Regulation or Innovation with Paul LeBlanc

In this episode, I sit down with Paul LeBlanc, President of Southern New Hampshire University (SNHU) at the 2023 SXSW conference in Austin, TX. We discuss the impact of the changes to the definition of a Third-Party Servicer proposed by the US Department of Education on SNHU. Paul and I also discuss balancing innovation and consumer protection. 

Transcript

0:08

hi, this is Z loyalties. Oakley welcome back to the rent. The podcast where we pull back the curtain and break down the people, the policies and the politics of our higher education system. And today's episode, we begin a series of episodes that we'll focus on the February, 2023 announcement by the us department of education. That is changing guidance and language. Regarding online program management companies, otherwise known as LPMs as well as their bundle services and revenue share agreements that they have with their partner colleges and universities. We'll also discuss the expanded definition that they've proposed to third party servicers. That is those institutions that support title four eligible colleges and universities. And that some people consider them as outsourcing primary responsibilities at that college and university. We'll talk about the impact of these changes. On innovation on the operation of colleges and universities. And how this actually gets to ensuring that we protect consumers, the learners. From there kinds of predatory practices that we've seen from for-profit institutions. This is a complex issue. So I've dedicated several episodes to this. I've got very in view points. I have people who work in the industry as college or university leaders who are innovators themselves. And see the challenges and how this will affect their organizations. We'll also talk to people who have been regulators, people who have been advocates. Supporting the need to ensure that there are clear guardrails to protect consumers. From predatory marketing and recruitment practices, and we've all seen those headlines. We've seen the headlines of major universities contracting out with OPM. And leaving students in the lurch. With degrees and certificates, that costs well more than what they can afford to pay back over time. So, this is an issue that's been nagging this administration and the department of education, and many people have been calling for change for change in the marketplace for a reigning in the kind of practices that we've seen over time. And to have more regulation put in place to protect consumers. And of course those on the innovation side, those who are trying to come up with ways to better serve learners of all backgrounds, trying to democratize access to a good post-secondary experience are saying that these kinds of regulatory changes are going to stop innovation and that they're going to hurt the kinds of students that we all want to see. Have a chance to access. A good quality post-secondary education. So we'll get into all these issues. Try to break them all down. We will break down the people involved. We'll break down the policies involved. And as important, we will begin to break down the politics involved in all of these changes. So I hope that you join me for all of these episodes. I have some fun interviews with some really great guests and at the end, we'll have a special guests from the department of education. to help wrap things up. So along the way, leave me your comments, your thoughts. If you have suggestions or recommendations on the types of regulatory changes that you feel would be helpful to the marketplace that you feel would be helpful to protect learners. Send them to me, I will make sure and forward them to my colleagues in the department of education. I hope that you join me on this journey. My first guest. The first episode that we'll have is with my good friend and colleague Paula block, the president of Southern New Hampshire university. Great innovator himself. His institution is well known for its innovation. So we're going to kick things off with him. Thanks for joining us. And if you like these episodes, At the like button. Subscribed to the YouTube channel and follow us on your favorite podcast platform. Thanks for joining us.

Paul & Eloy: 4:12

Everyone. I'm joined today by a very special guest, good friend, and a very important leader in post-secondary space. Uh, His name is Paula La Block. He's the president of Southern New Hampshire University. We're gonna be talking about innovation and how the Department of Education recent language around third party servicers is affecting institutions like Southern New Hampshire. Welcome to the podcast, Paul. Thanks for having me, Eli. It's great to, I just love that you're doing this, so it's great to be here. And you know, we're both in, in Austin for South by Southwest so it's great to catch you. What are your thoughts off the top of your head? I know you have a little bit different experience than most presidents. You've actually spent time in the Department of Education and we both had that that privilege. So you know how tough it is to come up. Federal regulation that gets to the issue that any regulator's trying to get at to improve the space for consumers, for learners, but at the same time not cast the net so wide that you're making it very difficult for institutions to innovate. So you understand how difficult that is. And at the same time, you're also the president of an institution that prides itself on innovation. So, in your mind and from your perch at Southern New Hampshire, how does this new language, this expanded definition of a third party servicer impact Southern New Hampshire? Yeah, so let, let's start by saying it's not clear to anyone what the goals of the proposed regulations are. So it's a little bit hard. Speculate on what one's trying to do at the department. And as you know, and I learned you have competing interests within the department, right? And those extend to the White House and other stakeholders. So let's start with the facts and then we can do like, what do you think is really going on here? Mm-hmm. So on the factual side, we have currently the, so a couple of things I think the department's trying to get at. They're trying to understand the OPM industry. I think there's a fair number of critics of the OPM industry, right? The outsource program management. So again, over 550 colleges use OPMs according to the oig or was the general accounting office. I can't remember, but I think that count as low, right? It's very hard to know who's using And those OPMs help them market and recruit, and they take a tuition share. And I think that tuition revenue, revenue sharing is very problematic in the. Of the department, they think there are perverse incentives, right? If I'm gonna make more money by recruiting more students for you, I'm gonna recruit like crazy. Mm-hmm and if I can get you to charge more tuition, I'm gonna make more money. They sometimes forget that the institutions are complicit, right? They're setting enrollment caps and tuition, but there's all of that. So if you look at S N H U. We have two pockets of revenue share. So one is with workforce and intermediaries like Ed Assist and Guild. Mm-hmm. And the second would be our community partners. Now, these are very small mission-driven organizations like Da Vinci schools in la I mean, they're working with homeless kids, right, right. Or the duet program in Boston. Highly marginalized learners. Just did a Harvard independent study from Harvard that looked at that program. erases racial inequities, faster to completion, high success rates. It's a great pro. Everyone should be cheering for programs like that. Mm-hmm. this will get caught up in the revenue shared discussion, and we wanna make sure that those good players are not in hurt, in, in, in the end product. Right. Then the other piece of this is how many third party servicers we have. So some of your audience. most of your audience will probably know. But a third party servicer is an entity that, with, with whom we contract that has some role in the administration of Title four funds for S N H U. Right. And this is common. Everyone uses them. Mm-hmm. right now we have nine under the new regulations, which expands the definition of who's included. Right? We have identified so far, 1200 and we think we'll close somewhere around 1700. So these will be 1700 contract. and these will be little startup companies that we work with who are doing interesting chatbot stuff that help on persistence all the way up to D two L Pearson Workday. I mean, it's virtually every technology related vendor that we work with and we work with a lot, as do all institutions today. And the other thing I have to remember, but that's like, okay, so hand over the contracts. Well, two things. One is that if they are deemed a tps, those companies will now be service. Legally liable to the department. Many of them will walk away from that. Right. Many of'em will say, no thanks. Not us. Others can't afford to walk away. It'll be a bit messy. Right? And, and then the other part is, that's unclear is we have contracts with these people, so mm-hmm. if they're found not to be compliant, which do we do? Do we break illegally binding contract? or do we follow the compliance with the Department of Ed? So all of this is a bit messy, and it'd be helpful if we could get a better sense of what the department's doing. I agree that it's become a bit messy and whether intentionally or not, it's sort of created lots of more questions than it's, than they're answering. Yeah. So I appreciate the department has decided to push this back until September. this gives a little bit more time for people to think this through and, and to submit their comments and concerns. Now, if it is indeed the case that the department wants to close loopholes or create more transparency let's start with the transparency one first. So lots of people will argue, what, what are people hiding? Why not just make these contracts more transparent? How difficult would it be? you know, you just mentioned the 1700, 1900 contracts. To have all those audited or have some sort of function where you're making those publicly available or sending'em all to the department whatever they come up with what kind of burden would that create for Southern New Hampshire and do you think that would even get to the kinds of issues that they're concerned about, particularly if they're worried? exposing predatory practices. Yeah, so predatory practices are often evoked, and I think in some ways that's fighting yesterday's war. Mm-hmm. those are the battle days of for-profit institutions who are, you know, collecting the social security numbers of people in food bank lines. Mm-hmm. and then using a term like it was just terrible stuff. And, and look at it, we get it and we've paid a high, high price as taxpayers for the failures of those for profit institutions. I just think there are fewer and fewer examples of that today. The. The for-profits, as some critics have argued, have reinvented themselves as op. and they're now in partnership with not-for-profits, and you have to sort of hold the not-for-profits accountable here as well. Right. What kind of oversight do they have, et cetera, et cetera. I think it's the, I think the real issue that they're trying to get at probably two, one is how much is being spent on marketing, so, mm-hmm. we are, our friend, Bob Sharman, I think feels very passionate about this and lots of, you know, people who fall into Bob's camp now work at the department or, or at the White House. Bob's a great guy. Super. consider'em a friend. Mm-hmm. But I think, I think that's one thing they're trying to get their arms on. We can talk about marketing if you like. And then I think the other piece is to what extent is a student who thinks they're enrolling in institution X, really getting institution X, and to what extent are they getting that former for-profit? Mm-hmm. and, and their examples that I think it's a fair criticism and they could. get more transparency and optics by looking at the contracts and saying, what exactly are you contracting for? Right? And, and I think there are probably easier ways to do that than to ask for all contracts. Right. So let's, let's talk about marketing, because I think, we're in an environment right now across the country where we have tremendous enrollment decline. Particularly amongst private nonprofits, particularly the small liberal arts colleges. I mean, we've had several close in California. Yep. Community colleges across the country are experiencing enrollment declines. Some regional four years are experiencing enrollment declines. How would you th think about marketing in the context of trying to get more people to. be exposed to a post-secondary experience versus just doing marketing for marketing's sake. How would we help the Department of Education really sort through that? Or is there even a way to sort through that? Or should we even be worried about marketing? I think the complexity of this is not well understood within the department. The great majority of institutions in this country. live and die on their enrollments. Right. So of course they're marketing because of course they need enrollments are the consequences of that can be dire as you pointed out. And we are seeing this play out. Mm-hmm. So the pressure to market is going up, knock down. Mm-hmm. as schools deal with enrollment declines. There's, I think one of the ways the department could more useful get at this is to ask institutions to identify what is their cost of acquisition per student. What are you spending to enroll a student on average? So the industry average last time I looked is somewhere around$3,000 per student. Mm-hmm. Is that a fair number? At least we can start to get benchmarks and say, wow, you are spending excess. you're spending below the benchmark, the national benchmark, and it gives us some understanding. Mm-hmm. that I don't think exists today in the department. So when you look at just a pure number or a percentage of budget, which is another way to look at that. What's the right percentage? Right. You know, how how do we establish that? And for a school that has kept its tuition low for a long time, there's one way to game the system, which is raise your tuition. Then my percentage on marketing goes down. So it's a more sophisticated question than just trying to pick a number or pluck a number. But I do think reframing as a cost of acquisition on average would be a very helpful benchmark for the department to establish. They're not gonna get that by looking at contracts. Right? They're not gonna, so, you know, poor, they're not gonna understand most of the contracts, nor do they have capacity, as you know. Well, I think that's, that's an important point, is how, how does the department do? particularly with the, the, the broad scope that they're talking about, given the capacity that they have. Yeah. And I think we should all be worried about the capacity government has to do its work. So Paul,, let's touch on another topic that's front center in this discussion. Revenue share agreements. Okay. Particularly, you know, when you're talking about OPMs and a lot of institutions are trying to find capacity or to procure capacity for offering more courses online and things like that. I think, you know, USC is a great example of. what could go wrong in those kinds of situations, but how would you look at revenue share agreements? And this is not just in in universities. Community colleges do revenue share agreements. I think a lot of people forget shares all over the place. It's all over the place. When I was at Long Beach City College, I had a revenue share agreement with the local fire department. Sure. We ran the fire academy for them, it was on their property, and we had a revenue share agreement. as to how we were gonna do that. And it was a win-win for the institution. It was a win-win for the community. Yep. How would you advise folks to think about revenue share agreements? Is it just a matter of more transparency or do we have to do something in regulation? So certainly transparency would help. Mm-hmm. I think part of what's happening in the department is, Trying to understand what do revenue shares look like. As we know, the classic one early days of OPMs would've been, you know, 10 years and a 70 30 split. And it seems like, wow, 70% of the tuition revenue went to opm. Right. And I think, you know, I've been trying to make the argument to the department that there's a lot of the services that OPMs provide that could be on a fee basis. It doesn't have to be because very ratio driven. So I know what to charge you. If I, if I'm an opm running your online program for you or helping run your online program for you. I know how many advisors I have to hire. Mm-hmm. it's just a ratio driver. I can, I can then I can add my 5% or 10%, whatever it is. Be really transparent about that. The one that's really hard is marketing and recruitment. Mm-hmm. because I don't know what it's going to take. Right. To get you the numbers you want. So if. If I am charging you a fee, high risk to me. Right. I'm putting up a lot of capital and what I also know is it's gonna take a while for most institutions. That's right. Right. You build over time. So OPMs lose money typically in the first 4, 5, 6, 7 years. Mm-hmm. and finally start to make their profit in the out years. So, Those excessive revenue projections look excessive because they're on such a small base. But later on is when it sort of, sort of flips the script, if you will. Mm-hmm. One of the things the department could do is say, we wanna see OPM contracts because you're h tight. They can do, they can do this, right? They're fee based for everything but the revenue share around your marketing. Mm-hmm. And on the marketing, we want to, we are going to limit the amount of profit you can make over the accumulated time of the contract. Mm-hmm. pick a percentage, right? You can make 10% on the marketing. That's all. Mm-hmm. So you get paid for your expertise. It's a shared risk agreement because think about all the ways it goes wrong. The beauty of a revenue share is that your interests are aligned, right? So if I am the OPM and you're the institution and you say, go for it. Spend all this money. But by the way, we're gonna cap this program at 80 students. And I'm doing that. Like, I can't ever be successful at 80 students, or we're gonna have, we're gonna, we're gonna not cap it, but we're gonna have our faculty make the final admission decision. Well, that's great. They hate online. They don't wanna have this happen So we just saw, you know, university of California, they're like, Nope, we're done. Right. No more online. So I think, you know, the, the alignment of interest is really critical. And for so many of the schools that use OP. They don't have the capital to put, they can't take the risk. They don't have the capital to put up front. Mm-hmm. So you could say, look, and let's get OPMs out of the marketing business. That's why they get hired. That's right. You know, schools would struggle to do a lot of the other things like advising the tech stack and courses. Sure enough. But they could figure that out. Right? They could learn that. But they're really bad at marketing. And marketing is more complex than it's ever been. That's right. It's so targeted. It's so specialized. There's so many places. I mean, before you could just advertise on the radio or market on the radio. Now it's gotten so granular. Yeah. And you know, people have said, oh, we know you've seen your, your S n HG ads when we were watching Jeopardy. It's like, really? Because everyone's switching to streaming now, right? Like, we're not, we're less and less than that streaming's much more challenging. What do you do in a world of TikTok? That's right. How do you think about social media generally? Google, of course, plays a big role and that really chs some people at the department of how much is Google making off higher ed, you know? And so, so it's really complex. And you think about s e o work, you think about AB testing. You think about all of the things that go into it. The days of the View book and buying a list of names, the, the, that's ancient history. It is ancient history. Well, look, I really appreciate you taking some time to, to share with us your perspective. I think um, there's always a great debate to be had over different levers, different policies, but the principle is still the principle. We wanna reach more Americans of all backgrounds. We wanna democratize our post-secondary education system and we're gonna have to rely on innovation to help us get there. Absolutely. And I think, you know, for those of us who think of ourselves in the innovation, We can't dismiss the real concerns of people like Bob Sheerman and others of the, you know, when innovation goes sideways, when it's not properly regulated. Right. And when students have been hurt and sometimes the most vulnerable students. So if we're gonna make a case for innovation, we also have to make a case for safeguards. Yeah. And on the student consumer side, you can't be so reflexively anti-innovation. I think innovation's almost a dirty word right now for many people in the department because they associated with abuse and that's obviously silly as well. But you know, finding middle ground, that's a sort of rare activity in American politics these days. that seems to be fading quickly. So hopefully we can get there. Hopefully, whether it be conversations like this, whether it be opportunities to have public comment with the department. We can inch our way there. Yeah. Well, thank you. So thank you. Thank you, Eli. Eli. Great to have you. Yeah, it's a pleasure. All right. Thanks for being with us and we'll have more great conversations here shortly.