing this in much in the same way that many institutions used and still use full-fee-paying international students as a critical piece of the revenue puzzle.

Because these smaller universities looking to online to help improve revenue flows are cash strapped, it makes sense that proportionately more of them would work with an OPM which often acts as an important source of start-up funding for the online initiative (and these funds can easily run into the tens of millions).

But this does mean that there are likely to be some serious implications for these schools if the OPM-related regulations are changed significantly through forthcoming TPS and bundled services regulations (though the deadlines seem a lot like mine in graduate school – they keep getting pushed further and further out – who knows, the Department of Education may eventually ask for an Incomplete) or accreditor rules (for example those recently passed by the Middle States) or state legislation currently being considered, for example, in Minnesota and Florida.

Growing regulation of online learning per se, by means of regulations coming out of the Negotiated Rulemaking (such as radical changes to state authorization reciprocity) and whatever else the Department of Education dreams up next will pose additional challenges to these small institutions relying on online revenue.

Without that income provided by online programs (including those supported by OPMs), the institutions will have a harder time balancing the budget. It will also not be easy for many of them to transition to running the programs internally, given that that will take significant investment. If revenue share goes away because the bundled services exception is withdrawn, most of these small institutions will find it difficult to come up with the funds to make investments needed to run their own programs. Part of the reason why revenue share is popular with institutions is that they do not have the money to invest upfront.

The big institutions with online programs, whether they work with OPMs or not, are far better equipped to invest in running their own programs, address the challenges of the legislation, and jump through the necessary hoops to continue to offer online programs.

When we finally see the new TPS regulations and find out what will happen to revenue share, expect to see a lot of distress by those 79% of institutions with less than $500 million total revenue currently working with an OPM.

Impact on OPMs A second implication of this data is that several OPMs have many partnerships with small and budget-constrained institutions who are potentially in for a bit of a bumpy ride, due to the challenging enrollment, financial, and regulatory environment.

This situation does provide explanation for some of the low prices we have seen paid for OPMs recently. But as the regulatory noose tightens, expect to see difficulties on the part of OPMs themselves and potentially some companies having to retrench, be acquired, or shut down entirely.

Parting thoughts

Broadly speaking, too much press coverage has a problem that whenever they talk about higher education they tend to talk about the Ivy League institutions, as though they are representative of other schools, which they aren’t. As we talk about online learning - including OPM usage - we also need a more nuanced understanding of who exactly is doing it, and what the implications of change are likely to be.

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