In response to a request for comment by the U.S. Department of Education, Arnold Ventures submitted a letter critiquing the “bundled services loophole,” which allows schools to pay online program management companies (OPMs) to conduct student recruiting in exchange for a percent of program revenue.
Schools typically are barred from paying recruiters based on the number of students they enroll, and for good reason. This arrangement gives recruiters a financial incentive to target underqualified students and vulnerable communities with promises of an education — and then cash in once students take out loans and enroll.
However, the “bundled services loophole” allows OPMs to get around this prohibition. This loophole can happen when OPMs contract with a university or school to provide multiple services — a bundle — such as moving a program to an online format, marketing the program, and recruiting students. In exchange, OPMs can receive a slice of program revenue.
As long as marketing and recruiting are part of a larger “bundle” of services, revenue-sharing agreements are not prohibited.
With this loophole in place, many OPMs have transitioned their focus away from the original promise — converting in-person programs to online platforms — and have expanded into recruiting. Some OPMs have been caught engaging in predatory practices in order to maximize their recruiting revenue — pressuring students to take out hefty student debt to enroll in programs with low financial value.
Luckily, the Education Department is shining a spotlight on this problem, and Arnold Ventures is advocating for stronger protections to prevent predatory recruiting practices and protect students.
Read Arnold Ventures’ formal comments on bundled services here.