Must Read Blog May 19, 2021

After COVID-19: Driving Academic Transformation Through Public-Private Partnerships

Just over a year ago, in a matter of a few weeks nearly every American college and university transformed from primarily face-to-face to remote learning.  The result, with little thought for the transformative effect, has been the creation of thousands of public-private partnershipsarraying proprietary platforms and private capital (Zoom has a market cap of $100-billion) into the core of our higher education system.

This is not a new invention.  A decade ago, in the shadow of the Great Recession, I wrote an article for AGB’s Trusteeship magazine, on the then just-developing trend of independent colleges collaborating with private enterprises to support their core academic functions.

Fast forward to now.  For many institutions, having undertaken and survived the pandemic-induced forced march into online, there have been revealed advantages and opportunities that will suggest something different from a return to the status quo ante COVID.  Not only can the learning process be improved through the intelligent use of online, but it can be made more efficient and even more economical.  For Trustees and Presidents, this poses a new challenge: how to maintain an online presence that implicates an entirely different financial model, in effect outsourcing key components of the academic enterprise through accessing, either directly or indirectly, private capital.

Quality online learning is capital-intensive, for the technology infrastructure, marketing, content development and providing a distinct suite of student services.  The difference today is that there are sources of financing, through various forms of public-private partnerships, that make access to this capital economically attractive.

Most obvious is engagement with an Online Program Manager, aka OPM.  Through its owners/investors, the OPM has the capital to provide the infrastructure and the cost to the institution is defrayed by sharing current and future tuition revenue derived from the online program.  Alternatives, such as acquiring an existing online institution or program, are emerging.  But how can any but the very wealthiest institutions even dream of acquiring a significant online institution?

We need to recognize that along with the COVID-19 tsunami there has also been another significant seismic shift.  We are entering a regulatory regime that is very likely to severely disfavor for-profit higher education.  While the strongest and best-performing proprietary institutions are likely to continue to do well—precisely because they are strong and well-performing—the dynamic has shifted.  The acquisitions of hitherto for-profit Kaplan and Ashford Universities by Purdue and Arizona, respectively, are bellwethers: the hitherto for-profit institution is transferred to the control of a non-profit or public university with the former owner remaining as the OPM, avoiding a substantial capital investment on the part of the acquiring institution.  And between leveraging capital reserves and the creative use of public and private debt as well as captive privately financed structures, a complete acquisition is not out of reach, supported by lenders and capital markets seeking new opportunities in postsecondary education.

Another emerging approach is “renting-to-own.”  There are providers of bundled OPM services that will enter into a relatively short-term agreement with an institution to provide it with the skill set and resources to build its own internal capacity to administer its online program, while at the same time supporting the delivery of the program.  In effect, the institution is paying an OPM fee while it is learning how to deliver a quality, competitive program, all the while using revenues from its online program to wean itself from the external provider.

Finally, opportunity loves company.  Online is particularly hospitable to collective action: a group of institutions with complimentary programs, location (dirty little secret: most students enrolling in online programs do so at institutions within a relatively short distance from their homes) and other characteristics such as focus on the arts, or representing a particular faith community can create an online presence that is more robust—and less costly to operate—then each operating alone.  Combining such an enterprise with accessing outside capital can result in an effective and lasting consortium.

If necessity is the mother of invention, adversity may be its midwife.  Institutional transformation is opportunistic: it requires a coming together of vision, direction and resources.  The challenge facing trustees and presidents is to be able to leverage the transformative opportunities forged in the fire of the pandemic to fully develop their competitive opportunities and minimizing their risks. Renting, buying or building online learning capacity can transform an institution.  Public-private partnerships afford vehicles and established expertise to manage the capital costs and provide the support to collaboratively implement the systems necessary to attract enrollment in and deliver academically credible and affordable programs.

Transformation is not for everyone.  For some, it is unnecessary.  For others, it is unachievable.  But for those in the middle, as we watch the COVID seas recede, the opportunity avails.

This blog initially appeared on the website of The Association of Governing Boards of Universities and Colleges (AGB). It is published here with permission.