There’s real money in virtual education — both for Florida colleges and universities offering online courses and the private-sector providers selling technical services to the schools.

A Cash Cow for UF

Florida public universities have become national leaders in online education. What’s driving the trend? Online classes are lucrative — both for the schools and the companies that help them set up web-based coursework.

Florida Polytechnic isn’t the only new face on the public university scene this year. With $10 million in startup funding and $5 million for operating costs from the state, the University of Florida opened UF Online in January. It advertises fully online bachelor’s degree programs that will award degrees indistinguishable from those earned in Gainesville.

UF expects UF Online to be a profit engine that will break even in the seventh year and generate $14.5 million a year in profit on $76.6 million in revenue by 2024. By then it also expects to have racked up a cumulative $43.6 million profit after losing money for four of the first six years. By the way, all that’s after UF Online pays the parent university the standard 11. 31% of revenue the university charges to all revenue-generating enterprises to cover the parent’s general and administrative costs.

How does the program work?

Thanks, Non-Residents

The $112.50 per credit hour in-state tuition — capped by law at 75% of on-campus tuition — doesn’t cover near the cost of offering a degree. UF loses $48.65 every credit hour until economies of scale kick in. The real money for UF is in the $425 per credit hour for out of- state tuition. That has a $45.44 profit per hour, or a 10. 7% margin. By 2024, UF expects 24,100 students, with 43% of them those high-margin non-residents.

First Years

The UF Online enterprise hinges on attracting out-of-state students, but two-thirds of initial prospects were in-state. For the students who applied to start in January, all 586 were transfer students. For the academic year beginning in August, 48 applicants would be freshmen and 111 transfer students. Business was the most popular major.

Price

UF can set out-of-state tuition at whatever the market will bear.

The Cost Side

UF started in January with five majors. It says it needs to create 250 courses for 35 degrees by 2019. What does it cost to create an online course? As of December, $11,310. But UF expects that number to rise as it offers more expensive courses in science, technology, engineering and math. Originally, it projected spending $36,500 for faculty, production and technology for a standard class, which covers about 80% of the classes UF Online will offer, but as much as $156,000 for lab and other courses requiring a hefty amount of simulation, about 10% of classes.

Updates will cost $7,500 per course every three years. Any class that doesn’t pull an average demand of 100 students per term gets retired.

Fields

The first degrees are in business, health education and behavior, sport management, criminology and law and environmental management. The inaugural programs were chosen based on their ability to get up and running by last January and demand. Those on tap for the next five years either are from the top 15 fields in demand for jobs in Florida or from the top 15 most popular majors in Gainesville.

Profs

Faculty get paid out of the $50 per credit hour that goes to college departments. Every 110 students in a course means paying a teaching assistant, who make $8,000 per course per semester.

Pearson

UF hired the British company to provide a host of services, including market research, marketing, recruiting, student retention, training and development, tutoring and research. Pearson retention agents monitor student performance for signs of falling off — like going 12 hours without checking in, being late with assignments or bombing a test. The Pearson people check in with students regularly by email and phone. Pearson also runs a call center to recruit and retain students.

Pearson gets $3.5 million upfront and then $6 million spread over the next four years in fixed fees. Its real money is in its share of tuition revenue. Pearson gets 40% of in-state tuition the first years. That shrinks to 30% by 2024. But it gets 60% of the far larger out-of-state nut, a percentage expected to fall to 43% by 2024. UF projects Pearson will earn $28 million in 2024 alone from the deal.

Online Campus Life

UF Online has a mental health counselor available 24/7 by phone. Personal fitness training videos will be on YouTube while UF health services will have online information on alcohol education, stress reduction and time management.

Financial Aid

UF Online students can apply for financial aid just as any on-campus student would. If they qualify, they can get Bright Futures, Pell grants and federal loans. They also get subsidies from their fellow online students. Each online student pays a “financial aid” fee that’s projected to bring in $7,352 the first year, rising to $1.6 million per year in 2024, the exact amount UF plans to hand out in UF aid that year.

Value

UF says the university will benefit as will students who will “have access to an excellent education at an affordable price” and so will the state by having a deeper talent pool of workers. With no room and board to pay, UF says online students will pay about $10,800 less per year than on campus students.

 

Virtual courses, real money

Last month, the University of North Florida in Jacksonville began offering a $15,676 online master’s in special ed and a $25,536 online doctorate in nursing and two other programs. To launch them, the public university contracted with Academic Partnerships, a Dallas company that moves traditional courses into online formats. UNF establishes the content, teaches the courses and decides whom to admit. In return for half the student tuition revenue for five years, AP markets the programs across the country, recruits applicants and helps retain students. In the first year, UNF expects to bring in $2.4 million in gross revenue and have an $800,805 profit.

Florida’s public universities in 2011 began offering online programs at market rates, free of state strictures on how high tuition could be. Since then, Florida institutions have dived into online programs — usually in majors with a clear career payoff — for which they can charge whatever the market will bear. It expands access to their colleges while bringing in higher margin students. For the private companies that make it happen, there’s a lucrative payday.

Institutions turn to outside companies for their expertise. They also avoid startup costs — having to hire workers to build online courses and then fire them once the programs need only maintenance work. Private companies and their call center help desks also have the scale to efficiently handle the 24/7 demands of students, right down to the Sunday night crush of students racing to meet weekly classwork deadlines.

The market ranges from companies that offer every service in every education market to niche players focused on a particular segment.

Some players in Florida, a state that’s in the lead pack nationally in online education:

> In Florida, the private market leader is Washington, D.C.-based-Blackboard, which supplies some form of educational service, for online and offline programs, to about 180 higher education institutions here. A star client is Embry-Riddle Aeronautical University in Daytona Beach, with which Blackboard has a long relationship and which gets high marks in independent rankings for its online education.

> Tampa-based Bisk Education contracts with Jacksonville University, the University of Florida, the University of South Florida and the Florida Institute of Technology. (FIT’s business college is named for Bisk founder and FIT donor Nathan Bisk.)

> Pearson, the British multinational, has aggressively built its business helping schools move online. In 2012, for instance, it paid $650 million for online provider EmbanetCompass, the contractor on eight UF online grad programs. Now Pearson also is the contractor on UF Online, the state’s designated online university. UF projects Pearson will see $184 million in cumulative revenue through 2024 from the deal. UF expects 24,100 students by 2024.

UNF’s short-term projections for the Academic Partnerships programs are far more modest. It envisions 20 to 30 students per semester in master’s programs in special ed and nutrition and the nursing doctorate. A new semester begins every eight weeks. UNF expects 40 students per semester for a program that takes registered nurses to a bachelor’s in nursing.

Academic Partnerships has raked in millions in Florida at older programs. FIU has paid AP $16.5 million since first hiring it in 2009 for an MBA program. The University of West Florida from 2011 to March paid AP, which counts former Gov. Jeb Bush as a senior adviser and investor, $1.5 million for its half share of student revenue from a master’s in education, a bachelor’s in registered nursing and a doctorate in curriculum and instruction.

Forbes recently reported AP spends an average of $2 million per school to recruit students and to set up courses and do other work. AP also can educate an undergraduate for $1,500 a year, Forbes said, “making digital degrees a profit machine even after accounting for the significantly higher costs of acquiring virtual students.”

Revenue-sharing arrangements are on the wane, says Katie Blot, Blackboard’s senior vice president for education services. Schools desire long term to capture more revenue as well as establish a base of in-house delivered expertise and services.

Other new trends in online education are student access through mobile devices — class on your phone — and new designs that are more learner-centered rather than institution-centered. In the eyes of users, Blot says, the average institution isn’t doing enough to make interaction easy.

Expect online to grow. Insider Higher Ed’s 2014 survey of chief academic officers found 52% of provosts at public universities, 53% at private and 74% at for-profits anticipate major allocations of funds in the new budget year on online ed.

“It’s certainly on the rise,” Blot says.