On the outset of 2021, the long run seemed vivid for 2U.
The yr earlier than had disrupted larger training, and your complete world, with a world pandemic. As faculties scrambled to proceed educating college students, the web program supervisor was in a position to capitalize on a sudden shift to digital studying the world over.
Over the course of 2020, the corporate’s income grew by greater than a 3rd, reaching $774.5 million. And by February 2021 its market cap hit $4 billion, solidifying its place as a pacesetter within the OPM market.
“We perceive that as a disruptor the burden of proof is on us to show the enterprise we constructed is sustainable,” 2U co-founder and then-CEO Chip Paucek instructed traders on the time. “We by no means doubted it and that chapter ought to be closed for the remainder of you as effectively.”
2U would go on in 2021 to amass edX, a MOOC platform, with the goal of broadly increasing its choices of other credentials and cross-marketing its applications. The fast-growing 2U paid $800 million for the deal.
The yr turned out to be a high-water mark, slightly than the daybreak of a brand new period.
The corporate filed for chapter Thursday, simply three years after Paucek triumphantly proclaimed the corporate’s sustainability. The submitting underscores that 2U in truth wasn’t sustainable on the time, not at that dimension — after years of bold progress — and never in an ever-changing larger ed panorama.
Progress of an trade
2U launched its first program, a grasp’s diploma in educating, in 2009 in partnership with College of Southern California’s training college. Between 2009 and 2013, it launched eight graduate applications. Within the three years following its preliminary public providing in 2014, it began one other 15 graduate diploma applications.
Its college purchasers over these years, rising to greater than a dozen, included a number of the most recognizable names in larger training: Syracuse College, New York College and College of California, Berkeley, to call a couple of. At the moment, 2U has greater than 40 college purchasers in its diploma program enterprise.
2U helps universities shortly develop and develop applications within the fast-growing on-line market. It could possibly put up capital to create applications, and it takes on the know-how facet of issues, together with companies akin to advertising, information analytics and even curriculum design for its companions. In return, 2U traditionally has taken round a 60% share of program income. Because it neared the tip of the final decade, 2U began increasing extra in shorter-term and various credential applications.
Over 60,000 college students have graduated from 2U-supported graduate diploma applications, whereas one other 85,000 have completed its boot camps and 300,000-plus have accomplished its government training programs, in keeping with the July 25 Chapter 11 submitting by Matt Norden, 2U’s chief authorized and monetary officer. He additionally famous a 72% commencement fee for its diploma applications in 2023.
Demand elevated for 2U’s companies in the course of the pandemic, however the widespread shift to on-line studying turned out to not be as everlasting as OPM gamers might need hoped.
As Norden defined, 2U’s market went by way of one other transformation after the early pandemic period — which started simply after the corporate closed on the huge edX buy.
For one factor, college students started returning to school rooms when vaccines made COVID-19 much less lethal and fearsome.
And because the broader world reopened , e-commerce and different digital companies contracted by various levels.
That led tech corporations to shed jobs, Norden famous within the submitting. This meant much less demand for the tech training credentials that 2U made cash on. On the identical time, the uptake of synthetic intelligence occurred extra shortly than 2U anticipated, lowering demand for coding camps.
Reputational hits
Not all the pace bumps to 2U’s progress have been market-based.
In late 2022, a bunch of former USC college students filed a class-action lawsuit towards 2U and the college. Of their criticism, the scholars alleged that the OPM and college used doctored rankings to entice college students to enroll within the establishment’s on-line teaching programs. A federal decide dismissed the allegations towards 2U earlier this yr.
Shortly after, in spring 2023, USC was hit with one other lawsuit, this time by former college students who had enrolled within the college’s on-line social work grasp’s program developed with 2U. They alleged the college billed its on-line program as “precisely the identical” as its in-person program, regardless that “substantial points” of the web model have been outsourced to 2U.
Later that yr, 2U and USC agreed to wind down their partnership on most of USC’s on-line applications constructed with the corporate’s assist. The events didn’t supply a motive for the break up of their announcement. The mentioned solely that the choice got here after “a lot considerate consideration.” They maintained that their collaboration was “characterised by innovation, dedication, and a shared imaginative and prescient for high quality training.”
The corporate’s practices have come beneath scrutiny within the media as effectively, together with with a 2022 investigation from The Chronicle of Larger Training. A former Arcadia College professor who labored on a hybrid physicians assistant diploma program developed with 2U instructed the publication that the corporate “was mainly making an attempt to show our PA program right into a money cow.
“They made it apparent that they didn’t care concerning the high quality of this system,” the professor mentioned.
Different universities have ended their partnerships with 2U, and a few others, together with College of North Carolina at Chapel Hill, are reportedly contemplating pulling again.
Together with reputational dangers for universities working with 2U, extra faculties is likely to be opting to tackle the work of creating on-line coursework themselves as these applications change into much more commonplace.
Based on Kevin Carey, vice chairman of training and work at left-leaning assume tank New America, establishments are primarily asking themselves, “‘Hey, do we actually want these individuals anymore? Cannot we simply do it ourselves?’”
Cash issues
For fiscal 2024, the corporate initiatives $733 million in income — tens of thousands and thousands of {dollars} lower than what it made 4 years in the past.
The mix of falling income and greater than $900 million in debt turned an enormous monetary headache for the corporate.
Whereas 2U has minimize prices, launched new applications and ended others in an effort to change into worthwhile, it has nonetheless struggled to generate money beneath its debt burden. With a protracted historical past of working losses, 2U has racked up an collected deficit of just about $1.6 billion.
“It is not like they’ve a manufacturing facility or some particular commerce secrets and techniques that you could possibly resell.”
Tim Hynes
International Head of Credit score Analysis, Debtwire
Going through potential default and liquidity issues, the corporate issued in its safety filings earlier this yr “going concern” warnings, accounting language that signifies an organization is liable to turning into bancrupt or failing to finance its operations. It had additionally been negotiating with debt-holders round a possible restructuring to maintain it afloat.
Though the corporate famous in filings previous to chapter that absent a cope with lenders or an injection of capital, it might need to liquidate, it maintained in public statements that that possibility was not on the desk.
Tim Hynes, international head of credit score analysis at Debtwire, mentioned in an interview earlier this yr that the corporate’s debt-holders would doubtless favor restructuring over liquidation, for the easy motive that — as a tech firm and repair supplier — 2U doesn’t have that many belongings to liquidate.
“It is not like they’ve a manufacturing facility or some particular commerce secrets and techniques that you could possibly resell,” Hynes mentioned in April.
Of the corporate’s roughly $1.4 billion in belongings, greater than $1 billion are intangible. That features $650 million in what are known as goodwill belongings — that are primarily based on the premium it paid for previous acquisitions, together with edX, for issues like model recognition — and one other $357.1 million in different assorted intangible belongings, in keeping with 2U’s newest quarterly financials.
When it filed for chapter Thursday, 2U had minimize a cope with lenders and bondholders representing about 87% of its excellent debt that would supply about $110 million of latest capital and greater than halve its debt to $459 million.
The settlement, which wants courtroom approval, would additionally take the corporate non-public once more, with bondholders taking shares within the firm in return for forgiving debt.
2U says that not solely will it proceed doing enterprise with out interruption to college students’ applications by way of chapter, but additionally that the Chapter 11 restructuring — which it plans to finish in September — will place it for innovation and progress forward.
The restructuring plan “ought to permit the corporate to maneuver ahead in a extra productive method now that it would not have to fret about liquidity constraints and upcoming maturities,” Debtwire’s Hynes mentioned Thursday. “It could possibly give attention to driving worthwhile enterprise operations.”
‘We’re involved’
2U’s restructuring deal is designed to maintain the corporate working into the long run. However questions over 2U and the OPM market linger. Among the many largest of these is: Simply what precisely would occur have been an OPM to fail?
“We do not actually know what would occur, however we definitely are involved,” New America’s Carey mentioned. “There’s an enormous variety of college students enrolled in these programs. And now we have heard little or no from any of the universities which have these partnerships speaking about what may occur if one have been to fold.”
“There’s an enormous variety of college students enrolled in these programs. And now we have heard little or no from any of the universities which have these partnerships speaking about what may occur if one have been to fold.”
Kevin Carey
Vice President of Training and Work, New America
He added that the U.S. Division of Training has left that query to the universities to determine.
In April, a spokesperson for the Training Division instructed Larger Ed Dive that the company was “involved” concerning the potential influence of an OPM’s monetary failure. In the identical assertion, the spokesperson mentioned the company “views establishments as liable for guaranteeing college students usually are not harmed by any potential failure of an OPM.”
Carey famous that carve-outs in federal laws permitting income sharing offers between universities and corporations like 2U gave rise to the OPM market — steering that the Training Division mentioned in early 2023 that it will evaluate.
The steering permits faculties to share income with corporations that present recruiting assist as half of a bigger bundle of companies, as 2U does. The division mentioned it will problem revised steering late this yr on the earliest.
“But it surely would not say something about what occurs” if an OPM shuts down, the way in which many faculties have, Carey mentioned. “And so I believe it simply underscores the necessity for the division to behave on this now.”
Others additionally known as on the Training Division to tighten oversight of OPMs within the wake of 2U’s chapter.
“This lack of oversight places college students at vital danger — as we’ve seen in the present day — and the Division of Training must act instantly to scale back additional hurt,” Stephanie Corridor, senior director for larger training coverage on the liberal Middle for American Progress, mentioned in a press release Thursday.
Eileen Connor, president and director of the Venture on Predatory Pupil Lending, which helps to symbolize college students within the class-action swimsuit towards USC, issued the same assertion Thursday. The division had a “duty to place higher oversight insurance policies in place to guard college students from predatory preparations that faculties enter into with for-profit corporations like 2U,” Connor mentioned.
Requested concerning the 2U chapter and requires extra OPM oversight, an Training Division spokesperson instructed Larger Ed Dive in a press release Thursday that the company has been “intently watching” 2U’s monetary state of affairs for the final a number of months, “with our explicit give attention to guaranteeing that college students don’t see any disruption of their instructional applications.”
“We encourage 2U to make sure there can be no unfavourable results for college students, and we hope this course of ends in better investments to enhance the standard of their companies,” the spokesperson added.
