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Online program manager 2U had more than $900 million in debt at the end of 2023.
Financially struggling 2U, one of the largest online course providers, has warned of “substantial doubt” it can continue in business, creating uncertainty for the hundreds of colleges and universities that use its services.
The warning, in a quarterly filing on Monday, added more tumult to the already-uncertain landscape for online program management firms, or OPMs.
At the end of last year, 2U had more than $900 million in debt. According to the earnings report, if 2U cannot raise capital or amend or refinance its loan, which the company has already begun to do, there is “substantial doubt about its ability to continue as a going concern.”
“I hope universities are asking the tough questions of how prepared they are for a sudden stop,” said Ben Kaufman, a fellow at the Student Borrower Protection Center. “And I hope [the Department of Education] is asking schools what they’ll do if 2U blows up.”
2U works with more than 250 higher ed institutions and partners. Inside Higher Ed reached out to a dozen that work with 2U, most of which did not respond to requests for comment. Representatives from Pepperdine University and the University of California, Berkeley, declined to comment.
“I don’t know if the schools have even thought about it, but it’s really bad that no one’s talking about it,” Kaufman said. “The house is already on fire and nobody is talking about how to get people out; they’re talking about maybe calling the fire department.”
Phil Hill, a market analyst and ed-tech consultant with Phil Hill and Associates, said the 2U news was not a surprise.
“It’s simple math—it’s way too much debt,” he said. “The math is so obvious now, they have to disclose to investors what’s going on.”
Hill said he believes if 2U were to close, it wouldn’t be a death knell for the online program manager space in general. He pointed toward Academic Partnerships and Grand Canyon Education, both growing in the space, as potential buyers for 2U. Others have suggested a private equity firm, as those firms are used to acquiring debt.
2U’s latest admission follows company layoffs last month, which spanned multiple departments and accounted for less than 6 percent of its full-time workforce, according to a 2U spokesperson. 2U also suffered a blow in November, winding down several programs in its long partnership with the University of Southern California.
“That to me was the canary in the coal mine,” said Ben Kennedy, managing partner of Kennedy and Company, a higher education consulting firm.
OPMs were a way for universities to launch online programs in a revenue-sharing partnership. They initially allowed the institutions to save money up front and have a bit of a safety net, as the OPM also had a stake in the program’s success. Any revenue made in the programs is typically split between the OPM and the institution. 2U is one of the largest in the space, launching in 2008 and hitting a peak with the acquisition of industry giant edX in 2021.
Now, Kennedy said, many of the successful OPMs are focusing on smaller institutions that do not have the means to launch their own online programs.
“Other OPMs that pivoted and do not do revenue-sharing models are starting to look like full-service digital marketing companies,” Kennedy said, mentioning their roles in everything from call center operations to course design development. “I think the ones that are flexible are the ones that will stay in business.”
One financial option not laid out in 2U’s quarterly report was filing for bankruptcy.
A person close to 2U said the company had plenty of cash to run the business, pointing toward $73 million on its balance sheet. 2U also has 81 deals in the pipeline, with 60 expected to roll out this year, the person said, adding that it was too early to speculate on the potential path 2U takes, with refinancing and selling assets both on the table.
Kaufman, however, pointed to a long-term issue with a buyout, even if it buoys 2U.
“Even if there is a white-knight acquirer, if they go through bankruptcy and emerge, we have no idea what that would mean for students, let alone the degrees and debt they’ve taken on,” he said. “I hope universities are watching; they need to know the company they allowed to reach these students could face serious disruption really soon.”
While 2U’s debt has not proved alarming to its customers—at least not publicly—a potential delisting of 2U on the NASDAQ stock exchange could be a catalyst for universities to cut ties. If a company’s stock price is below $1 for 30 days, the company receives a notice of delisting. It then has 180 days to raise the stock price, which could be as simple as a reverse stock split, which would boost the price. As of Feb. 13, 2U’s stock price was 57 cents per share.
“Schools tend to react to headlines,” Hill said. “The stock price and delist would be a pretty big headline.”
