Phil Hill and the Unintended Consequences of Online Education Policy

The high point of my experiences at last month’s RNL National Conference was the fireside chat I led with EdTech blogger Phil Hill. As I said in my introduction, when I need to know about the latest developments in online education, I have come to rely on Phil’s research and analysis.

Through the prism of one of Phil’s recent blogs on the “enrollment turbulence” facing institutions, our conversation focused on how proposed changes to three U.S. Education Department regulations represent one of the greatest “headwinds” and sources of turbulence for institutions seeking growth through online expansion. How do you spice up a deep dive conversation on arcane changes to government regulations? Well, having Phil Hill break the story of a certain filing for bankruptcy in the wee hours before our conversation certainly helped!

That news, combined with findings in RNL’s forthcoming white paper on “Two Demographic Cliffs,” set us up well for our discussion about enrollment health. These regulatory changes are not just bureaucratic moves, but rather represent hurdles that will significantly complicate the ability of institutions to make up traditional enrollment contraction through the expansion of online programming.

Online education in the crosshairs

Phil’s (and his colleague Glenda Morgan’s) reporting clearly indicates that the Education Department is putting online education under increased scrutiny. How?

1. Changing the Third Party Servicers (TPS) rule to require institutions to submit a lot more detail about contracts with and performance of OPMs.
2. Possibly reversing the “Dear Colleague Letter” guidance which would effectively eliminate OPM revenue share agreements.
3. Changes to state reciprocity rules that would considerably complicate the ability of institutions to enroll online students from different states.

Unintended consequences

Over the course of the conversation, we focused again and again on how these regulatory changes would/will affect institutions of all sizes and shapes across the country as they try to maintain or grow enrollment. Phil spoke about “unintended consequences” several times, how well-meaning policy ideas end up contributing to the ongoing saga of “the rich getting richer” and everyone else struggling. Consider the following:

• TPS: Increasing scrutiny on OPM contracts and outcomes sounds good, but it will be a lot easier for the huge national online providers to comply than it will be for small institutions with limited staff dedicated to compliance.
• “Dear Colleague Letter”: Eliminating revenue share options will necessitate institutions moving to “pay for service” arrangements. This will make it a lot harder for small(er) institutions seeking to counterbalance undergraduate enrollment contraction with online growth.
• Reciprocity: Requiring every institution to individually pursue agreements with each state from which they enroll online students will crush the compliance operation of small institutions, while representing little challenge to large national online institutions.

Each of the proposed changes will make it more difficult for institutions to ensure that the “tailwinds” that will help them grow exceed the “headwinds” that will challenge their success. This is where our conversation about enrollment turbulence began, and where we start in our edited transcript of our conversation:

Scott Jeffe: What are the tailwinds that are helping colleges as you see them?

Phil Hill: By and large people want colleges and universities to succeed. Despite all the criticism and commentary, the country, including employers, continue to trust colleges and universities to understand what they need to produce. Whatever the new innovation in new types of education and training, the preferred answer is to enroll in an institution. So that’s one tailwind.

The other tailwind is that we have seen a very strong shift towards lifelong learning. It is not just about 18- to 24-year-olds anymore. There are people outside of that age range that need help, dual enrollment from high school, all the way through working adults who come back to get their degrees. With so many things changing in our world (including AI), people constantly need additional learning.

SJ: Let’s talk about the headwinds. What do you see as the hurdles to success right now?

Phil Hill: Several of the headwinds are outside the control of higher education institutions. Inflation is affecting the cost of operations. Schools are paying more for everything. It is making the margins even tighter. The demographic challenge is another. We’ve been talking about it for years, but we are really just getting to the point where we’re going to see the impact of it.

The other one that gets in the news all the time is student debt. The amount of debt that students are carrying and the percent of students who aren’t paying back their debt or are in financial crisis themselves all gets tied to the rising perception issue in which people question the value of higher education.

The final challenge may be that higher education is not the only game in town anymore. You have increasing numbers of non-traditional providers. Coursera and others are offering not degrees, but certificates or workforce training. So there are more choices for students now than there used to be.

SJ: Let’s talk a bit more about the demographic challenge. What are your thoughts on how to deal with the demographic contraction of the 18-year-old population?

Phil Hill: The obvious thing is to stop doing what doesn’t work, and part of that is the perception that the natural audience is undergraduates aged 18 to 22. There is demand for a different approach. Colleges and universities need a change of mindset and be willing to say, “Well, how do we serve this new student population?” If they can do this, they will succeed.

Consider Southern New Hampshire University. They do not have an enrollment crisis. They redesigned the university based on new student needs. It was like a Harvard Business School case study, where under President Paul Leblanc, they said, “Okay, this is the population that we need to support. What do they need?” They were willing and able to redesign the university. Not all schools can completely redesign themselves, but there’s a lot of value in being open to what the growth demographics need.

A lot of this change comes out in the modality of teaching. Online and hybrid education are strategic ways to meet the needs of these new students. Accepting that and figuring out where online education fits in, and how it changes what you offer on campus, is critical to accepting the new reality and focusing much more on student needs.

SJ: Let’s jump into these regulatory issues that are being considered. What are “third party servicers” and what is the Education Department considering?

Phil Hill: In the past, these have been companies who actively administer Title IV financial aid for institutions. They distribute funds and determine who’s eligible and they have been subject to a lot of regulations. More than a year ago, the Education Department proposed redefining what third-party servicers meant. Their intention was to go after rev-share OPM providers. They said so in their release. More audits, more reporting, and generally making life difficult for the OPMs. Contracts would have to be sent to the Department of Education for review, and then would have to be audited.

So you go from what I consider the original intent, which was to go after OPMs, to the reality of what they wrote which was a redefining so broad that TPS would include anybody who touches a program that accepts Title IV funding.

There was incredible pushback from the higher education community. And that pushback worked as the higher ed community came out and said, “You have no idea all the consequences that are going to happen with this.” By last April, they pulled it back and said, “We’ll reintroduce TPS later.” Just a week ago the Department announced that they will be putting their revised plan through the negotiated rulemaking process. The question now is, has the Department of Ed learned the right lessons from last year, and will they introduce new rules that are far more limited in their scope? Whatever they do will impact a lot of operations including things that affect enrollment.

SJ: Tell us about “bundled services” and the “Dear Colleague letter.”

Phil Hill: A “Dear Colleague letter” offers informal advice from the Department on how institutions can interpret a regulation. They are not legally binding, but they tell schools, “This is how we are going to interpret what is in the regulation.”

The revenue-sharing OPM market has been underpinned by a 2011 Dear Colleague letter which said that institutions can do revenue-sharing as long as it is part of a set of “bundled services.” Vendors can’t get paid on the number of students who enroll if all they do is marketing or enrollment, but if they are doing both those things as well as instructional design, or technology, i.e., any “bundle” of services, you can.

The Department has signaled that they want to get rid of or drastically cut back this advisement, essentially disallowing revenue share arrangements. While a decision keeps getting pushed back, the Department could end revenue share any day, and without the lengthy processes associated with changing an actual regulation (because this has all been done at the “sub-regulatory” level.) Doing so would throw the market into chaos.

So, the issue is constantly hovering over institutions and keeps getting kicked down the road. At this point, it’s only going to happen if the Democrats retain the presidency. If they do win, it’s highly likely that they will introduce something that will dramatically change rev share. Either way, all the talk has caused some accreditors and states to clarify their own rules about OPMs and revenue share. So, the future of revenue share agreements is very much in doubt, making it increasingly difficult for schools to react to demographic changes, among other things.

SJ: State authorization and reciprocity. What are these things and what is the Department thinking of changing?

Phil Hill: State authorization developed during the Obama administration because there were questions about, “If I’m a school in Illinois, do I need to comply, be authorized to operate, in Wisconsin if I have students from Wisconsin?” The administration issued a pretty straightforward rule saying “Yes, you do.”

If you’re a large online school, you have armies of compliance officers that can ensure that they have complied with all the rules in every state from which they draw students, but for schools without giant online operations – often the schools most trying to deal with demographic changes – that’s a huge burden.

“You mean I’ve got to check… Well, let’s see. I’ve got students from 18 other states. You mean I have to go get authorized in each state?” And I have to put up surety bonds, and whatever else in every case? It will restrict school’s ability to do online programs.

The Obama era ruling generated the reciprocity agreement that they are considering ending. This agreement—coordinated by the NC-Sara organization—works like a driver’s license. I live in Arizona. If I’m driving up to Minnesota to get out of the heat, I don’t have to go get a Nebraska driver’s license to drive through there on the way to Minnesota. We have reciprocity. If states voluntarily joined into the agreement, they were saying, “We agree to abide by the rules of all the different states,” without having to do an extra level of individual work in every state.

The Department of Education is trying to effectively gut that agreement in the name of their concern over “return of funds” when students don’t finish an online program (among other things). Essentially they want to say, “You can sign up for the reciprocity agreement all you want. You still have to get authorized in every state where you have students, and you have to comply with all of their rules.” That’s not just bureaucratic compliance; it’s also keeping up with 50 sets of rules.

The net effect will be that for all of the non-giant online operations (the vast majority of schools), the bureaucratic burden is going to get much higher. So here we have unintended consequences again. This will be a case of the rich getting richer. For the big, i.e., Southern New Hampshire, the for-profits, Arizona State, the ones that are already at scale, it’ll be a pain in the butt for them, but they’ll be able to handle it. The schools with smaller programs are going to have much more difficulty. Part of the reason this is an important topic is that the public comment period for these proposed rules is starting right now. So if ever there’s been a time where schools need to go in and lobby on these efforts it is now.

SJ: Why are they doing this?

Phil Hill: The Department of Ed and their allies usually start with very good intentions in these online initiatives. They are centered on student debt. They want to minimize situations where students have debt that they will not be able to pay off if they don’t have a degree that helps them in the marketplace.

They want to hold schools accountable. We hear that all the time. So that’s the justification. The problem in my mind is that the policies that actually get introduced are so broad and have such a hard, damaging effect on school’s operations that they are creating a world of unintended consequences.

The real problem is the inability of the Department and their allies to listen to feedback. When they hear feedback like, “Hey, that’s going to harm what we do here,” they tend to interpret that as, “Oh, you’re just a bad actor. You’re saying that you don’t like these regulations because you want to avoid any oversight.” So a policy idea starts with, “We don’t want students to earn (and pay for) degrees that have no value” and then the actual policy ends up being very harmful because of the feedback loop in the middle of the process.

SJ: So interesting. When you say to a group “we want to hold institutions responsible,” everybody nods their head, but thinks that we are talking about some other institution. We never think they are thinking of us. It’s those other institutions. That is how the unintended consequences get written into policy and we end up, as you said, with “the rich getting richer,” and everyone else suffering. Unintended consequences indeed.

I recommend reading Phil’s reseach for more great insights. And I invite you to reach out to our enrollment experts about how we can help you identify your optimal online enrollment strategies.