Getting the Money Right

• By Judith V. Boettcher
• 02/01/07

Does your organization’s funding model support your online learning program’s success and sustainability? Here are the factors you should be considering in order to maximize one of the most significant growth areas in higher education.

JUST WHEN YOU THINK you know what the questions are regarding online learning, the questions change. One of the first questions regarding online learning, eLearning, or blended learning programs was, “Can we do it?” The follow-up question was, “Can we make any money doing it?” The answer to the second question is a cautiously optimistic, tentative “Yes.”

We now face the next question, which is “What are the organizational structures and financial models that support revenue, sustainability, and growth of online programs?” Informal interviews with a few online learning leaders in the spring of 2006 provided a few insights into this question. (The leaders—all with extensive experience in the design, development, and implementation of online learning programs—represented large, mostly public and some private higher education institutions. Data from a wider range of institutions is contained in the Sloan Consortium’s Business Models for Online Learning: An Exploratory Survey.)

The most basic insight is that distance/online learning is a business, and that we must approach it with this mindset if we are to be successful. Other insights from the interviews suggest the need for increasing both a) differentiation of the markets that online programs are serving, and b) the organizational structure of the online organization. Let’s start first with the variables identified as impacting funding models for distance and online learning.

Variables Impacting Funding Models

Even within the segment of large public and private institutions that participated in the interviews, the funding models for online and distance learning organizations were quite varied. More interestingly, the interviews suggested that the variance in funding models was associated with three key variables, and variables over which we have little control, if the unit is operating within a much larger institution.

Variable #1—Organizational structure and mission. One of the variables was linked to organizational structure and whether the entire institution was moving forward in online learning or whether the online learning initiatives were contained within colleges. When online learning programs are part of a strategic institution-wide initiative, they tend to be more broadly supported. This insight is self-evident, but we often forget about the power of it. Funding and promotion of distance/online learning, including the infrastructure to support it, is also greater within an environment of strategic institutional commitment. And funding and staffing for online learning programs tend to span years, providing budget predictability, consistency, and academic viability. Online learning programs—within this context—also benefit from other general campus support of faculty and student services.

Variable #2—Purpose: Are programs for increasing access, or for serving campus students? Another key variable impacting funding models is whether the distance/ online learning programs are intended primarily for working professionals or other place-bound students, or whether the programs are designed to serve the regular, campus-based student population. When the target audiences are for “access” purposes—supporting working professionals or for others who are place-bound—tuition revenue can be higher (outside legislative mandates), and much greater latitude is often possible for the use of those funds, in order to ensure highquality programming and investment.

When the target audiences are regular campus student populations (and are designed to ensure course availability, summer programming, and schedule convenience), revenue returns are smaller and more constrained. Seed money for development of these types of programs is tighter and revenue from these programs often goes into general funds. In these instances, faculty and college incentive funds are usually nonexistent and investment and development of new programs are dependent on one-time grants or “budget dust.”

Variable #3—Institutional leadership. When leaders identify distance/online learning as a strategic part of an institution’s future, more favorable funding models are likely. This means more funds to support development of new programs, including development of the teaching/learning infrastructure and faculty development that are essential ingredients for success and sustainability.

A good example of a strong institutional leader in this area is Graham Spanier, president of Pennsylvania State University. In 1998, he launched the Penn State World Campus, now called the university’s “25th Campus,” and offering more than 50 online degrees and certificate programs. Similarly, in September of 2005, in his inaugural speech as the new president of the University of Illinois, B. Joseph White included a vision that a fourth campus—a virtual campus—might be part of UI’s future.

Basic Funding Models

Funding models for distance and online learning are in a state of flux even at some established institutions. A funding model might be instituted at the launch of distance and online learning programs and be quite effective in providing support and investment of new programs—only to be modified over time and under new administrative management or leadership.

In other words, these programs are subject to the vagaries of the budgeting process, shifts in strategic priorities, and changes in leadership. Many of those interviewed also suggest that funding models are quite sensitive; they maintain that small changes in revenue sharing can have large effects (the famous butterfly effect at work here!).

As with any business, funding models need to accommodate three types of activities: venture capital/start-up funding, operational funding, and research and development funding for growth. Following are the basic funding models for each phase of the business of providing eLearning services:

Start-up funding. Distance and online learning programs are businesses, and require start-up funds to be launched. Most of the successful distance and online learning programs were started with seed money/development money from one or many sources, including grants, central administration, and state initiatives. Another innovative strategy for securing start-up funds is to partner with another business entity and share some of the risk and the investment required. Private institutions generally have more flexibility with this approach.

Nationwide, a number of online programs appear to be funded centrally. In a 2006 exploratory survey by Stephen Schiffman (see “Check These Resources”), a fair percentage (about 43 percent) of college organizations operating online programs reported that they were funded by overhead monies. The number of independent units funded centrally was far less: 9 percent.

Operational funding. Support for operational funding falls even more often within the online learning organization itself. Institution-wide distance and online learning organizations— occasionally morphed from historical correspondence organizations—tend to be cost centers, and thus assume responsibility for a wide array of services and support targeted at the online learner. Providing specialized support for students from within the online learning organizations is particularly the case when the target audience is one of working professionals. However, the trend toward reliance on course management systems (CMS) often means that the distance and online learning organization uses the central CMS and is assessed a fee for the staff and services of this part of the infrastructure.

Investing in new program design and development. A successful funding model for distance/online learning programs often includes revenue sharing with deans and faculty, while also providing sufficient revenue for all the elements of a quality support and learning organization. These elements include marketing, recruitment, admissions, registration and payment, orientation, records and advising, and technical and information resource access.

It is worth noting that working professionals have high expectations when it comes to the kinds of educational experiences they want and need. Yes, this target population may be willing to pay more in tuition than on-campus students, but their expectations are correspondingly high. One example: Providing technical and people support from 8 to 5, Monday through Friday, just doesn’t cut it for these professionals.

Revenue-sharing models at the central institutional level recognize the need to provide incentives to the faculty and deans of the colleges. The funding model at the University of Florida’s Distance, Continuing and Executive Education (DCE) division illustrates this revenue-sharing model: 76 percent of revenue is used for marketing, operations, faculty, program support, and updating and program development; 14 percent supports the infrastructure services; and 10 percent is distributed to the college and department. This basic model is subject to change, somewhat depending on the amount of risk and development costs assumed by the college.

Any successful and sustainable funding model must include provision for the revision and updating of existing programs, and investment in new programs. Yet this is the portion of the budget that is increasingly squeezed, and faculty and colleges are often asked/expected to produce products and services without reasonable compensation or appropriate training and support. This is a critical part of the next set of questions required to move toward sustainable online learning organizations.

What Next?

Online learning as a significant growth area within the non-profit higher education sector is a given. The funding models and organizations committed to online learning must embrace the move from subsidized programs to selfsustaining programs based on good business practices as well as quality academic practices. How well quality programs are delivered, at what cost, and with what return providing for reinvestment, are some of our future challenges and opportunities.