Outsourcing of services by colleges is on the rise
By JON MARCUS | Special To The Washington Post | Published: January 11, 2021
MEDFORD, Mass. — The Tufts University campus was a quiet place in the fall, where students were warned to stay in their dorms, checked frequently for the coronavirus and — if they tested positive — isolated in modular housing set up on the tennis courts.
As with much in higher education, the real activity was online, where the university was busy launching a virtual master's degree in data science and an online program in computer science for people who already have bachelor's degrees.
Aimed at consumers needing to find new jobs or preparing for graduate school, the offerings seemed well timed to attract students.
What students will see in the promotional materials or when they register is that the programs are being managed by a private, for-profit company called Noodle that is being paid $12,000 to $22,000 per month, per program, plus $88 per credit hour, per student, according to a list of fees disclosed by Noodle.
Colleges and universities have long outsourced such things as bookstores and dining and custodial services. Now they're paying billions of dollars a year to for-profit corporations to create and administer online courses; recruit and enroll students; advise and tutor those students once they start school; oversee research; manage information technology and utilities; and build or manage dorms, classrooms, labs, parking and student unions.
Some of these functions are outside the institutions' educational missions, advocates of such partnerships point out, though what's new is that "more and more are cutting closer to the academic core," said Dennis Gephardt, vice president and senior credit officer on the higher education and not-for-profit team at the Moody's bond-rating agency.
Universities and colleges say outsourcing also saves them money and makes them more nimble and efficient.
Under the Noodle deal the university retains control of admissions and content and hires instructors, said Tufts spokesman Patrick Collins. Noodle provides "flexible capacity to quickly ramp up new programs," Collins said.
Tufts is charging $1,697 per credit hour for most of the courses in the programs it just started, not including mandatory fees.
"The benefit to institutions seems fairly clear," said Clare McCann, deputy director for federal higher education policy at the think tank New America. "It means someone else will handle the difficult process of getting these programs up and running and of growing these programs."
The benefits to students, she added, speaking generally about such deals, "are a lot less clear. Many students don't realize their programs have been outsourced to a for-profit company they have probably never heard of."
Universities and colleges now pay $4 billion a year to online program managers such as Noodle; that figure is expected to increase to $10 billion by 2025, according to the education market-research firm HolonIQ. They spend $16 billion annually on educational technology, projected to rise to $20 billion by 2024, BMO Capital Markets estimates. And they channel at least an estimated $15 billion to companies in the enrollment management sector for marketing, recruiting and enrolling students, a senior industry insider says.
"What we're seeing is a real blurring of the lines between nonprofit and for-profit higher education," said Michelle Dimino, education senior policy adviser at the think tank Third Way.
As the pandemic has accelerated the pace of outsourcing, it has exposed problems with these kinds of arrangements with for-profit partners beholden to shareholders, venture capital backers or lenders.
Colleges and universities have increasingly outsourced housing, for example, in so-called public-private partnerships, or P3s, under which private companies such as Corvias and Capstone Development Partners build and manage dorms.
That became a problem this fall when Capstone would not let students at Maryland public universities out of their leases or give them refunds — which their classmates who lived in university-owned dorms received — after the campuses went virtual because of the pandemic.
The dispute was finally settled in late December, when students in the privately managed residence halls were freed from their leases or promised credit toward future housing.
In Georgia, Corvias warned the University System of Georgia's Board of Regents not to limit dorm capacity as part of social distancing rules to slow the spread of the coronavirus spread, which could have cut into the company's revenue. The board's staff advised that, under the system's contract with Corvias, the regents did not have the unilateral right to cut into the company's business, although a big drop-off in demand ended up doing that anyway.
Such cases "raise serious questions about the nature of these partnerships and the private sector influences" on higher education, Sen. Elizabeth Warren, D-Mass., and Rep. Rashida Tlaib, D-Mich., wrote in a letter to Corvias.
Employees of private contractors that staff and run dining halls and custodial services at institutions including Harvard University and the University of Pennsylvania, meanwhile, were vulnerable to layoffs when those schools went remote in the spring, even while other campus workers were protected. After criticism from students and unions, Harvard and Penn responded by agreeing to pay contract workers through the end of the spring, though other universities with contract employees did not.
Yet outsourcing has sped up during the pandemic. HolonIQ projects some 300 new partnerships this year between universities and online program managers, or OPMs, for instance, a 79% increase over last year.
The dominant OPM player is 2U, which runs 475 programs for more than 75 university partners. Its revenue grew 44% in the first quarter of 2020 and 35% in the second quarter.
OPMs collect commissions from the universities of as much as 80%.
"A lot of institutions see it as a percentage of something is better than nothing," McCann said. But "institutions need to be setting up programs that are financially sustainable and, where the revenue share is as high as we've seen it, that's not necessarily going to be sustainable in the long run."
In a third of cases, the OPM, not the university faculty, provides the instruction, even though it carries the university's name, according to documents obtained by the Century Foundation think tank from 79 public universities.
There are dangers with this, too, if the quality of the programs falls short, warns Tyton Partners, an education-focused investment banking and strategy consulting firm. "Institutions have well-established brands to protect," it said.
But outsourcing can still be a good strategy for universities, said Gates Bryant, a partner at Tyton.
"Institutions are looking at every source of revenue they have right now and trying to figure out how to do it better," Bryant said. "And if the private sector can be helpful in this way, that's a powerful opportunity."
Some deals cover much more than single courses or programs.
The University of Arizona in December wrapped up its acquisition of for-profit online provider Ashford University. The fine print locks the public Arizona university into a 15-year contract with Ashford's former parent company, Zovio; after Zovio makes guaranteed minimum annual payments to what is now known as the University of Arizona Global Campus, it will be reimbursed for the costs of recruiting, marketing and other services it provides, plus get 20% of tuition revenue.
Faculty members, staffers and graduate students in the University of Arizona's college of education have criticized the arrangement in a petition as "ill-advised," "ill-conceived" and "bad business."
Partnerships with private developers are also going beyond just building dorms. Strapped for infrastructure money, universities and colleges have made deals with third parties to build and run parking garages, student centers, labs, classrooms, and power and water plants; the colleges and universities lease back the properties, or the contractors get revenue generated from student fees.
As universities and colleges continue to compete for a dwindling pool of students, they increasingly rely on the multibillion-dollar enrollment management industry that provides recruiting, marketing and other services to admissions offices.
They're also hiring private companies to answer questions about financial aid and academic support, collect student data and oversee research spending.
In addition to companies including Aramark, Compass Group and Sodexo that manage campus dining halls, Barnes & Noble College runs 968 and Follett more than 2,700 physical and virtual college bookstores.
The speed at which so many services are being outsourced worries William Tierney, founding director and professor emeritus of the Pullias Center for Higher Education at the University of Southern California and the author of "Get Real: 49 Challenges Confronting Higher Education."
"In this rush to balance the budget, in the long run, we might find we've hollowed out the center of the institution so dramatically that there does become the question: What is higher education?" Tierney said.
"What's the university about when we outsource everything?"
This report is a product of The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.