Postscript on FutureU Podast: The WSJ article on USC

Michael Horn: And that’s one of the other criticisms of these OPM arrangements is people alleging that they’ve driven up the cost of higher ed. Now, if you say that to someone at 2U, they’ll quickly say it’s actually a heck of a lot easier for me to sell a low cost program from Simmons say than a high cost program from another university. And so it’s actually in our advantage to get the prices down, but there’s controversy around there all the same. And the point is that marketing costs take up a sizeable of these online program management budgets. And so if you can reduce it by having a captured pool, if you will, of registered users, that could be a very intriguing way. And indeed Coursera has done that with the University of Illinois, for example, with their iMBA program where they dramatically cut the cost down. [snip]

Jeff Selingo: Phil, something you mentioned there that I want to dive a little bit deeper on and we’ll make these last couple of questions just kind of more lightning round. You’ve talked about the professional market, graduating professional market. What about the undergraduate market? Why isn’t there really an OPM for the undergraduate market?

Phil Hill: Well, undergraduate in general, students are not as adept at online education as graduate. Partially because you know, it takes time management, it takes self discipline. It also takes the students say, I know why I’m doing this and undergraduate a lot of times, it’s just, Hey, I’m going to school. Yeah, I selected this major, but I might change. I don’t know what’s going on. And I haven’t developed some of these self-study skills or time management. And undergraduate tuition is a lot more constrained, particularly with public institutions than the masters or professional, so even though they’re public, a lot of the masters and professional programs could charge very high prices for their programs, which gives a bigger opportunity for an OPM, so that’s why it’s been difficult. However, I think all of the OPM providers or most of them would like to get into undergraduate now. I wouldn’t say that we’re saturated, but there are so many online masters and professional programs already. You can’t just build it and they will come anymore. You need to expand. You need to be specific about where you’re going.

The nonprofit school used its status-symbol image to attract students across the country, including low-income minority students it targeted for recruitment, often with aggressive tactics. Most students piled on debt to afford the tuition, which last year reached $115,000 for the two-year degree. The majority never set foot on the posh Los Angeles campus but paid the same rate for online classes as in-person students.

Recent USC social-work graduates who took out federal loans borrowed a median $112,000. Half of them were earning $52,000 or less annually two years later, a Wall Street Journal analysis of newly released U.S. Education Department data found. Compared with other master’s-degree programs at top-tier U.S. universities, the USC social-work degree had one of the worst combinations of debt and earnings.

“I realize now I could have gotten the same job with a much cheaper degree from a different school,” said Susan Fowler, a 37-year-old mother of two, who enrolled in USC’s master’s-degree program because of its prestigious name and the flexibility of its online classes.

Ms. Fowler, a 2018 graduate, enjoyed the program but owes $307,000 in total student-loan debt, including about $200,000 from the master’s degree. She said she earns $48,000 as a community mental-health therapist in Mount Pleasant, Iowa.

A significant portion of our revenue is currently attributable to programs with the University of Southern California. A decline in enrollment in these programs could significantly reduce our revenue.

Our two longest running programs, launched in 2009 and 2010, are with the University of Southern California, or USC. For the years ended December 31, 2011, 2012 and 2013, 94%, 78% and 69%, respectively, of our revenue was derived from these two programs. We expect USC will continue to account for a large portion of our revenue until our other client programs become more mature and achieve significantly higher enrollment levels. Any decline in USC’s reputation, any increase in USC’s tuition, or any changes in USC’s policies could adversely affect the number of students that enroll in these two programs. Further, the faculty or administrators of these two schools could become resistant to offering courses through our platform, making it more difficult for us to attract and retain students. These graduate schools are not required to expand student enrollment in their online programs and, upon the expiration of their contracts, they are not required to continue using us as the provider of their online programs. If either of these programs were to materially underperform for any reason or to terminate their relationships with us, it would significantly reduce our revenue.

Taking on significant debt to pay for a social-work master’s degree is possible through the free-flowing availability of federal loans for graduate students. The Grad Plus program, which lets students borrow as much as colleges charge, has provided a valuable revenue stream for universities. They can urge students to take out loans to cover any tuition shortfall, plus money to cover books and living expenses.

In increasing enrollment in its social-work program, USC benefited from federal loan dollars: Graduates from 2015 through 2018 collectively borrowed more than half a billion dollars in federal student loans, more than those at any other graduate program in the country, the Journal found. USC had an endowment of $5.9 billion last year, making it one of the 20 wealthiest private schools in the country.

The university, which has contracted with the company through 2030, said the factors that led to the school’s budget crunch were “much broader” than its relationship with 2U.

“Generally, this partner relationship has been positive,” the university said in a statement.

Students who searched Google for the best online social-work programs a few years ago likely would have found a website run by 2U that purported to be a “comprehensive directory” of social-work degrees. It listed USC first among featured programs and could have been confused for an independent evaluation of the degrees if a prospective student failed to read the fine print, an archived version of the page from 2017 shows.

The website has since more prominently disclosed 2U’s involvement. The 2U spokeswoman said that the company has taken “significant measures” to ensure its site is transparent.