The University of Southern California has 50 years of experience in distance education. USC’s initiative began in the Viterbi School of Engineering as an industry partnership with Los Angeles-based aerospace corporations. Engineering employees qualifying for admission to USC graduate programs received tuition support from their employers. Firms also provided a company meeting space where students would watch synchronous classes on closed-circuit television and participate in class discussions over an open telephone line. The TV connection was a microwave signal, and voice communications had no noticeable lag.
From the outset, USC’s engineering school focused on delivering what became known as hybrid courses. Regular faculty taught in classrooms full of on-campus students, outfitted by the school as studios with multiple cameras and dedicated camera operators. The school used technology to bring as much of the classroom experience as possible to a separate section of students participating remotely, allowing them to team and participate synchronously in class discussions with each other and with on-campus students. The technology needed for distance delivery improved educational options for all. Distance and on-campus students could review videotaped lectures as often as needed. Distance students earned the same credentials as students in the on-campus sections of the classes.
The technology needed for distance delivery improved educational options for both distance and on-campus students.The effort was an essential financial and reputational success for the USC Viterbi School, which consistently awards the most U.S. master’s degrees in engineering, partly because, for many years, it granted the most degrees to distance students. Initially, it was difficult for USC to identify the number of distance students completing engineering degrees, because no one foresaw any reason to track this status on transcripts. Staff had to construct counts from other records.
USC added internet-based delivery in 2000 and, within a year, phased out TV entirely. In 2005, the dean of the Viterbi School, C.L. Max Nikias, became provost of USC. That summer, Hurricane Katrina devastated the City of New Orleans, including Tulane University. Facing heavy damage to its campus and a budget crisis, Tulane canceled fall classes, laid off hundreds of full-time faculty and staff, and eliminated six undergraduate and graduate engineering programs and 27 of 45 doctoral programs.
USC, by contrast, is a tuition-dependent private research university that will eventually experience a major earthquake. In 2007, informed by successes in the engineering school he had led and the challenges faced by Tulane, Nikias began a university-wide distance-education initiative focused on master’s education and intended to increase tuition opportunities for all of USC’s schools. The plan would also provide a contingent means for delivering classes and collecting tuition in the event of any emergency.
This initial effort was mandated but decentralized and largely unsuccessful. The central administration offered incentives to schools to emulate the School of Engineering’s in-house approach, but this proved expensive enough to be infeasible in most cases, USC’s Marshall School of Business being a notable exception. Eventually, Online Program Management systems (OPM) provided an accessible solution, and various USC schools entered revenue-sharing contracts on behalf of the university with firms such as Pearson and 2U, Inc.
Founded in 2008, 2U accounted for most of these new relationships. USC established a master agreement used by schools partnering with 2U that included a term of up to 10 years and apportioned tuition streams into a maximum 65-percent share for 2U and 35-percent portion for USC. USC consists of 23 schools, and, predictably, there was some variation across the terms struck for some of these units.
The partnership between USC and 2U was a close one, with 2U funding chaired professorships and faculty research grants.2U entered highly publicized and initially successful partnerships with USC’s Rossier School of Education in 2009 and the USC Dworak-Peck School of Social Work in 2010. Both programs delivered rapid enrollment growth in online programs. Growth was on an order of magnitude in the case of social work. The partnership between USC and 2U was a close one, with 2U and its founders funding chaired professorships and faculty research grants in both schools. Multiple other USC schools followed suit with the central administration’s blessing. By 2011, USC’s central administration was urging even the Viterbi School of Engineering to partner with 2U. The school resisted this step and provided a detailed business case comparing its in-house approach to 2U’s partnership terms. It is possible that this analysis reframed the central administration’s enthusiasm for the OPM model.
The generic OPM for-profit business model relies on revenue-sharing with nonprofit universities in exchange for bundled services provided to students and the institution. These services typically include course development, marketing, recruiting, admissions, enrollment, and advising. This model can lead to contracts that provide too much deference on the part of the university to the decisions of the for-profit partner, with the former sacrificing too much academic control. USC, however, was careful to retain control over admissions in all cases. 2U organized student application files, but each USC school was responsible for assembling its own student body.
Nevertheless, tension emerged at USC between full-time faculty and 2U concerning course development and control. 2U collaborated with faculty members to develop courses that 2U hoped would have evergreen content and might be offered repeatedly and asynchronously to different cohorts of students. Full-time faculty members preferred content that would inevitably have to be updated and refreshed. Deans diminished these tensions in some USC schools by hiring more part-time faculty to service new distance-degree programs delivered with 2U. Contingent faculty tend to be more cooperative than full-time teaching faculty and far more pliable than USC’s dwindling regular, tenure-track faculty complement. To put it bluntly, contingent faculty are less free than their permanent-employment colleagues to say “no” to administrative requests.
USC’s central administration took steps to regularize 2U’s agreements across USC schools to protect the institution’s ownership of its processes and intellectual property rights. (This included faculty members’ courseware rights.) These efforts did not prevent class-action lawsuits against USC from distance students in some new USC programs, with plaintiffs contending that there was too much disparity between USC’s on-campus and distance-student experiences and that USC misrepresented the quality and nature of the distance education provided.
Tension emerged at USC between full-time faculty and 2U concerning course development and control.These civil lawsuits touch on a relevant public-policy concern. As federal student aid expanded, Congress attempted in 1992 to forestall predatory student recruiting by prohibiting any college accepting federal student aid from paying incentive compensation to employees and contractors for enrolling students. Congress intended to protect Department of Education student-aid resources that might otherwise go to students admitted to programs they were unlikely to complete successfully. In 2002, the DOE adopted “safe harbor” provisions concerning incentive compensation that clarified whether and how contractors delivering multiple, bundled services that included recruiting or admissions might enter revenue-sharing agreements with schools. The department’s inspector general found this bundling circumstance inconsistent with the federal statute, but the agency rejected this advice. The DOE removed these “safe harbor” provisions in 2010, but the permissibility of revenue-sharing with contractors delivering multiple services remained.
Partially in response to longstanding Congressional concerns and a 2022 GAO report, the U.S. Department of Education signaled strongly in February of 2023 that the agency intends to expand oversight of OPMs, issuing new guidance that classifies OPMs offering bundled services that include student recruiting as “third-party servicers.” This expanded oversight will likely mean new reporting requirements of a kind previously reserved for contractors that lend universities assistance in administering student financial aid.
The market, though, has beaten both the DOE and Congress to the punch, imposing competitive discipline via new providers entering the market and new technology options that allow universities to do more for themselves in delivering distance courses. OPMs were a business innovation in 2008. There was rapid growth in demand for services, partly because schools that mounted online programs via an OPM (or otherwise) increased enrollment. Many firms entered the market. Ten years later, trends pointed toward consolidation. The pandemic significantly increased OPM deployments, but the most prominent providers’ market shares have diminished. Challenges to the financial performance of OPMs became apparent in 2022, and university interest in OPM partnerships fell substantially in 2023. In November of 2023, USC and 2U announced that their partnership was ending and that USC would incrementally take responsibility for 2U’s online programs at USC over 15 months. 2U’s stock price declined by over 50 percent following this announcement, and former CEO Chip Paucek left the company, which remains in an ongoing state of reorganization.
USC is, at present, well-organized to deliver online programs on its own. The provost’s office has restricted any new contracts with online program providers to incremental, fixed fee-for-service terms that draw less scrutiny from federal regulators, sometimes referred to as the OPX category. USC will permit no further OPM-style revenue sharing with 2U or any other firm.
The point is to recapture all of the revenue opportunity previously shared with 2U and ultimately much more.The institution likely decided to part ways with the OPM model as early as 2015, when the provost’s office founded USC’s Bovard College. Bovard College serves only online master’s students and has no full-time faculty. New, part-time personnel deliver all instruction. Master’s degrees offered by Bovard College are in highly applied, career-oriented subjects not traditionally captured by any of USC’s 22 other schools. Bovard admits students completing any undergraduate degree and requires no standardized test scores for admission. Bovard degrees require only 24 units, the minimum permitted by the university and fewer than needed for any other USC master’s programs. Finally, the provost’s office formulated the curricula for Bovard’s degree programs without substantive input from regular or other full-time USC faculty members, despite content concerns raised jointly by the deans’ offices of the Marshall School of Business and the Viterbi School of Engineering. The dean of USC Bovard College is the vice provost for global and online initiatives.
In short, Bovard College is a mystery to most USC faculty members, because it is so out of step with the institution’s standard academic procedures, personnel complement, and graduate teaching mission. The prevailing faculty opinion is that the provost’s office created this unusual school to receive new tuition flows without the complications presented by the faculties and schools who would otherwise produce them. While the provost likely embraces this diversion, the business purpose of Bovard College is more strategic. It serves as USC’s self-funded, internal OPM, poised to enter internal revenue-sharing and service-level agreements with other USC schools that wish to expand or improve their online courses and programs. The point is to recapture all of the revenue opportunity previously shared with 2U and ultimately much more.
James E. Moore, II, is professor emeritus of industrial & systems engineering, of civil & environmental engineering, and of public policy at the University of Southern California. He served as vice dean for academic programs in the USC Viterbi School of Engineering.