2U, a fading giant in the online program manager space, announced Thursday it had filed for Chapter 11 bankruptcy. While the company said the process will put it back in a competitive position, experts said the filing creates an incentive for longtime customers to rework their contracts or finally jump ship from an OPM plagued for months by lawsuits, layoffs and a struggling bottom line.
The news came as no surprise to either opponents or proponents of the industry. 2U had been on shaky ground since it acquired nonprofit learning platform edX in 2021, paying $800 million to Harvard University and the Massachusetts Institute of Technology and landing in debt it could not escape. But the filing raises new concerns and questions for the 260 higher education institutions that partner with the company.
2U offers a mix of its own online programming, boot camps and support for universities to deliver online degree and nondegree programs. While it was one of the first OPMs on the scene in 2008, eventually ballooning to become one of the biggest players in the industry, it has seen an uptick in competition as more companies have come on the scene and universities have chosen to launch their own online programs.
Like others, 2U has also been plagued by shifting attitudes toward OPMs and their revenue-sharing models, in which the company pays the up-front cost of launching online programming and marketing to prospective students and gets a cut of the tuition revenue in return. Many opponents say the model encourages dishonest recruiting methods to pull in more students—and more profits. That revenue-sharing model may no longer be possible under pending regulations from the Department of Education.
All those factors, coupled with inflation that made paying back 2U’s debt more difficult, created an unsustainable business model, according to experts.
In a statement, 2U CEO Paul Lalljie said he expects the Chapter 11 process to finish by the end of September, if not earlier. He said the company’s partnerships “will proceed as planned with no impact or disruption to learners.” 2U says its restructuring agreement, which will reduce its debt by more than half and give it $110 million in new capital, will extend the company’s runway by two years once the deal closes. Under the restructuring, 2U—which went public in 2014—will become a private company.
“The steps we are taking today will enable us to continue investing in our offerings, services, and world-class team to deliver unparalleled online learning to meet the needs of students today,” Lalljie said. “As we move towards the successful completion of this transaction, we are steadfastly focused on what matters most: our partners and learners.” 2U declined to comment to Inside Higher Ed.
Joshua Kim, a member of 2U’s academic advisory board, said the financial move puts the company on more solid footing. But he does not believe it’s a magic wand to wave over 2U’s woes.
“This doesn’t change the fundamental position, but they’re in a better position to face these challenges,” said Kim, Dartmouth College’s assistant provost for online learning strategy and an Inside Higher Ed contributor. “This addresses the issue of 2U’s debt, and that’s key: They had debt that was not supportable with revenue and now they have a way to manage that.”
Phil Hill, an expert in the OPM space and ed-tech analyst at Phil Hill and Associates, says the company’s next challenge is, once again, how to stand out in a crowded market.
“To be quite honest, the thing that surprised me most was that [the debt restructuring] was a really clever solution,” he said. “They did a really good job handling the financial crisis, but the turnaround has to happen; if you’re just another player doing OPMs and boot camps, that’s sort of hard to focus your message.”
Longtime opponents of OPMs, including the Center for American Progress, the Project on Predatory Student Lending and the Student Borrower Protection Center, said the filing was an easy way out for a company that is long overdue for a final nail in its coffin.
“2U’s executives have shown time and again that they have no strategy to turn around their failing company,” said Student Borrower Protection Center executive director Mike Pierce in a statement. “Today, many … investors are now working with 2U executives to use federal bankruptcy laws to keep the lights on at 2U—a perverse outcome when those same bankruptcy laws deny a path to a debt-free future for the students harmed by 2U’s schemes.”
The bankruptcy is the latest development in a tumultuous year for 2U, which had layoffs in January spanning multiple departments. A month later, the company warned in a quarterly filing of “substantial doubt” whether it could continue if it could not raise capital, or amend or refinance its loans. Bankruptcy was not listed as an option.
Jeremy Bauer-Wolf, investigations manager at New America, a left-leaning think tank, believes many colleges will now look to cut ties with 2U, while other OPM entities will try to swoop in.
“There’s a bunch of folks waiting in the wings,” he said. “We’ve seen OPMs take on financially struggling colleges; this could be a good elevator pitch. There will be a lot of companies stepping up to broach into that space a bit more.”
Hill agreed, adding, “I think there will be a lot of calls going out this week—how successful it’ll be, we’ll have to see.”
While Hill believes the bankruptcy could serve as a springboard for institutions nearing the end of their 2U contracts and looking for a way out, he’s unsure whether it will cause a mass exodus for those in the thick of their current contracts.
“I can’t see a school forcing an end to a contract just because of this, but it’s ammunition,” he said. “Schools that are already debating whether to stay with them, that’s where I think the impact will be. And there might be some concerned enough that they want to leave, but it’s mostly those at the end of the contract.”
Stacy Snow, a principal with Kennedy and Company, a higher education consulting firm, said that regardless of whether institutions stay with 2U or not, the bankruptcy could give them the chance to renegotiate contracts.
Colleges “definitely will be concerned and do have a right to be, but it’s a great opportunity to review the current contract they’re operating,” Snow said. She suggested potentially negotiating a contract for a shorter time frame, as well as including an exit clause or a set of terms that could end an agreement without breaking the contract. She also believes more universities may want to see an increase in transparency, particular in marketing materials.
“When you’re an institution, it’s on your behalf, but you don’t see the day to day of what they’re spending and how they’re spending it,” she said. “You can be in the dark of how you’re being marketed. And in the beginning, it didn’t matter as long as the enrollment came, but now it behooves them.”