Role of Marketing Costs in the OPM Regulation Debate
Sharing thoughts from two conversations with those on the other side of the debate
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At ASU+GSV and as a follow-up to that conference, I recently had two conversations with knowledgable / influential people who support rescission of the bundled services exception and at least partially support the US Depart of Education (ED) and their recent TPS expansion guidance. In other words, with those who believe the Online Program Management (OPM) revenue-sharing business model is a problem that needs to be removed and that using TPS-style regulation will also help get this situation under control.
Both people asked me what I think would be a better approach to regulatory changes, particularly in reducing student debt from online programs.
The Argument That Would Work Much Better
I’ll leave alone for now the issues of process and the need to focus on outcomes (which should be addressed in a separate post or two), as that was not the nature of the questions. For now I’ll focus on the type of regulatory oversight that might be more effective.
In a nutshell, I think the we need more oversight of OPMs argument would be more effective if it were focused on the topic of marketing costs instead of the OPMs are predatory axiom. There are two recent articles that capture this argument but have not informed the current policy debates.
The first was by 2U co-founder and current Noodle CEO John Katzman writing in Inside Higher Ed last month (along with University of Michigan’s James DeVaney, titled “A Better Way to Address Revenue-Sharing and Online Marketing.” I do not agree with a lot of this article’s analysis and recommendations, but the argument about controlling marketing costs is worth pursuing.
A 2021 article in the Hechinger Report goes into more depth on the subject, looking at higher education as a whole. The article was titled “From Google ads to NFL sponsorships: Colleges throw billions at marketing themselves to attract students.”
Marketing and advertising costs are rising quickly, for most colleges and universities, and at-scale online programs are part of this trend.
The achilles heel of the OPM market in today’s policy debates is that while the market did not create today’s trends nor set tuition rates, when successful the market scales what are often high-priced programs.
The Hechinger Report article does a good job of describing the pressures underlying this growth.
Rising Cost of Acquisition
Fueling part of this growth is the rising cost of direct-to-consumer (DTC) advertising, which is growing year-over-year and projected to continue this growth, as described by LEK Insights.
The point is that on there are multiple drivers of the growth in marketing costs - from the overall digital market, the rise of online programs, dropping enrollments, and the need to research nontraditional students. Most of these are trends that makes sense and are not from a simple predatory actors argument. But ED would be wise to apply the brakes, or to set limits and not just let the trend continue to grow.
It is good policy to not use large and growing percentages of Title IV financial aid funds to end up as competing ad words for Google and Facebook. No one intended for Title IV to become a Big Tech funding mechanism. President Garvey helped explain the need for increased spending in this area, but there should be limits.
Balancing this view are the potential impacts on institutions from a limit on marketing spend. Such limits would likely lead to smaller academic programs at a time when institutions are looking for that enrollment and revenue source, and too aggressive of a limit might also slow down the creation of new programs. In other words, there are impacts on both sides of the equation and federal policy should seek balance and a minimization of unintended consequences.
Institutions could always spend more on marketing that whatever limits would be implemented, but Title IV funding would not pay for it. We have history of setting limits on Title IV funds, at least for undergraduate programs, and I see marketing costs in today’s digital world as being another case where setting limits makes sense.
The irony is, or perhaps the opportunity arises from the fact that OPM vendors know this challenge of rising marketing costs, and many of them are investing and changing their approach to do exactly that. Reduce the percentage of money spent on Google and Facebook-based digital advertising.
I wrote two years ago about the emerging online education platform strategy that is the core of both 2U/edX’s and Coursera’s corporate strategy.
If you listen to either company’s earnings calls, there is a constant description of how marketing costs are going down. This slide from 2U’s most recent quarterly release shows the strategy.
From my conversations, Coursera and 2U/edX are not alone. Most OPMs share the same concern over marketing costs and are seeking more cost-effective methods for reaching prospective students.
In all vendor evaluation projects we have advised on, and in most conversations we’ve had with institutional leaders, there is a shared concern about the rising cost of marketing.
This situation presents an opportunity, where the groups behind recent OPM regulatory changes, the OPM companies themselves, and higher education institutions are in alignment. They share the desire to reduct marketing costs, and the financial market incentives will reward such spending changes.
Get To The Point, Phil
Therefore, my long-winded answer on what I would propose in lieu of removing the bundled services exception would be to create regulations through negotiated rule making to set limits on and increase program-level transparency of marketing and recruitment costs. Maybe it would be easier to focus first on all online programs, including but not limited to those using OPM partners.
But I would not do this by using the TPS definition and regulation for the purpose it was not intended. I support the move for more transparency in OPM contracts and program-level spending, but using TPS expansion and pretending it is just interpretive guidance is misguided. Keep TPS to deal with financial aid processing and handling, as intended, and create separate regulations to gather program-level spending on all programs, but including those with OPM contracts.
I realize this is not a complete or easy answer, but hopefully it lays out my views more clearly.
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