State Universities Go Online To Chase Out-Of-State Students, And Their Money

The collapse of a $168 million deal between the University of Florida and Pearson is another reminder of the perils of a big trend in the education industry.

A push for more out-of-state students — and the revenue that they bring with them — was a the root of a massive $168 million contract between the University of Florida and Pearson to build an online university, UFlorida Online. The two organizations said they hoped UFlorida would reach 24,000 students in a decade — more than 10,000 of them from out of state.

But the online school never gained the traction needed to get there, and its failure to recruit those out-of-state students was the reason the University of Florida cancelled the Pearson contract on Wednesday, ending what was supposed to be an 11-year relationship after less than two years.

"Pearson failed to meet out-of-state enrollment targets," said Evangeline Cummings, the director of UFOnline. "That was a significant failure, and we made the decision to terminate the contract."

A lofty goal for huge leaps in out-of-state enrollment online was set by the Florida legislature in 2013, which wanted 43% of UFOnline's students to come from out-of-state by 2024 — paying market rate for their degrees. Because Florida students were given significant discounts on their tuition, UFOnline was, from the outset, designed to be heavily dependent on out-of-state students, who would pay market rate for their degrees.

"The drive of this was the legislature," said Max Woolf, the principal analyst for Eduventures, an education research firm. "These were unrealistic goals set by the Florida state legislature for out-of-state enrollments, and then over-promising from Pearson to meet that outcome."

The failure of the contract with Florida, which was one of Pearson's largest in higher education, is a blot on the company's record at a time when, having recently sold off the Financial Times its stake in The Economist, it has been increasingly pushing its educational services business. A significant portion of that business involves helping run universities' online programs.

Pearson's stock fell 16% Wednesday on the news that it was expecting lower profits and tough market conditions. It fell another 4.7% on Thursday morning, by far its lowest price this year.

A statement by Pearson noted that UFOnline had seen an 84% increase in enrollment, mostly of in-state students who saved money because of the school's steep tuition discounts. "Pearson made a significant upfront investment in this program, shouldering much of the risk," the statement said. "There are always challenges when launching innovative, multifaceted programs such as this, especially at highly competitive institutions and on such a tight timeline."

The push for more out-of-state students, and more revenue, has been playing out at public universities across the country. Earlier this month, the University of Wisconsin passed a controversial measure to lift the university's traditional cap on out-of-state students, allowing more than 27% of its class to come from out of state.

Woolf says the cancellation of the Florida contract is a sign that online programs are not a ticket to enrolling the more financially lucrative class of student. "There's a view that online opens up a national market, but that's not true for most institutions. It's really still regional."

The UFlorida program is not the first time Pearson has struggled to recruit the out-of-state students to its online programs that state universities have become dependent on.

"This appears to be a mirror-image story to Cal State Online," said Phil Hill, an education consultant and analyst. A $25 million contract with California State University was cancelled in 2014 after Pearson failed to recruit out-of-state students and saw its pricing model fail, according to a Politico story.

While Florida and its legislature made the mistake of over-optimistic assumptions, said Hill, "There's a Pearson side to this story in that they've chosen to do these flawed deals in the first place. They are seeing a lot of problems in this line of business."

Earlier this year, 3,000 students who had applied to UF's main campus got a curious offer of admission: if they wanted to enroll, they would only be able to take classes online for their first year, through UFOnline. Critics called the measure a "bait and switch" meant to pump up enrollment in the university's fledgling online programs. Fewer than 300 students accepted the offer.

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