Are tuition-share agreements between colleges and OPMs on solid legal footing?

by Jeremy

When Coursera went public earlier this year, it was riding a wave of enthusiasm for online education brought on by the coronavirus pandemic. The company — which offers more than 4,600 standalone online courses, two dozen degree programs, and other credentials — told potential investors that users were flocking to its platform during the health crisis.

One segment of the business was doing exceptionally well. Since 2015, the company has partnered with colleges to help them launch and run online degree programs hosted on the Coursera platform, including recruiting students. In exchange, the company receives a portion of its tuition revenue.

Are tuition-share agreements between colleges and OPMs on solid legal footing?

The number of students enrolled in one of Coursera’s degree programs swelled from 6,200 at the end of 2019 to nearly 12,000 a year later. But Coursera issued a warning to investors when filing for its initial public offering: That part of its business is on an unstable legal footing.

U.S. law prohibits colleges that receive federal financial aid from giving commissions, bonuses, or other types of incentive-based compensation to companies or individuals that recruit and enroll students into their programs.

Some experts contend tuition-share agreements that include enrollment services may not be in line with this law because they give companies an incentive to recruit as many students as possible without minding quality. However, federal guidance issued in 2011 said schools could enter into tuition-share agreements with companies that offer help with enrollment, so long as it is part of a larger package of services.

This exception helped make it possible for companies that work with colleges to create and deliver online programs to prosper, including Coursera. SEC documents said it “relies heavily” on the exception to enter tuition-share agreements with its partner colleges.

But the company also said the guidance, which hasn’t been codified in regulations or federal law, could easily be rewritten without notice or overturned through a lawsuit. If that happened, Coursera — and companies like it — would have to change their business models or renegotiate their contracts.

At least two high-profile lawmakers and a handful of policy advocates question whether the guidance complies with federal law — putting OPM companies on high alert.

“They’re enormously worried,” said Trace Urdan, managing director at Tyton Partners, an investment banking and consulting firm that works with the higher ed sector, including OPMs.

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