Department of Education Should Withdraw its Innovation-Killing OPM Guidance
The Obama administration’s policies decimated the for-profit college industry. When President Biden was elected, he seemed destined to double down on these attacks. He promised that he would “require for-profits to first prove their value to the U.S. Department of Education before gaining eligibility for federal aid.” But he also hinted that he would wield the Department’s regulatory apparatus against other for-profit players in higher education too, including a pledge to “crack down on private lenders.” He suggested no similar scrutiny for non-profit or public entities, regardless of the impact on students.
There were always hints, though, that he would not stop there. And in recent weeks, the Biden administration has gone much further than the Obama team against another group of for-profit players: online program management organizations (OPMs), which provide portions of academic programs and many other services to colleges and universities.
When online education began to really take off in the early 2010s, many traditional colleges and universities lacked the capacity or interest (or both) necessary to make such programs successful. OPMs offered institutions the opportunity to focus on academic content without having to become technology providers themselves. They provided many other services too, often recruiting new types of students to the new types of programs they were helping to create. Some progressives feared that these organizations would recruit as many students as possible to low quality programs and pocket significant federal aid. Others worried that institutions might outsource many core functions, harming their ability to grow and meet their mission over time. Whether such arrangements might benefit students was less often discussed by the critics.
At this point, Congress had already enacted a prohibition on institutions paying “any commission, bonus, or other incentive payment” tied to “securing enrollments or financial aid.” This lever might have allowed the Obama administration to spell the end for OPMs, significantly hampering the growth of online education in the process of doing so.
However, they recognized the significant demand from students and lack of capacity from institutions. Without third-party providers to help traditional institutions into the 21st Century, many would lose enrollment or close entirely. So they struck a compromise in 2011: third-party providers like OPMs could continue to work with colleges and universities and help them bring in students as long as they were not directly receiving prohibited incentive payments. One safe harbor the Obama administration provided was for third parties to offer a variety of “bundled services.”
Despite being contained in neither statute nor regulation, this “bundled services” exception spurred a steady expansion of OPMs throughout the decade. When most colleges and universities closed their doors during the COVID pandemic, OPMs allowed many institutions to quickly move online, with many seeing an extraordinary windfall as a result. Institutions that were already able to offer online education obviously benefited too, as the number of students participating in distance education doubled in a single year, increasing from 7 million to 14 million.
Despite the numerous benefits to providers, institutions, and students, the backlash was probably inevitable. In 2022, Democrats requested a Government Accountability Office study, which suggested that more information might be needed to determine the true scale of the influence of OPMs, specifically identifying the incentive compensation ban as an area for possible greater oversight.
This was just the pretext the Biden team needed to move forward, and they went big, publishing a letter that dramatically expanded the definition of who might be considered a third-party servicer subject to the Department’s regulations. This would not only include OPMs, but also entities supporting “any other aspect” of the administration of federal financial aid or the related statutory or regulatory requirements associated with it. In other words, literally anyone doing business with a college or university might be regulated. The Department planned to collect and review all such contracts and invited comments on how to adjust the incentive compensation rules.
The reaction was not what they might have hoped it would be. Inside Higher Education reported that the postsecondary education landscape was suddenly filled with “a mix of confusion, concern, and outright amazement at the scope of the new guidance and its potential impact on companies and other organizations that help colleges recruit, educate, or retain students, and on the institutions themselves.”
The American Council of Education, a leading trade group representing colleges and universities and headed by former Obama administration official Ted Mitchell, sent a letter “strongly encourag[ing] the Department to rescind the [guidance].” The Department has since backtracked…twice. First, just two weeks after the letter’s original publication, they delayed the effective date by four months. Soon after, they delayed it indefinitely and “clarified” that they never intended to cast so wide a net. Despite all this, the Department still insists that it is planning to move forward with plans to rein in OPMs and review the incentive compensation rule.
While the Department’s surprise at the backlash to their efforts may be genuine, their claims that they never intended the policy to be so widespread have rightfully generated eye rolls. It’s clear that the Department sought for itself broad new powers to regulate nearly any outside entity doing business with a college or university. Once that “oversight” power took effect and they were able to review thousands of contractual arrangements with vendors, it would have been simple to pass cherry-picked examples to friends on the Hill as fodder for hearings and then add a prohibition against any practice it disliked to its still-planned rulemaking. The backlash-induced delays may alter those plans.
Vladimir Lenin supposedly once said, “You probe with bayonets: if you find mush, you push. If you find steel, you withdraw.” It’s unclear whether a similar approach has been taken by the Department. Merely suggesting so may be giving them too much credit. However, regardless of whether the Department intended it, significant damage is likely to have already occurred to any outside entity serving students, even those that will never be ultimately regulated.
Companies are already being directed by legal counsel to evaluate their contracts, and many will soon renegotiate them as if these changes were effective. The result will likely be more generous terms for colleges and universities at a cost impossible to measure in terms of reduced innovation and other benefits to students, especially adult learners. This is the last thing colleges need when higher education enrollments are declining and public trust is plummeting. To reverse these trends, the best thing the Department could have done would have been to never publish this guidance. The second-best option would be to drop it now.
Michael Brickman is an adjunct fellow at the American Enterprise Institute, where he focuses on higher education and cutting-edge innovation in education reform.
