Note: This commentary uses the term Hispanic when referring to the Hispanic/Latinx/Latine population. This term is used when drawing on the available student-level data used, in which the racial category for this population is listed as “Hispanic or Latino.”
Online program managers (OPMs) were recently referred to as the new predators in higher education, and rightfully so. OPMs are for-profit companies that contract with nonprofit and public colleges to develop and operate their online courses and programs. Just as for-profit institutions have a long and checkered history of inappropriately targeting and deceiving students, for-profit OPMs seem to be following suit. The nature of relationships between for-profit OPMs and nonprofit and public institutions creates a system ripe for predation. In addition to offering online programs, some OPMs also contract with schools to provide marketing and recruiting services to fill the seats in the online programs they offer.
Many OPMs also receive a cut of student tuition for each additional student recruited to the program. Tuition-sharing agreements between schools and these for-profit companies create incentives that can drive up costs to students and lead to predatory recruiting practices. For example, some OPMs have allegedly engaged in deceptive recruiting practices, applied watered-down admissions requirements in order to admit students who are unlikely to benefit from programs, promoted high-cost, low-value programs, and in some cases advertised programs that did not exist, all in an effort to increase enrollment.
What enables these predatory recruitment behaviors? OPMs are exempt from a statutory prohibition on paying compensation based on the number of students recruited. In 2011, the U.S. Department of Education (ED) issued guidance that allowed OPMs to receive “incentive compensation” (i.e., bounty payments for each student they recruit) as long as that recruitment was offered as part of a package of services. Because many OPMs offer both online program services and recruitment services, the 2011 Bundled Services Guidance created a profit opportunity that many OPMs quickly capitalized on. Under the new guidance, OPMs were incentivized both figuratively and literally to recruit as many students as possible into their programs in order to increase tuition based revenue and—as a function of tuition share agreements and incentive based compensation for recruitment—their own revenue.
OPMs often target and recruit students who will be drawn by the convenience of an online program, such as non-traditional students and working adults, students of color, students from low-income backgrounds, and veterans. This strategy can be seen in online enrollment trends. For example, Black students and Pell-eligible students are more concentrated in online education than they are in brick-and-mortar programs. OPMs often exercise little regard or sometimes intentional disregard for how the student will fare in the program, and instead prioritize concern for whether they can simply get the student to enroll and pay tuition—tuition for which the OPM will receive a cut.
This targeted recruitment behavior is a prime example of predatory inclusion, a process where financial actors offer services to typically underserved groups on exploitative grounds that thus eliminate the long-term benefits of said services. A prominent example of predatory inclusion occurred in real estate, when Black families, who were historically excluded from homeownership, were given second-class access to housing through a disproportionate rate of subprime mortgage lending. These mortgages offered a path to home ownership for borrowers with poor credit history but carried high interest rates, making them high-risk for aspiring homeowners but high-reward for banks. In the educational space, predatory inclusion can look like expanding access to higher education for historically underserved groups via accessible online degrees, yet doing so in a way that exploits these groups such that they must often take on high amounts of debt for degrees with little payoff for them but with financial incentive compensation for the online provider. In these cases we must ask: inclusion, but at what cost?
This commentary focuses on the predatory inclusion of Black and Hispanic students by OPMs, citing evidence of disproportionate enrollment and worse debt outcomes and ending with the recommendation that the Department of Education protect Black and Hispanic students by rescinding the 2011 Bundled Services Guidance, which financially incentivizes OPMs to heavily recruit students for their own profit.
Increases in Online Program Enrollment Have Been the Largest for Black and Hispanic Students.
OPMs began contracting with institutions as early as 2002, with significant increases in both contracts and program offerings occurring around 2010 and again in 2014. Data from the National Center for Education Statistics (NCES) National Postsecondary Student Aid Study (NPSAS) contain information about enrollment in online programs in 2004 and 2016, and in turn allow for observation of the effects of OPM recruitment on online program enrollment. While better data on OPMs are needed in order to allow for an evaluation of the specific online programs run by OPMs, the currently available federal data from the NCES are advantageous in that they allow for the observation of enrollment rates and outcomes of students who enrolled in or completed programs that were completely online. These student-level data also allow for examination of trends in online education by race, and thus provide strong insight into trends in predatory inclusion of Black and Hispanic students in the online space.
From 2004 to 2016, the percentage of all undergraduate students enrolled in online programs increased from roughly 5 percent to 11 percent, and the percentage of graduate students enrolled in online programs increased from approximately 7 percent to 27 percent. These numbers alone are unsurprising given the increased global dependence on online services during this time. However, Figures 1 and 2 below present a much more surprising story of how the changes in enrollment over time varied by race and ethnicity.
In 2004, there was racial and ethnic parity in online undergraduate enrollment: about 5 percent of undergraduate students from each racial and ethnic group examined (white, Black, and Hispanic) were enrolled in online programs. By 2016, online enrollment increased for all groups. However, by 2016 there is a clear overrepresentation of Black students in online undergraduate programs: 15 percent of all Black students who are enrolled in undergraduate degree programs are enrolled online. In contrast, only 11 percent of white and 8 percent of Hispanic students enrolled in undergraduate degree programs were enrolled online. While the percentage for Hispanic students appears low, it is important to note that during this time, the Hispanic college going population doubled, meaning that the volume of students in that 8 percent is likely large.
Figure 2 shows that Black and Hispanic students were significantly overrepresented in online graduate education by 2016. While 27 percent of all graduate students are enrolled in online programs in 2016, this number is 30 percent among Hispanic graduate students and 45 percent among Black graduate students. The overrepresentation of Black and Hispanic students relative to white peers is clear. But how do these numbers compare to those of the Black and Hispanic population at large and in brick-and-mortar programs?
Comparing demographic data from the U.S. population at large to college enrollment data and to enrollment data from a large OPM reveals overrepresentation of Black and Hispanic students in online programs. The 2020 Census showed that 12 percent of the adult population aged 18 and older was Black and 16.8 percent was Hispanic. In 2020 12.5 percent of undergrads in brick–and-mortar programs were Black and 22 percent were Hispanic. Thus, undergraduate enrollment in brick-and-mortar programs for Black students mirrored that of the U.S. Black population at large.
While Hispanic students are overrepresented in brick-and-mortar programs, this does not raise concerns given that student outcomes tend to be better at both for profit and nonprofit brick-and-mortar programs than online programs. However, 15 percent of undergraduates enrolled in online education in 2020 were Black and 20 percent were Hispanic, showing overrepresentation of both Black and Hispanic students in online education relative to the U.S. adult population at large. Similarly, a 2020 report by 2U, one of the largest OPMs, noted that 19.5 percent of students in their network of programs were Black and 16 percent were Hispanic. 2U thus had a clear overrepresentation of Black students, larger than the Black U.S. adult population (at 12 percent) and larger than the already large representation of Black students in undergraduate online programs (15 percent) and graduate online programs (17.4 percent). While overrepresentation in higher education should be viewed positively when it signals the inclusion of a historically underrepresented population, it is not good for students to be over-represented in spaces where they are not being adequately served.
While overrepresentation in higher education should be viewed positively when it signals the inclusion of a historically underrepresented population, it is not good for students to be over-represented in spaces where they are not being adequately served.
Black and Hispanic Graduates of Online Degree Programs Experience More Difficulty with Student Debt
Not all students complete their online degrees: some leave without a degree and with unmanageable debt. However, Black and Hispanic students have worse debt outcomes even when completing their online degrees. Data from the NCES 2016/2017 Baccalaureate and Beyond (B&B) allow us to examine graduates one year after completing four-year degrees at either online or brick-and-mortar institutions eligible for Title IV funding.
Figure 3 shows the percentage of four-year degree holders who experienced difficulty repaying federal loans within one year after graduating. For those who completed their undergraduate degree programs online, more than 50 percent of Black and more than 50 percent of Hispanic students have difficulty repaying their student loans, relative to only 34 percent of white students who completed online degree programs. Conversely, only 32 percent of Black and 22 percent of Hispanic students who completed their degrees at brick and mortar programs experience difficulty repaying their loans one year after graduation.
Figure 4 shows the percent of students who experienced three or more instances of loan delinquency twelve months after completing their degrees. Three or more instances of loan delinquency in one year marks significant difficulty with loan repayment. The risk of loan delinquency is highest in the online sector. For example, the rate of delinquency for Hispanic students is 12 percent among in person grads but 37 percent among online grads, meaning that for Hispanic students completing a degree online is associated with three times more difficulty in loan repayment. Racial disparity is also largest among online grads, with 22 percent of white students, 30 percent of Black students, and 37 percent of Hispanic students who completed their degrees online experiencing three or more delinquencies within twelve months of graduation.
How the Profit Motive Leads to Predatory Recruitment of Black and Brown Students
OPMs have a history of targeting students of color in their recruiting. As shown here and in additional research, Black students are more concentrated in online undergraduate education than in brick-and-mortar programs, and both Black and Hispanic students are overrepresented in online education relative to their respective adult populations in the United States.
Targeting of Black and Hispanic groups for online programs is evident in enrollment numbers and also in recruitment training materials. Evidence from a high-profile case against USC’s online MSW program revealed that a “previous recruitment team” for USC’s School of Social Work provided their marketers with recruitment training materials about how to engage with prospective students of different backgrounds. These depictions contained racialized characterizations of students. Examples included “Needy Nelly,” a Black female applicant who “needs hand holding” and “has trouble with application.” While “Needy Nelly” the example of a Black applicant and “Confirmed Carmen” the example of a Latina applicant, both had GPAs at or below 3.0; the white applicant “Money Molly” had a GPA of 4.0 and attended the elite University of Chicago for undergrad.
In an additional case, Walden University allegedly engaged in predatory recruitment by targeting Black female students for admission to their online doctor of business administration program. Walden reportedly lured these students into the program with false claims about program requirements, later increasing course requirements after students had already enrolled. While only about 10 percent of students enrolled in doctoral coursework nationwide were Black, 41 percent of students in Walden’s online doctoral programs were Black.
And while some online programs may be careful to tailor their marketing and recruitment for Black and Hispanic students, there is no evidence to date that shows that they are also employing targeted efforts to ensure the success of these students during their tenure in a program or upon exit from a program.
Higher education is a tool for social mobility and building generational wealth. When OPMs target students of color who are seeking to improve their economic situation for themselves, their families, and their communities, they appeal to these desires with offers of accessible education. However, online programs, as currently run, do not seem to be designed with these students in mind.
The for-profit insertion into nonprofit, student-centered organizations has created a spike in profit-first recruitment practices, whereby the goal is to get students in seats and tuition dollars in pockets with less concern for investing in students once they are enrolled, or for what happens to the students when they exit these seats and their money is no longer available to OPMs.
How Rescinding the 2011 Bundled Services Guidance Will Help Protect Black and Hispanic Students
The Department of Education has the power to make a positive change in the online learning space by rescinding the 2011 Bundled Services Guidance. The loophole in the incentive compensation ban that was created by the 2011 Bundled Services Guidance has led to a sales-based model of higher education where recruiters are rewarded for bringing in high volumes of students who can pay tuition, often with Title IV funds. These students—in particular the heavily targeted Black and Hispanic students—are often left with debt that they cannot repay. Rescinding the guidance will remove profit-motivated recruitment and pave the way for student-centered recruitment and use of institutional funds.
Institutions have expressed concern that rescinding the Bundled Services Guidance would make it impossible for colleges to work with OPMs. However, institutions will still be able to contract with OPMs for both online services and recruitment services, even if the guidance is rescinded. Schools would simply need to use financial models that would pay OPMs for their services without incentivizing them for recruiting, such as a flat fee or fee-for-service model. Eliminating incentive compensation models that prioritize spending on marketing and recruiting would allow institutions to divert tuition dollars away from recruitment and back to students.
Another concern institutions have is that they cannot front the cost of the infrastructure needed to run an online program without a tuition sharing agreement that allows both parties to be paid at the same time. However, some schools have figured out how to run and provide their own online offerings by scaling their own resources. Additionally, other schools have moved to end their relationships with OPMs and take ownership of their online programs. Recently, 2U and USC announced their decision to part ways on multiple degree programs, including the scandal-ridden online graduate degree in social work. In a joint statement, they shared that while the 2U–USC partnership laid a foundation for the online degree programs, USC will take the lead from here.
If the Department of Education sides with protecting students and rescinds the bundled services guidance, schools should be given time to revisit their contracts with OPMs. During this phase-out period, OPMs and institutions can work together to find ways to work within the confines of the Higher Education Act without creating incentives that harm Black and Hispanic students.
Protecting Black and Hispanic students from predatory inclusion in the often subpar online programs run by for-profit OPMs is especially critical in a world without race-based affirmative action. While institutions will no longer be allowed to consider race in the college admissions process—a policy that will undoubtedly reduce the representation of Black and brown students at our nation’s most elite and high-payoff institutions—rescinding the 2011 Bundled Services Guidance will help ensure that these students will not be unfairly targeted by the often high-cost, low payoff online programs.
Thanks to Dr. Stephanie Hall for feedback on an early draft of this commentary