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You’ve Got Options

May 2022

By Nancy Mann Jackson

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Depending on their needs, institutions offering online programs can now choose either a fee-for-service model or a revenue-sharing plan.

Adding online degree programs is nothing new for institutions, but as the field of online program management matures, colleges and universities have new options for creating these programs. 

Traditionally, revenue sharing has been the most common method by which institutions could add online degree programs. In the revenue-sharing model, vendors institute the program with no upfront charges in exchange for a portion of the program’s revenue for a period of time, such as 10 years. While revenue sharing works well for many institutions, a newer option—the fee-for-service model—could be a better fit for some colleges and universities. 

In a recent NACUBO webcast, representatives from Schreiner University and the University of Pittsburgh discussed why they chose a fee-for-service model and how they have implemented new online degree programs.

Looking for a Partner 

Like many institutions, Schreiner, located outside San Antonio, Texas, is "constantly trying to figure out how to provide an affordable educational experience and increase the value of that experience," says Charlie McCormick, president of the university. In 2014, university leaders determined that adding an online degree program would allow them to serve more students and increase institutional revenue. However, as they educated themselves about revenue-sharing models, they became uncomfortable with the option. 

The revenue-sharing vendors they met with offered generic, out-of-the-box solutions that just needed the school to add its name. "It seemed that the nature of the vendor relationship would be simply transactional, but we wanted to find a solution that would reflect the culture and identity of Schreiner," McCormick says. "We weren’t looking for a vendor; we wanted to engage in a partnership." 

After researching market demands and the competitive landscape, Schreiner administrators determined that the best option was to launch an online nursing program for registered nurses (RN) to earn a Bachelor of Science in nursing (BSN). Such a program was in demand among nurses across the state and could use existing faculty resources.

While the idea of a fee-for-service partner that could help design a customized program appealed to McCormick and his team, they worried about Schreiner’s ability to fund the upfront costs without a revenue-sharing program. To overcome this challenge, Schreiner leaders approached an alumnus who was a valued donor and asked for a $500,000 loan to launch the online program. The alumnus agreed and provided the loan on a three-year term at an annual interest rate of 2.5 percent. If Schreiner paid off the entire loan within three years, the alumnus would make a $100,000 gift to the university. 

"He was thrilled by the opportunity to help," McCormick says. "He appreciated that his alma mater was moving in this direction, and he wanted to support it." 

With startup funds in hand, Schreiner was ready to begin developing its RN to BSN program. The university partnered with iDesign, which specializes in providing mission-compatible online and blended programs for colleges and universities. For instance, iDesign worked with faculty members in developing online courses. "We needed learning architects to walk alongside faculty and help them determine how to take the content from their regular, 15-week courses and put it into seven-week intervals online, so that we could have several starting points throughout the year," McCormick says. "As faculty members began to see how it all worked, they began to believe in the process and the program." 

Rather than asking faculty members to re-create their courses in an online format without additional pay, Schreiner hired specific faculty members to design courses on a work-for-hire basis. That way, faculty were compensated for their extra work and the university owned the newly developed courses outright.

Schreiner also relied on its vendor to help with other tasks that the institution wasn’t able to handle in-house, such as maintaining continuous improvement of courses, revamping its learning website, and providing electronic marketing and student recruitment. "We know how to recruit traditional college students, but we didn’t have the experience, or really understand how, to recruit working  professional nurses from across the state," McCormick says. 

But with a fee-for-service model, the university simply paid for each of these services upfront, and it continues to maintain control over the program’s content and direction. The work has paid off so far. By 2017, Schreiner had 240 unique enrollments in its RN to BSN program, which had become the university’s largest degree program in terms of enrollment. 

Revenue figures topped expectations, and Schreiner broke even a mere 18 months after the program launched. The university was expected to pay back the loan by 2017, but was able to repay it in full in 2015. So far, Schreiner has earned gross revenue of about $2 million from the RN to BSN program. 

"We had postponed entering the world of online degree programs because we were concerned about sacrificing revenue and control, and because we really couldn’t afford to make a big mistake," McCormick says. "But by using a fee-for-service model, we have control of the material, what’s offered, and when to change it, and we have really experienced success." 

Staying Competitive

The University of Pittsburgh’s Katz Graduate School of Business was "behind the curve" in offering online programs, as most other top-tier business schools already offered at least a professional MBA program online, says Rabikar Chatterjee, associate dean for masters and executive programs and Gulf Oil Foundation professor of business. "We were under increasingly competitive pressure to offer online programs, and we were losing some students to other programs because our competitors offered online programs," Chatterjee says. 

While Katz’s leaders understood the need to enter the digital space, "We wanted to do it on our terms," Chatterjee says. "For us, any deterioration in quality was not acceptable. We wanted to make sure that we could offer a program online that was equal to, or better than, what we were already offering in the classroom." 

Turning over the online program to an outside provider through a revenue-sharing plan seemed too risky, Chatterjee says. For Katz, choosing a fee-for-service provider rather than a revenue-sharing vendor was more about maintaining control over the school’s brand and program quality than it was about saving money. "We wanted to keep the revenue for ourselves, but also, we look at the Katz brand very holistically," Chatterjee says. "The vendor might brand the online program differently in an effort to maximize revenue over 10 years, instead of recognizing that the online program is part of a larger brand."

Similar to other top-tier business schools, Katz’s leaders decided to develop a blended MBA program that would offer online courses combined with in-person interactions with faculty members. In addition to developing such a program for executive MBAs (professionals already working full time who want to earn a master’s degree), Katz’s leaders also developed a similar blended MBA program for health-care professionals. 

Chatterjee and other leaders determined that Katz needed to make a five-year investment totaling $4.5 million to develop the two blended professional MBA programs. Those funds will cover course development and continuous improvement, faculty incentives, a multiyear marketing strategy, and necessary information technology staff and facilities. To meet this funding need, leaders set aside special funding from the provost office and allocations from the Katz Graduate School budget. They expect to break even in year five of the program, which will be 2022. 

To develop the programs, Katz’s representatives also worked with iDesign on a fee-for-service basis. The business school turned to its vendor for help with instructional design of courses, continuous course improvement, and operational consulting and streamlining. By developing the courses to integrate with the school’s existing learning management system, the team simplified the ramping up process for faculty members. 

Before launching a full-fledged online degree program, Katz started by executing two pilot courses, says William Valenta, assistant dean, MBA and executive programs. "We needed to have proof that we could put together an online program that was the same or better in quality than what we were doing in the live classroom," Valenta says. 

The first two pilot courses required faculty members to record video lectures that students could view at any time, as well as conduct video sessions that all students in a course would join at the same time. After the pilot courses were successfully executed, Katz administrators gathered input from both faculty members and students about their experiences. 

The two faculty members who had led the pilot courses provided a faculty showcase to help other faculty understand the course development process and demystify the program, Valenta says. Students provided overwhelmingly positive feedback about the pilot courses, and all of them said they felt their involvement in the blended online class was as high as, or higher than, in regular live courses. The positive feedback helped diminish hesitation among both faculty and students. Katz’s leaders rolled out the full online program in late 2017, and they continue to add new courses. 

"Our focus was on a customized approach that focuses on what’s unique to us and our needs," Chatterjee says. "And that focus has paid off, allowing us to better meet the needs of more students without surrendering control of our brand and our course content." 

NANCY MANN JACKSON, Birmingham, Ala., covers higher education business issues for Business Officer. 

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"As faculty members began to see how it all worked, they began to believe in the process and the program."

—Charlie McCormick, Schreiner University