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The response below follows the publication of a piece that we wrote on “Thoughts on ED’s New Guidance on Revenue-Share Arrangements and Third-Party Servicers.” In that piece, we don’t come down one way or the other in support of or in opposition to the existing Department of Education rules that allow for revenue-sharing agreements between universities and companies. Chip Paucek, CEO of 2U, now the parent company of edX, asked for a space to reply.
This issue is complex, and in truth, we each have different perspectives on how for-profit companies work with institutions. We wanted to create the opportunity for Chip to make the case and are grateful for his participation, as we find him to be thoughtful on the issues.
Before we get to our questions for Chip, some disclosures: we participate as unpaid members of the edX/2U University Partner Advisory Council. Our institutions have long-running collaborations with 2U and edX.
Also, if you’ve read Josh and Eddie’s first book, Learning Innovation and the Future of Higher Education (2020), you will know that we can be skeptical of relying on nonprofit/for-profit partnerships in the areas we consider core and strategic for universities, such as learning and degrees. All of this is to say that we bring some prior thinking to this conversation, a reality you should keep in mind as you read this discussion.
Q: Why do you think ED is revisiting bundled services?
A: First, thank you for the opportunity to engage in honest dialogue about this critical issue. As you know, higher education is grappling with significant headwinds, including historic drops in confidence in the power and ROI of a college education. We believe that revenue-share partnerships are a meaningful part of the solution.
With big issues to tackle across the higher ed landscape, I’m surprised that the revenue-share model has warranted so much attention, particularly when it’s so consistently well received by universities, is the most common partnership model selected by institutions, is delivering strong outcomes for students and represents such a small sliver of the global higher ed market (3 percent). Not to mention the fact that about 84 percent of written comments submitted to ED on this topic support revenue-sharing arrangements.
Unfortunately, I see the narrative being driven by a very small but incredibly loud group of people from the same well-funded think tanks for whom for-profit businesses are an anathema. Regardless of the facts, they just don’t like for-profit companies in higher education, and for them that’s where they draw the line.
I’ve seen this play out for years. These folks spend all day, every day, creating “research reports” based on isolated anecdotes and planting media stories riddled with inaccuracies and false claims, all engineered to advance an anti-online, anti-enterprise agenda. Despite what our critics say, transparency and quality outcomes for students have been and will always remain our North Star.
I sleep well at night because we’re delivering meaningfully for students. Over all, 91 percent of students in our partners’ degree programs say they would do it all over again, and 97 percent report a positive career outcome. And colleges and universities are, over all, very satisfied with the results of our partnerships.
Q: Why revenue share?
A: Creating high-quality online higher education programs isn’t easy work—but it’s critical work that requires thoughtful and mission-aligned partners to sufficiently meet the needs of a complex, dynamic, and rapidly evolving learner population.
In my 15 years running 2U, I’ve spent countless hours speaking with university presidents, provosts, deans and faculty about how to stay ahead of the curve. What’s always been clear is that creating great online programs is costly, difficult, resource-intensive and risky. Did you know that up to 25 percent of all online degree programs launched by universities fail within the first year? Nobody talks about that.
But 2U has helped hundreds of the world's top institutions avoid these pitfalls, developing 180 state-of-the-art online degree programs in fields like nursing, education, counseling and data science. 2U invests $5 million up front on average into each online degree program we support. Universities bear minimal up-front cost while maintaining exclusive control over core academic functions, including, among others, setting tuition, and have strict university oversight into operations like marketing.
Today, over 50,000 students have graduated from these programs. These graduates are providing health care to people in their communities, teaching in classrooms around the country and bringing much-needed tech skills to local employers in their towns and cities.
Revenue sharing is what makes it possible. Many of these programs simply wouldn’t exist without the revenue-share model.
It’s the only model that 1) aligns incentives firmly toward student success—2U only receives revenue as a student progresses through a program, 2) provides up-front investment for innovation while reducing institutional risk, 3) helps universities innovate quickly in a complicated and fast-moving digital environment, 4) improves efficiencies in key areas, 5) incentivizes institutions to lower tuition and–most importantly—6) results in tangible benefits to students.
Q: If revenue share should go away, are there ways under a fee-for-service model in which the enabling function in terms of up-front company investments (and risk-taking) might be preserved?
A: No. Fee-for-service arrangements, which are typically priced the same as revenue-share agreements, provide zero up-front investment and take on zero up-front risk, making the already risky proposition of launching online programs even more so for universities.
They also lack a shared incentive to generate positive student outcomes. In a revenue-share arrangement, companies like 2U only receive a share of tuition as students progress through a program and ultimately graduate. In a fee-for-service arrangement, the provider gets paid up front—which means they have no economic incentive to focus on helping partners find qualified students and supporting those students through program completion.
The reality is that revenue sharing is often the most practical option for universities because it provides greater flexibility, conserves financial resources and creates a shared mission and financial incentive based entirely on generating positive student outcomes. We have offered fee for service for years and have some of those relationships, but very few—our partners prefer revenue sharing.
Helen Drinan, interim president of Cabrini University and a current 2U partner, shared her experience using fee-for-service with ED: “We were required to fund everything 2U is now as best we could, before a single student paid us a dollar of tuition, at a level which was both challenging and yet insufficient to the task. The results were never up to projections, leading to very low total enrollments, significant financial losses and ultimately program suspension.”
Ultimately, there is no moral superiority to either model. There are good companies in both spaces. But there is no one-size-fits-all in education. It’s critical that colleges and universities continue to have the option and flexibility to pursue both models—this choice is an important part of current law and existing legal precedent.
Q: We appreciate that you laid out the arguments for nonprofit/for-profit partnerships in your recent piece, “Why Private Companies Are Crucial to Innovations in Online Education.” How might skeptics of universities working with for-profit companies in core areas (such as learning and degrees) be able to maintain skepticism yet still develop productive arrangements?
A: On a practical level, 2U’s model is built around the necessary checks and balances required to run a successful public-private partnership. This takes shape in our partners’ academic independence and university oversight. I cannot state enough that these are our partners’ programs—they have exclusive control in the following areas:
- Setting tuition
- Accreditation
- Curriculum and instruction
- Faculty hiring
- Admission standards
- Admissions decisions
- Administering financial aid
From the perspective of broader public dialogue, while I believe open and constructive debate is essential in higher education, as you can see, I’m tired of the narrative that neglects to recognize that throughout history, for-profit companies have played a meaningful and beneficial role. The narrative is often not data driven and lacks any discussion of overall outcomes. I’m tired of the misinformation.
Companies like 2U are part of collaborative solutions to driving meaningful, scalable outcomes for students, universities and the world. We’re a critical part of training the next generation of teachers, therapists and other health-care workers needed to solve the national shortage for these roles. We’re a massive force in the development of global tech talent at a time when the Organisation for Economic Co-operation and Development estimates that 1.1 billion jobs will be radically changed by technology in the next decade.
I will say that any business—nonprofit or for-profit—that directly impacts people and communities should be held to high standards. And I appreciate and agree with the calls for increased transparency and standards across higher education. That’s why we’ve tried to lead the industry over the past decade with initiatives like our Transparency Reports and Gallup studies.
Evidence-based conversations are the path forward. So while I don’t welcome the baseless and ideological-driven agenda from some of our adversaries, I do welcome skepticism, critique, and debate. It’s all necessary to keep us innovating on behalf of who really matters here—the students.
Let’s keep talking. But no one said eliminating the back row would be easy …
