College contracts with OPMs need better oversight, watchdog says

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Dive Brief: 

  • The U.S. Department of Education should strengthen oversight of colleges’ relationships with companies that help them launch and build online programs, according to a new report from the U.S. Government Accountability Office, an auditing agency for Congress. 
  • The GAO report offers a snapshot of the growing market for online program managers, or OPMs. These companies contract with colleges to support their online programs,  including through marketing, recruitment and course development services. In exchange, the companies usually receive 40% to 60% of the online programs’ revenue. 
  • The Education Department does set up policies to ensure that colleges’ contracts with these companies follow federal laws meant to prevent abusive college recruiting practices, the GAO found. But it suggested that the department step up oversight so these arrangements can be more thoroughly assessed. 

Dive Insight: 

The OPM market has exploded over the past decade. At least 550 colleges — the majority of which are public or private nonprofit — are working with such companies, according to the GAO report. It says this figure is likely an undercount and the true number of deals is unknown. 

The report based its findings on information collected from seven of the largest OPM companies, as well as research firms that provided data on the scope of the market. Officials from five OPM companies that provide recruiting services told the GAO that colleges always pay them via revenue-share deals, while a sixth said those arrangements are typical but it also offers a set fee for services. 

However, some lawmakers and policymakers have questioned whether the revenue-share agreements that many OPM companies use comply with federal law

U.S. law bars colleges that receive federal financial aid from giving incentive-based compensation, including commissions or bonuses, to companies or employees that recruit and enroll students into their programs. The Ed Department considers tuition-sharing to be incentive compensation, but agency guidance released in 2011 allows OPMs that provide recruiting services to have such arrangements with colleges if they meet certain criteria. 

To qualify for the exception, OPMs must provide recruiting services as a bundle of larger services, such as online course support and career counseling. The college contracting with the OPM must also retain control of admissions decisions and determine the number of students who can enroll. And OPM employees cannot receive incentive payments based on how successfully they recruit students. 

Yet the Education Department doesn’t have adequate procedures to ensure these colleges’ contracts with OPMs are following federal guidance. 

The department reviews college programs through annual compliance audits conducted by independent auditors and program reviews carried out by Ed Department staff members. The department primarily relies on the audits to ensure colleges aren’t violating the incentive compensation ban. 

However, guidance given to the auditors doesn’t specifically direct them to ask about OPM contracts, and college officials may not identify all these arrangements. 

“As a result, auditors may miss an opportunity to assess these arrangements for potential violation of the incentive compensation ban,” the GAO report says. 

The GAO report recommends that the Education Department provide information to independent auditors to help them ask about and assess OPM contracts. It also suggests that the department give instructions to colleges about the information they must provide on their OPM contracts during annual compliance audits and program reviews.

The Ed Department agreed with both recommendations, according to a letter included in the GAO report from Richard Cordray, chief operating officer of the agency’s Federal Student Aid office. 

According to the report, the Ed Department is also considering revising the guidance that allows OPMs to offer tuition-share agreements for recruiting services. 

The department has fielded questions about how to determine whether a college is sufficiently independent from an OPM company and what constitutes a large enough bundle of services, according to the GAO report. The agency is considering revisions to the guidance to address some of those issues.

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