Why Is Education Department Afraid of Innovation in Higher Ed?

Online learning has revolutionized higher education, but a recent move by the federal Department of Education is threatening to tear down systems that are helping millions of students learn.

An extremely wide diversity of students choose to take online courses or to get entire online degrees. Colleges that offer them need to be nimble as the economy changes, yet traditional colleges are slow to change, and they often lack the expertise and funding to develop and manage online courses independently.

That’s a key reason online program management companies have sprung up to serve the need, working with colleges to help students.

Yet the Department of Education, apparently allergic to profit of any kind, earlier this year swept online program management companies and a vast array of other providers into its “third-party servicer” rule, promising a heavy-handed regulatory regime.

That move has injected deep uncertainty into the entire higher education sector, leading to diminished investment and layoffs in the online program management industry.

The problem is that Congress clearly described what a third-party servicer is, but the Department of Education does not like to stay within the law. The latter specifies that a third-party servicer only includes those that help with “student assistance programs”; that is, with managing students’ financial aid.

The department now argues that even providing a course counts, since a student might get financial aid to take the course. A recruiting service that also notes the existence of financial aid also would count.

All of that is an arbitrary modification of the law to attack online program management companies.

Even worse, the department announced this major change, sweeping a new set of companies into regulation, without actually regulating or negotiating. The department just issued a notice.

The backlash was swift and furious, so the department voided the effective date. That means the new definition of a third-party servicer is still the official position of the department, but it’s not being enforced. At any moment, the department could decide it’s ready to move forward to throttle online program management companies and many others in higher education.

The department’s move is likely to increase students’ costs and stifle innovation in postsecondary education.

More and more prospective students are choosing alternatives to a traditional bachelor’s degree, determining that its benefits are not worth the rapidly rising cost. Traditional colleges are keeping up by offering online courses or sub-degree programs. But burdening them with new regulatory compliance costs will divert resources from students to administrators.

Additionally, one-size-fits-all federal regulations are ill-suited to the rapid innovation in postsecondary education, which is increasing access, improving the educational experience, and reducing costs for millions of students nationwide.

Frankly, no federal agency is nimble enough to keep up with the sector’s rapid innovation. Therefore, the best way to help students is to stay out of the way.

Furthermore, interfering with the freedom to contract in education will limit the sector and ultimately diminish options for students.

Online program management companies have been one of America’s greatest innovations for providing scalable, low-cost college access. They would hardly have been possible without freedom to contract, innovate, and adapt outside of burdensome government oversight.

Indeed, colleges’ contracts with online program management companies tend to use revenue sharing, which helps institutions transfer financial risk to their online program management partners while these companies devote large sums to capital investment.

This model enables less-resourced institutions to enter the market, compete, and maybe save themselves from bankruptcy. Without online program management companies, less well-resourced institutions with larger numbers of nontraditional students will be left further and further behind.

The Department of Education should stick with its narrow authority under the law—no more and no less. That means withdrawing the new definition entirely.

The department needs to learn that profit is not scary. To the contrary, private enterprise through voluntary exchange makes all parties better off.

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