For those interested and/or operating in education lead generation, you should definitely make sure you subscribe to Inside Higher Education’s daily newsletter. It’s all things education, and many days might go by without news or analysis regarding the for-profit sector, but when news does happen, they cover it perhaps the best. As a reader, what you realize, especially a reader with an internet marketing background, is something we have said before – the world of education is a complex one. And, like any major industry, only a fraction of the education world intersects with the lead generation world. That intersection involves by and large, for-profit-education institutions working with external marketing services firms to assist them in generating leads. The relationship between the two has grown significantly since its infancy a decade ago to a billion dollar per year relationship.

The billions spent over the past decade have created countless internet advertising companies and a great deal of shareholder value for the for-profits. The relationship between the two – lead generators and the schools – has had its ups and downs, but any issues were their issues – price, transparency, quality, etc. The two sides have not had to worry about many external issues, and this is incredibly true of those in lead generation. I’m embarrassed to say that when I started generating leads for schools in 2002 (creating ads, landing pages, and hosting forms), I couldn’t explain how the schools got paid. I was more familiar with Title IX than Title IV let alone any legislation around the Higher Education Act. Today, I know a lot more than I did but not nearly enough.

Included here is some of what has transpired in the world of online education over the past year. There will be some incomplete information and hopefully not too many mistakes. It is not meant to be the authoritative guide to all things edu lean gen. It is created mainly for those in the space who are as I was years ago – just thinking about their side of the business. Such a one-sided view of the world is the quickest way to see that world end. (If you haven’t already, you can view an earlier piece “Pondering the Future of the For-Profits” inspired by a fair but not flattering piece done by Frontline, which helps explain why those outside the sector can have a less than positive view of the space.)

First, some must-know definitions:

Higher Education Act – enacted into law in 1965. This complicated piece of legislation covers much more than student aid; but, it is the language around the dispersion of federal funds that impacts all of education and any school wishing to be eligible for funds. That language is covered in Title IV and why you will hear student financial aid referred to as Title IV funds.  The bill is reauthorized every four to six years. It was last reauthorized in 2008 by President Bush.

Negotiated Rule Making – Negotiated rulemaking began in the 1980s, but wasn’t used extensively until the Negotiated Rulemaking Act of 1990 encouraged all federal agencies to use it to enhance the rulemaking process. On December 31, 2008, the Department of Education announced it would establish five negotiated rulemaking (negreg) committees to prepare proposed regulations under Title IV of the Higher Education Opportunity Act (HEOA). Source NASFAA

Notice of Proposed Rule Making – More from NASFAA: Under negotiated rulemaking, the Department works to develop a Notice of Proposed Rulemaking (NPRM) in collaboration with representatives of the parties who will be affected significantly by the regulations. This is done through a series of meetings during which these representatives, referred to as negotiators, work with the Department to come to consensus on the Department’s proposed regulations.

What you need to know from a procedural level:

While the Department of Education is required by law to use negotiated rulemaking to develop NPRMs for programs authorized under Title IV of the Higher Education Act, and while the process of negotiated rulemaking is designed to bring together of the potentially affected parties to try and find agreement on new rules, there is no requirement that all parties come to agreement. Reaching consensus is how the reaching of agreement is referred in the negreg process.

Key to understanding where we are today is the following from the NASFAA site:

When negotiators fail to reach consensus, the federal agency is permitted to continue its rulemaking process without considering any of the input from negotiators. When negotiators failed to reach consensus last year, the Department drafted its own rules. In such cases, the Department says it tries to draft rules in accordance with agreements reached during the rulemaking sessions. But in some instances, the Department drafts regulations that some or all negotiators disagree with.

The drama enveloping the current online education lead generation space has everything to do with the negotiated rule making process that is almost complete. All public meetings have been held, and the time for any further commenting has closed.

Broad Issues & Key Concepts:

Incentive Compensation – In 1992, Congress banned schools participating in federal student aid programs from paying commissions, bonuses, or other incentive payments to individuals based on their success in enrolling students or securing financial aid for them. Congress instituted this incentive compensation ban to eliminate abusive recruiting practices in which schools enrolled unqualified students who then received federal student aid funds. (Source Government Accountability Office)

Safe Harbors – In 2002, the U.S. Department of Education (Education) issued regulations–commonly referred to as “safe harbors”–that allowed for 12 activities or payment arrangements that schools could use without violating the ban against incentive compensation. (Source Government Accountability Office). Number 10 deals with the internet. recognizes that the Internet is simply a communications medium, much like the U.S. mail, and is outside the scope of the incentive compensation prohibition. It permits a school to award incentive compensation for Internet-based recruitment and admission activities that –

• provide information about the school to prospective students,
• refer prospective students to the school, or
• permit prospective students to apply for admission online. (Knutte & Associates)

Timeline:

1992 – Department of Education bans any form on incentive compensation with respect to enrollments. Strict definitions in place.

2002 – Pendulum swings the opposite way. Safe harbors outline 12 specific rules where schools would not violate the ban against incentive compensation.

2010 – ???

Expected Decisions:

Judging by the negotiators selected by the Department of Education during the recently concluded negotiated rulemaking process, it can be concluded that the negotiations had a definite bent towards a more traditional view of education, one that does not view favorably education as a business.  In other words, the deck was stacked against the current business operations of the for-profit schools. There were 14 issues being tackled as part of this neg reg process. Consensus was reached on nine. That left the Department of Education to specify the rules. The Department has published several Notice of Proposed Rule Making, giving a view into what the final rules will state. Those where consensus was not reached included two issues most important to the for-profits:

Elimination of Safe Harbors – The Department of Education will in all likelihood remove the 12 safe harbors which helped specify actions that would not violate the ban on incentive compensation. Gone is the carve-out for internet based activities.

Gainful Employment – For schools to be eligible for Title IV funds, they must (among other things), train students for “gainful employment in a recognized occupation.” Congress nor the Department of Education has prior to this attempted to define gainful employment. Until now. Students at for-profits are taking out tens billions per year in student financial aid. You want them to pay it back. Makes sense. This definition, more than anything, has had investors nervous. What happens if the proposed rule makes it almost impossible for for-profits (who serve a traditionally different socioeconomic group than traditional not-for-profits) to meet the definition’s guidelines?

On July 23rd, 2010, the Department of Education released its proposed regulations to define gainful employment. It looked to be less onerous than initially feared. “Under these proposed regulations, the Department would assess whether a program provides training that leads to gainful employment by applying two tests: One test based upon debt-to-income ratios and the other test based upon repayment rates.”  Stocks rallied. On August 16, 2010, the data the Department planned on using for the second test, repayment rates, came out. Using those numbers, many of the large for-profits would not meet the criteria to be eligible for Title IV funds. Stocks tanked.

Per the NPRM:

Based on the program’s performance under these tests, the program may be eligible, have restricted eligibility, or be ineligible. A program that meets both of these tests, or whose debt-to-income ratio is very low, would continue to be eligible for title IV, HEA program funds without restrictions, while a program that does not meet any of the tests would become ineligible. A program that meets only one of the tests would be placed in a restricted eligibility status, unless it has a high repayment rate.

Under certain circumstances, the proposed regulations would also require an institution to disclose the test results and alert current and prospective students that they may difficulty repaying their loans.

Let’s say that last part again, with emphasis added, “Under certain circumstances, the proposed regulations would also require an institution to disclose the test results and alert current and prospective students that they may difficulty repaying their loans.”

Where we’re headed:

Greater Transparency – We’re entering a world where students must be told much more in advance. Whether on the landing pages or on the phones, big warning signs may be present. Regardless, students will be made aware of vital data that they must request today, e.g., total cost, placement rates, and median loan debt.

Fewer Leads? – This is the multi-hundred million dollar question. If a school’s program doesn’t fulfill the eligibility requirements for financial aid, they won’t be accepting new students. No new students, equals no leads. Corinthian’s Everest College Phoenix Online will no longer purchase leads beginning September 1st, 2010.

Legislation vs. Regulation – Everest College Phoenix’s decision had less to do with the proposed / expected rules and everything to do with an issue not discussed – accreditation. Schools must also be accredited as part of their eligibility. The specific for accreditation are not governed or determined by the Higher Education Act.  The standards used by accrediting bodies has been the subject of not infrequent scrutiny. We are entering another period of such scrutiny, lead not by the Department of Education but by Congress, namely Senator Harkin, the ranking member of the Senate Committee on Health, Education, Labor, and Pensions. Senator Harkin has had to hearings looking into the business and practices of for-profit-education. His goal is to create reform that would outlast an administration change. Regulations, such as those being proposed and enacted by the Department of Education could be changed if a new administration comes into power. Not so with legislation.

Where does that leave us?

By November 1, 2011, the final rulings will be released which will go into effect July 2011. The next milestone could take place any day, or we might have to wait until November. As marketers, we can’t control whether students will repay their loans, but we can influence it. We must be vigilant in stopping any who continue to allow misrepresentations to occur. Not only are they potentially illegal, but they will flood the system with garbage and have already put in jeopardy the future of online education lead generation. It’s a question of potentially earning less money versus earning no more money. Which will it be?

Innovation Ads has long and colorful history in the space. I was unaware that Capital Source Finance of Chicago was the majority owner. Founded in 2002, the company was acquired by Seaport Capital in 2006. The press releases stated, “This was a strategic move carried out by Seaport Capital in order to compliment its earlier acquisition of Direct Response Media, Inc. (DRMI), a full-service agency specializing in direct response television. Seaport Capital has created Think Media, a holding company that will preserve the autonomy of Innovation Ads and DRMI, while creating the opportunity for collaborative direct marketing endeavors between the two entities. This heavy-weight amalgamation of unique talent promises to be the premier direct marketing solution for advertisers.” Whatever it was, kudos should go the investment bank. The majority owner of Innovation Ads now, according to those closer to the company, is not Seaport but Capital Source Finance of Chicago.

Prior to the acquisition, Innovation Ads did not have a reputation for high quality… this according to feedback from the schools. More recently, though, it seems as though the company had turned the quality corner and for some schools was starting to be seen as a preferred vendor. Those we talked to (on the buy and sell side) liked dealing with them.

A big question looms around the future of UMUC (University of Marlyand University College) from whom Innovation ads was the Agency of Record. I suspect there are some pretty excited other firms who would like to take over the relationship with such a marquee brand.

Best of luck to the team there. We wish them well.

Historically, marketing and the market could operate quite separately. If a marketer, it helped to understand the market you served, but not being a vertical expert didn’t stop you from generating leads in a particular category. Generally, those with greater vertical expertise scaled larger than those who did not. The vertical expertise enabled them to talk shop with their clients and create more effective ads because they understood the nuances. That vertical expertise also meant a greater awareness of the issues surrounding the industry. Except, until now, that hadn’t been an issue. Vertical expertise was really about talking shop not as a means for staying out of trouble.

The landscape is dramatically changing; yet, it feels like too many people in a position to influence enrollment (namely those who touch consumers) do not appreciate the seriousness of the situation and the scrutiny under which the industry has come. The average affiliate, responsible for 10% to 25% of all leads, does not see the connection between their actions and the 70 Billion dollar / year education industry. They view the world only in terms of conversions. From their perspective, the industry doesn’t extend beyond their ability to generate a lead. Their job is the lead. The advertiser’s job is after that, and if the advertiser doesn’t empower them to create conversions, they take matters into their own hands.  They say to themselves, “What’s the big deal,” and “No one will really care.” They then create misleading ads like this one.

Even we, who have been following the more developments closer than the average person (namely the 2008 Higher Education Opportunity Act and subsequent negotiated rule making process), find making sense of the processes, time lines, institutions, and acronyms confusing. Ads like the above, the countercyclical success of the for-profit industry, and the re-examination of government funds has lead to the every so-often re-examination of the for-profits.  Almost every major publication has run a piece on the topic, but this same complexity that makes it tough for us to summarize makes it just as tough for others to as well, especially if education is not their focus. The pieces, though, are becoming more frequent, and one in particular came out that initially had those who lean towards for-profit education growth nervous.

Frontline, the documentary series on PBS, ran an expose titled, “College, Inc.,” a piece that given the generally tone of most public broadcasting seemed as though it would turn out as a roast of the for-profit sector. It wasn’t quite roast, but for those who care enough to understand the issue but need to see something, this is for you. The Frontline piece (6 segments online) is just under an hour long in total and worth every minute. Watching it and reading this post from Higher Ed Watch, will help any marketer understand those with misgivings about the for-profit space. If I could, I’d make this required viewing for any lead seller, especially those for whom education is not their primary focus. Below is Part 1.

Perhaps the best quote in the piece comes from a former Director of the University of Phoenix who from the sound of it made millions during his tenure through mostly equity growth. He quips, “What makes education so special” and compares the spending and profit margins of schools to perfume. Not his best moment. And he says what most marketers know – that they must advertiser; to succeed, the schools “have to get people’s attention.” If you believe education should not be a business, you’re reading into that as a prime example of a system that is broken.

Some other facts from the piece:

• The typical for-profit schools spends double on marketing than what it does on teaching
• For-profit education is not cheap; a degree costs 5x a typical community college and 2x state schools. The degrees are not far off from the typical private liberal arts school, leading to the comparisons of what you get for your money.
• The for-profit sector has a lot of financial backing; they have investors who expect certain returns, the implication being that they must not only grow fast but charge as much as possible
• Sector also has to spend a lot because they have to add a lot of students per year to keep pace with all that theylose
• Not mentioned but worth mentioning is if this were an other big ticket item, there wouldn’t be as much sensitivity, but it’s education so talk of sales tactics and business growth will unsettle many people
• The sector represents 10% of the total higher education student body but consumes 25% of all student aid, i.e. a much larger than average reliance on tax dollars, and roughly 20bn loans are generated each year to the for-profit
• Regional accreditation is key, and the financial community values that alone at $10mm; regional accreditation is what enables a school to qualify for student loans. It’s the key for unlocking federal funds.
• The criticism is that accreditation is treated like a tax badge, able to be bought indirectly when a struggling not-for-profit agrees to go for-profit.
• One school charged 30k for a 12 month program for nursing without the students ever stepping foot in a hospital; they are suing as no one will hire them
• The for-profits might be 10% of all college students, but one person estimates it is responsible for 44% of all student defaults
• Mandate by Obama – by 2020 America will have the highest percentage of college graduates. Community colleges can’t fulfill that. The for-profits will have to play a role
• It’s all about student loans. They aren’t like other loans. If you default on a federal student loan you are “hounded for life.” It’s the “most collectible debt” – non dischargeable in bankruptcy, wages can be garnished, tax refunds intercepted, you can be sued in court and ineligible for other federal benefits. In other words, it’s a serious thing when agreeing to one, and 20bn are being generated each year. The should go to only people qualified and with an understanding of what they are getting into. When marketers use language
• Outstanding student loans equal the nation’s credit card debt, 750bn. We got into a credit crisis among other reasons when people were given credit who were at risk from the start of paying it back. That’s the issue here with student loans, especially from the for-profit sector; could it contribute.
• “You can’t be afraid of going into business because of regulation risk, “Jack Welch, who invested in a for-profit and lends his name to one of the graduate degrees.

As Secretary of Education Arne Duncan says, there is nothing inherently wrong with for-profits providing education. The focus now is on making sure the practices are honest and that the students and especially taxpayers are getting value for their investment. High pressure tactics, deceptive actions, and dishonesty is what the Department is challenging in a very serious way. Again, we will see just how serious the challenge is and if the new rules suggest he believes that nothing is inherently wrong.

Distilled, the affiliate tactic used for the incentive promotion ads involves creative ways to a) buy traffic on keywords not directly relevant to the core business and b) pay less for traffic than they would if they tried to bid directly.

The online education landscape is among the most competitive, especially in paid search. It’s also full of schools being heavily wooed by Google to spend directly with Google and rely less on the aggregators. Google is even reportedly offering pricing incentives. One area, albeit with less traffic and arguably lower intent, where there aren’t the same brand / direct advertiser issues involves scholarships. Below is another example, this one from the online education space, courtesy of Vantage Media, although they are far from the only ones. (Education Dynamics for instance has run a very successful and well-branded scholarship promotion they call Project Working Mom.)

The Ad:

Clicking on this ad, takes you to the follwing landning page:

The page above is interesting. Being experts in the online education space, Vantage knows that schools don’t want just leads. They want enrollments. Enough people fill out forms with no real commitment to enrolling as is, so making it even easier to do that (offering them an incentive) makes the liklihood for conversion even lower. To combat that, they put the following disclaimers to discourage just those wanting money:

• Who Can Apply: Anyone planning to enroll in a school of higher education
• Requirements: Winner must be enrolled in a school when the scholarship is awarded*.

Fill out the essay, and it takes you to:

While they collect some lead data here, outside of the check box asking users to join their email list, they don’t suggest that it will go to a school. That opportunity comes later, on the third page:

Notice the subtle prompting of the headline saying, “Which school would you use a $1000 scholarship at?”