Online education is not always a winning proposition for universities...Purdue

[vu84v2]

https://www.documentcloud.org/documents/20794050-purdue-global-fy20#document/p7/a2037977

From fiscal year 2018 to fiscal year 2020, Purdue lost over $80M with its online (i.e. Purdue Global) program.

There have been a variety of posts on a mix of threads on this forum regarding online education with Valpo. These poor financial results form Purdue should not be an indication that a university like Valpo should not pursue online programs. Rather, it indicates that strategies associated with online programs should involve partnering with a good OPM (in a revenue share model that also reduces the financial risk) and that pursuit of online programs (like many business strategies) should avoid an "all in" approach (which is what Purdue followed with their acquisition of Kaplan).

[valpo95]

This is helpful information. However, there is one important caution when interpreting these financial statements: The rules around allocating costs, particularly compensation expense, are often not what would be expected in the private sector. Universities often allocate a large fraction of a professor's salary and benefit cost to an online program if a professor teaches in an online program.

For example, imagine that a tenured professor at the Business School (at Purdue, that is Krannert) has salary and benefits totaling $200K. Say that professor teaches one class at Purdue Global, and two classes in the Krannert MBA program. Probably, Purdue Global allocates at least a cost of $66K toward compensation and benefits expense - it actually could be more, as some universities allocate 50% of a professor's salary and benefits as an expense if they do any online teaching. (BTW, the average starting salary of a Purdue MBA is $91K per year.)

If there are say 40 students in a 3 credit-hour class, paying $485 per credit hour, that shows revenue of $58K, so it would look like Purdue is losing money by offering the course, as $58K - $66K shows an accounting loss of $6K based on salary and benefits alone. Larger section sizes would change the numbers, yet also there are additional administration and program costs that should be included.

However, at a school like Purdue (and other R1 universities), at least half of the time of the professor is supposed to be dedicated to research; that time and research output is not accounted for by the online program in any way - the example just took 1/3 of the salary as a cost because that is convenient.  Second, Purdue (and other R1 universities) have large endowments: Purdue has an endowment of $2.6B, and a large chunk of those endowment earnings go to pay for personnel costs. If that professor holds an endowed professorship position, that means at least $1M was contributed to perpetually fund salary and benefits. Those endowment earnings are excluded from revenue side the Online financial statements.

Think of it another way. Imagine if Purdue closed their Global program tomorrow - they would lose the $58K in tuition revenue in the above example, yet more than likely the costs would be less changed. The professor would go back to teaching all courses in person, the endowment wouldn't change, and the research expectations would not change. If that $58K was instead an entirely new source of revenue, it still might be good for the university.

So, whether or not online education is a winning proposition for the university depends on many factors. 

[vu84v2]

valpo95 - You definitely raise a good point that universities have a great deal of latitude in how they allocate costs (as opposed to for profit companies). And I agree with your conclusion that there are many factors that determine whether online education is a winning proposition for universities.

You make good points about how costs of tenured and tenure track faculty can be allocated. However, I wonder what percentage of Purdue Global's classes are taught by tenured or tenure track faculty. While I do not know what that percentage is for Purdue, it is quite low for many universities offering online education via a college that is fairly separate from a traditional college. There are a variety of reasons for this, including tenured and tenure track professors having the first choice of what classes they teach, a view that teaching in a program like Purdue Global may be perceived as having less prestige and/or fewer top caliber students, and greater challenges from teaching online (students who are asynchronous tend to expect more of a 24/7 engagement, courses need to be modified to go online, technology challenges, etc.). I would not be surprised if most of Purdue Global's classes are taught by clinical faculty, adjuncts, or graduate assistants...which would seem to make the cost allocation simpler (as it would not involve factors like endowment).

[valporun]

Is it also possible that some of these online courses are also being taught by professors from community colleges that are in specific programming for trades or continuing education style programming that happens to lead to a degree? In those cases, the pay for the professor may even be more part-time side income.