We’ve written a lot about the concerns over the accountability for online education. Here’s one, perhaps unexpected, way to fix that: Pay the course provider only when a student passes.

That’s the premise a new deal between McGraw-Hill and Western Governors University, an accredited online university based in Salt Lake City. WGU will pay McGraw-Hill a reduced flat fee for licenses to the course materials and then a premium for each student that passes the course. (McGraw-Hill made the announcement last week, as first reported by Inside Higher Ed. Hat tip to EdSurge for the link.)

WGU offers competency-based credits, awarded based on students’ mastery of the subject rather than class time. In this case, “passing” a course is earning the equivalent of a ‘B’ grade on an end-of-course competency exam. Because the courses are online with “coaches” instead of teachers, student outcome is more heavily dependent on the course materials, the logic goes. As Inside Higher Ed points out, Pearson has similar arrangements with universities already.

Inevitably, some students won’t pass or complete the course, saving WGU money. But it’s unclear how it will lower tuition rates for students, as the McGraw-Hill announcement hints at. Students will pay the same amount whether they pass the course or not. Lower costs for the institution can certainly help lower tuition costs, but it doesn’t help the student who enrolls in a course and isn’t properly served by the course materials.

Tuition is low to begin with at WGU, which serves 32,000 students nationwide and charges an average of $6,000 per year in tuition.
At any rate, McGraw-Hill is forgoing money in the short-term in hopes that it can improve and expand use of the product in the future. To do that, it will use one valuable asset it receives in the deal: student usage data.

The courses McGraw-Hill is licensing to WGU will be delivered through its e-textbooks and adaptive learning software, which bases the instruction, assessments, and content a student receives on his or her previous performance. So as students use the software, McGraw-Hill will receive troves of data on how it’s being used and how students handle the lessons, helping the company improve its offerings. (Students will remain anonymous, in accordance with WGU privacy policy, Inside Higher Ed reports.)

That data will be nice to have, but other software companies like Knewton, a developer of adaptive software, have already been doing this. For instance, as part of its contract with Arizona State University to deliver math courses (found here, courtesy of Forbes) Knewton is paid a flat fee of $100 per enrolled student. While the terms of the contract require the software to demonstrate “improvements in student performance” there is no pay tied to performance. Knewton still gets exclusive rights to the usage data, the contract says.

But deals like this could have a real impact in K-12 education, where there have been grumblings about proficiency-based contracts for virtual charter school providers and classroom technology vendors.

Here’s a tweet from the U.S. Department of Education’s assistant secretary for innovation and improvement:

#edinno welcome to the future”@universitybiz:News: McGraw-Hill and WGU Establish First “Pay-For-Performance” Biz Model ow.ly/1knjWH”

— Jim Shelton (@JIMSEDU) June 13, 2012

The structure of the WGU deal is similar to how course materials are sold to school districts—through licenses paid for by the institution (the difference of course being that, in higher ed, institutions in turn charge the student). But, to my knowledge, none of these “pay-for-performance” contracts exist in K-12. A McGraw-Hill spokesman said the company has no such deals with K-12 school districts.

There are examples of “pay-for-performance” in public policy, however. Florida Virtual School, which is an independent school district, receives some of its per-pupil funding based on course completion; Utah has a similar policy. But even those have pitfalls. As Michael Horn, the executive director for education at the Innosight Institute, a technology and public policy think tank, wrote to me, in an email:

in Utah when they passed the bill to pay for performance for online learning courses… some districts signed contracts with online learning providers that were not performance-based, so when a student didn’t successfully complete the course, the state only paid the district 50 percent, but the district was on the hook for the full amount to the online learning provider. I suspect that districts there will be smarter about that this year.

Arizona Gov. Janice K. Brewer just shot down a virtual schools bill that would have deferred payment to online schools until students proved mastery of those courses’ content.

If you know of any similar “pay-for-performance” deals between a vendor and a K-12 school district or state, let me know in the comments or via email.