One by one, the newest graduates of Concordia University walked across a small stage and collected their Master of Education degrees.
The commencement ceremony earlier this year was the first, and only, day that many will ever spend on campus.
The Northeast Portland college now bestows more Master of Education degrees than any other public or private nonprofit school in the country, thanks to a popular online teaching program that helped quadruple the college’s revenues in five years.
The meteoric growth came at a price to Concordia. The small Christian school has paid more than $160 million to a private contractor hired to handle aspects of the online graduate degree program. Students know little about the Silicon Valley company or its outsized role.
Concordia and HotChalk Inc. drew rebuke last year after the U.S. Education Department concluded a two-year investigation into their relationship. A federal prosecutor said the arrangement appeared to violate laws that keep colleges from paying incentives for recruitment, or from outsourcing more than half an educational program to an unaccredited party.
“HotChalk would recruit students, cover all enrollment activities and provide the educational curriculum, faculty, and classes” for at least some of Concordia online degree programs, said a July 2015 letter that summarized the government’s findings.
Concordia and HotChalk soon signed a $1 million settlement that admitted no wrongdoing in the case, started as a whistleblower suit by former HotChalk employees.
In separate statements to The Oregonian/OregonLive, both organizations described the online graduate program as a success, pointing to results such as its high graduation rate and low rate of student loan defaults. HotChalk said its business model is “focused on supporting and achieving great outcomes for students.”
Concordia denied all of the allegations in the federal lawsuit, and HotChalk said it is not possible to draw accurate conclusions from the case.
Concordia spokeswoman Madeline Turnock said in a written statement that HotChalk has no role in enrollment, admission or financial aid decisions at Concordia, and the college provides “100 percent” of its academic programs.
An in-depth analysis by The Oregonian/OregonLive, drawing on publicly available documents and cached versions of the university’s web pages, uncovered an unusual degree of interdependence between Concordia and its contractor. Together, the two transformed the university.
Concordia opened in Portland in 1905 to prepare Northwest boys for careers in the Lutheran denomination that founded the school. Over time, the Portland campus established a regional brand as a teachers college.
Teachers are an endless supply of graduate students. Many states require educators to earn graduate degrees within a few years of obtaining their licenses. In addition, most large school districts pay more if teachers have higher degrees.
“If you are going to stay a teacher, by and large, you’re going to get a master’s degree, because it’s the only way you can get a raise,” said Dick Startz, a University of California, Santa Barbara economist who studies education trends.
The rise of the internet in the 1990s brought new competition to the market for Master of Education students. For-profit colleges, flush with investment capital, launched online programs that lured working adults with flexible scheduling and glossy ads.
Traditional brick-and-mortar schools turned to private contractors to gain a foothold. It is common for the companies to cover setup costs in exchange for a share of revenues later.
With HotChalk’s help, Concordia built up a one-year online Master of Education degree program that cost students about $20,000.
Jilma Meneses, Concordia’s chief general counsel, said in a written statement that HotChalk assists with marketing, recruiting and online tasks. She said the contractor has no role in admitting students, processing financial aid, hiring or supervising faculty or developing curriculum.
The precise terms of Concordia’s arrangement with HotChalk are not knowable. Concordia declined to provide a copy of the contract. Concordia has said it invited some sister schools to collaborate with delivering some courses, so it is unclear whether its contract with HotChalk included work for the benefit of those schools.
Federal education data show that in fall 2009, around the time Concordia hired HotChalk, the university had 1,100 undergraduate students and 800 graduate students. Five years later, the number of undergrads had grown by 200, while graduate enrollment increased by 5,400. Three of every four Concordia students took all their classes off campus.
Federal student loans heavily financed the growth. Concordia students in 2014-2015 received more from the government’s leading graduate loan program than students at any Ivy League school but Columbia.
Between the tax years that began in July 2009 and in July 2014, Concordia’s annual revenues grew fourfold to $173 million, and its year-end surplus went from $1 million to $10 million, according to public financial statements filed with the Internal Revenue Service. The documents show at least four school administrators saw their pay increase by half, including President Charles Schlimpert whose reported base pay was $260,000 at the end.
The university declined requests to make Schlimpert available for an interview.
Concordia’s growth strategy was not without risks.
A dramatic enrollment increase, a shift toward teaching most students online and heavy spending on marketing are all warning flags identified by the National Consumer Law Center, a nonprofit consumer advocacy group, in a 2014 report about online education.
A HotChalk spokesman, in a statement, provided context for the size of the company’s contract with Concordia.
HotChalk has “invested heavily in helping make the Concordia-Portland online program a success – which includes bearing almost the entire cost and risk of the online effort.” The spokesman said HotChalk’s cost of providing services to Concordia were $159 million from 2013 through 2015. Those costs included enrollment services, data analysis and technology services and student support services, according to the spokesman.
The degree of Concordia’s financial connection to HotChalk appears to be unusual, based on a review of IRS filings.
Concordia paid HotChalk one dollar of every three brought in by the entire university from the 2009 through 2014 tax years. HotChalk got $58.6 million from the university in tax year 2013 alone, a paycheck that swallowed nearly half of all Concordia’s revenues.
The Oregonian/OregonLive analyzed documents filed for that same tax year by Concordia and 36 other nonprofit institutions with 1,000 or more students, mostly off campus. None of the other schools reported a contract with any company that came close in size and scale.
Bob Shireman, former U.S. deputy undersecretary of education, said outside contracts typically account for a small part of the university’s cost of doing business. A large portion should raise concerns for accreditors and regulators, he said.
“Every public and nonprofit agency uses for-profit contractors to do something,” Shireman said. “But the question is, ‘At what point is the for-profit effectively taking over and running an appendage of the nonprofit or public institution?'”
Federal regulators contended HotChalk’s hand stretched too far into Concordia’s operations.
The U.S. Education Department in 2000 enacted a rule saying outside companies cannot “provide”‘ more than half of any university academic program, without defining what services constitute “providing” the program. The agency also said colleges, not their contractors, must make financial aid decisions. The new restrictions were spurred by the popularity of non-traditional programs such as study abroad.
Colleges that violate the limit on outsourcing can be cut out of the federal student loan program, a likely death blow for most schools.
Later, faced with a wave of student loan defaults in the Great Recession, the Education Department took action to ensure degrees paid off in the job market. In a move aimed largely at for-profit programs that enticed applicants regardless of their qualifications, the department banished incentive pay from college admissions offices, with few exceptions.
Paying recruiters on commission creates too many reasons to bypass admission standards, said David Hawkins, an executive at the National Association for College Admission Counseling.
“To enroll the student at all costs becomes the primary incentive,” Hawkins said, “and the students’ needs become marginalized.”
Federal prosecutors alleged in 2015 that Concordia and HotChalk broke the rules on outsourcing and incentive pay.
The allegations followed a lawsuit that three HotChalk “enrollment specialists” filed in 2013 against HotChalk, Concordia and some of HotChalk’s other customers. The legal action was a “qui tam” filing, a kind of lawsuit that alleges violations of federal law and opens the door for the government to take over on the public’s behalf.
Meneses, Concordia’s general counsel, said the former employees’ lawsuit “contains only unsupported allegations.” HotChalk, in its statement, said of the case: “No accurate information or conclusions about HotChalk/Concordia operations can be drawn from any of the allegations in that lawsuit.”
The former HotChalk employees claimed that their jobs consisted of recruiting students to attend online programs at Concordia and a few other schools. The plaintiffs said they were never supposed to tell students they worked for HotChalk. One said she used a Concordia email address.
The former employees contended HotChalk fostered a “boiler-room” environment in its Phoenix call center and flouted the federal incentive ban, showering successful recruiters with perks that included a trip to Las Vegas and Major League Baseball tickets.
The plaintiffs alleged HotChalk instructed recruiters to approve all applicants, whether or not their grade-point averages met admission standards. Students who wavered were told that scholarships were only available for a limited time when in reality that was not the case, according to the complaint.
Two years after the Education Department’s made its first inquiries into the employees’ allegations, the U.S. Attorney’s office in Arizona filed papers seeking to join the case.
The federal prosecutors contended that Concordia incentivized HotChalk to enroll as many students as possible. The contract terms granted HotChalk 75 percent of online tuition, but also promised an extra 5 percent cut “whenever HotChalk exceeds 3,000 enrollments in a single year,” the July 2015 filing said.
The government alleged HotChalk “recruited, hired, employed, supervised and managed all or substantially all” online instructors teaching in Concordia’s name, and that HotChalk controlled the work of the financial aid director for Concordia’s online programs.
Separate from the federal lawsuit, The Oregonian/OregonLive found numerous public examples of HotChalk’s past entrenchment within Concordia.
In online resumes published on the career networking site LinkedIn, at least five current or former HotChalk employees provided job descriptions saying they enrolled students for Concordia. In addition, one man listed himself as the “associate director of admissions” for Concordia University and HotChalk, and another said he worked in enrollment for Concordia and HotChalk at the same time. Five other people said they worked simultaneously as Concordia online instructors and HotChalk employees.
Cached versions of the website for Concordia’s online degree program name a student services director and an assistant faculty manager. Both have online resumes that list HotChalk, not Concordia, as their employer. Concordia online program newsletters directed students to financial aid, registration and tech support employees who used Concordia email addresses. But in online resumes, those same individuals said they worked for HotChalk.
Applications for Concordia’s ambassador program, which rewarded current students for producing leads on new recruits, directed applicants to send their material to an address in California. It is the address of HotChalk’s headquarters.
To be sure, many students expressed satisfaction with their Concordia graduate degree and are proud alumni.
Degrees from accredited institutions such as Concordia carry a high value, because employers rely on the seal of approval to determine degree quality.
Concordia’s first extensive statement provided to The Oregonian/OregonLive said “All admission, program, tuition and financial aid requirements and policies apply to all students equally, regardless of modality of course or program.” It said the online and and on-campus Master of Education programs comprise “the same course, course goals and course objectives in order to assure the outcomes that meet standards of our accrediting bodies.”
A second, follow-up statement provided by the university said all students are “held to the same high standards and receive the same course instruction” online and on-campus.
Here’s what cached versions of various Concordia web pages showed:
Applicants to the on-campus Master of Education program in 2010 needed to submit a letter of intent and a “personal character questionnaire” required by Oregon’s Teacher Standards and Practices Commission, the state organization that approves educator training programs. The online Master of Education program did not list either document as a requirement.
The 2010 web page said on-campus students needed to complete a 23-credit core curriculum for the Master of Education in Curriculum and Instruction degree; the online program required only 15 credits.
Versions of Concordia’s on-campus website from 2010 until 2013 said the university offered no scholarships for graduate students. But during that same timeframe the online Master of Education website advertised $500 “Hot” scholarships and $2,000 “study buddy” scholarships, in addition to perks such as tablet computers.
As part of the 2015 settlement, Concordia agreed, among other things, to: eliminate monetary perks for students who generate leads through the ambassadors program; and award tuition discounts and scholarships based on factors that aren’t tied to recruitment. HotChalk committed to playing no role in determining admissions or approving curriculum.
Meneses said HotChalk covered Concordia’s share of the $1 million settlement and that the college has satisfied all commitments.
The school and contractor said they would not employ the same person at the same time. Nearly one year later, Concordia’s online Master of Education degree website still identified Mary Jane Pearson as “program leader and professor emeritus.” Pearson’s name also appeared on HotChalk’s website, as the company’s vice president of academic affairs.
Both organizations are private, so it’s impossible to know the exact nature of their employment relationships with Pearson. When asked about her dual roles listed online, college officials offered no explanation. Pearson’s name vanished from Concordia’s website within weeks after The Oregonian/OregonLive’s inquiry.
Turnock said since the settlement, there has been no major shift in the way the college does business and the school continues to comply with all regulations. She said Concordia operates its own online education department and collaborates with Concordia’s sister schools elsewhere to deliver the courses.
Turnock said Concordia has always acted with the best interest of students in mind.
“Concordia’s mission, identity and core values remain constant, no matter what mode of learning a student selects for his or her academic degree program,” she said.
Students have noticed changes to the school’s ambassador program.
Yasmin Hamilton said she worked hard through the school’s ambassadors program to try to earn two plane tickets to fly her parents to her Portland graduation.
But she said the school told her in November that it would end the rewards program. In an interview in May, Hamilton said she still had not been compensated for the points she earned and she stayed home from graduation this spring.
Turnock said the university agreed to end the program even though a judge ruled that it did not violate the federal ban on incentive pay. She said the school has “worked with students to resolve any remaining questions or concerns following discontinuation of the program.”
Hamilton said the experience with the rewards program made her question the values of the university.
“I never resent anything, but I probably wouldn’t recommend it to someone,” Hamilton said, “just because I wouldn’t trust the university.”
