The Company That Runs the University Online Degree
Universities partnered with private firms to build and market online programmes, typically paying a share of tuition revenue for a decade. The arrangements delivered scale and drew scrutiny over incentives and disclosure.
The Deal
A university wanting to launch an online degree faces significant upfront cost: course design, video production, learning platform, student recruitment marketing, enrolment counselling, and student support.
An online programme manager provides those services and funds the cost, in exchange for a share of tuition revenue from the programme, commonly cited in the range of forty to sixty percent, over a contract term frequently ten years or longer.
The university provides the academic content, the faculty, the accreditation, and the name on the degree.
| Provided By the University | Provided By the Manager |
|---|---|
| Accreditation and credential | Capital for launch |
| Faculty and academic oversight | Marketing and recruitment |
| Curriculum | Instructional design and production |
| Brand | Platform and student support |
The university contributes the only thing that cannot be bought, which is the ability to award an accredited degree, and receives a minority of the revenue. That is either a fair price for capital and capability it lacked, or a poor trade, and the answer depends entirely on whether it could have built the capability itself.
Why the Revenue Share Model
The structure exists because universities were unwilling or unable to fund the launch.
Building a marketed online programme requires spending several million dollars before any student enrols, on a programme that may not recruit. Universities are generally unable to make speculative capital commitments of that kind, and the marketing spending in particular sits uncomfortably with academic budgeting.
The revenue share transfers that risk. If the programme fails to recruit, the manager loses its investment.
That is a genuine risk transfer and it is the strongest justification for the share.
The Incentive Question
The manager is compensated on enrolment revenue, which produces an interest in recruiting students.
That interest is not necessarily aligned with recruiting students likely to succeed, since revenue arrives on enrolment and the consequences of poor fit arrive later.
The specific concern is recruitment practice. Federal rules prohibit paying incentive compensation based on enrolment success to persons engaged in recruiting, precisely because of the history of aggressive recruiting in for profit education.
A regulatory guidance issued in 2011 created a bundled services exception, permitting revenue sharing where recruitment is bundled with other services in a single arrangement, which is what made the model possible at scale.
That guidance was rescinded in 2024, with a transition period, which removes the exception the industry was built on and has driven substantial restructuring toward fee for service arrangements.
The Disclosure Problem
A separate concern is that students frequently did not know a third party was involved.
Recruitment communications, enrolment counselling, and the learning platform all carry university branding, and the contractual relationship is generally not disclosed to prospective students.
A student choosing a programme partly on the reputation of the institution may reasonably assume the institution is delivering it.
Government auditors examined this and recommended greater transparency, and several states have considered disclosure requirements.
The Economics for the University
Analyses of these arrangements have raised a question that is uncomfortable for the institutions.
Where tuition for the online programme matches the campus programme, and half the revenue goes to the manager, the university receives substantially less per student than it does on campus while awarding the same credential.
Institutions defend this on the basis that the revenue is incremental, that the students would not otherwise have enrolled, and that the marginal cost of an additional online student is low.
That holds where the programme genuinely reaches new students. It holds less well where the online programme substitutes for campus enrolment, and it holds not at all once the contract term extends years beyond the point at which the university could operate the programme itself.
Where the Market Went
The sector has consolidated and contracted. Several large managers experienced substantial declines as universities brought programmes in house at contract expiry, having built the capability during the partnership.
The emerging model is fee for service, where the university pays for specific services and retains the tuition, which requires the university to fund the launch and removes the manager risk transfer.
That shift is a reasonable maturation. The revenue share made sense when universities had no online capability and no capital appetite. Once they have both, paying half of tuition indefinitely does not.
The Bottom Line
Online programme managers funded and built the online degree operations that universities were unwilling to fund themselves, in exchange for a revenue share over a long contract. The arrangement transferred genuine launch risk and gave away a substantial share of the economics of a credential only the university could award. The regulatory guidance that permitted revenue sharing tied to recruitment has been withdrawn, and the market is moving toward fee for service, which is what the arrangement probably should have been once the capability existed.