OPM Watch: What Happens if Online Giant 2U Goes Under?

Editor's Note: Shortly after this piece published, 2U announced it will file for Chapter 11 bankruptcy. The deal will see 2U reduce its debts by half, to about $459 million, while lenders and noteholders will provide roughly $110 million in new capital. The company, which went public a decade ago, will also be taken private.

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2U was once heralded as the vanguard of online program managers, companies that help colleges establish and operate virtual programs.

The OPM model, which involves running online programs for colleges and recruiting students in exchange for a hefty slice of tuition revenue, exploded in popularity several years ago. And 2U dominated that industry, peaking at a roughly $5 billion market cap in 2018.

Now, 2U’s demise appears imminent.

Its value has plummeted to $20 million as its enrollments have slowed. It holds more than $900 million in debt, and lacks both cash available and the ability to turn a profit to cover it.

Phil Hill, an ed tech consultant and market analyst, summarized the company’s future earlier this year, writing in a public blog: 2U will not survive “the next year without major changes, either in its offerings or in its solvency.”

Despite the financial writing on the wall, 2U has maintained it is not considering a business strategy that would “cease operations or end programs for students currently enrolled in a program we support.”

The corporate spin is unsurprising, but in this case, 2U’s questionable assurances could have consequences. 2U’s backing of programs may end, yet tens of thousands of students enroll in its courses. This year, 2U has the equivalent of 70,000 full-time students between its degree and alternative credential programs.

For context, if 2U was a standalone institution, this would make it one of the highest-enrollment colleges in the U.S.

The U.S. Department of Education can forgive student loans if a college closes abruptly. But no federal rule exists yet to help students transfer elsewhere or have their loans discharged if their programs shut down abruptly. The Education Department has proposed making students who enrolled in defunct online programs eligible for loan forgiveness, however.

For now, though, the department seems limited in ways it can support students left with half-finished degrees and few options to reach graduation day. But colleges that 2U works with may not have backups either, prompting the need for Education Department involvement.

New America contacted a dozen 2U partner colleges, and almost none answered questions about how they would support students in 2U programs if the company went under. The colleges that responded only disclosed their plans in the vaguest of terms. 2U also didn’t respond to a request for comment.

New America asked Education Secretary Miguel Cardona at a public event in May whether the department was prepared for an OPM collapse.

The Education Department recognizes “that this is an area that could use guidance, regulation, oversight,” Cardona said.

“And we’re having those conversations now about what that looks like, finding that balance to provide more options to students,” he said.

2U has publicly rejected the idea that its collapse is fast approaching.

In April, student advocates urged the Education Department to protect those enrolled in 2U programs if it were to fail. Afterwards, the company issued a statement saying predictions of “an imminent shutdown are unequivocally false and represent a blatant attempt to confuse students and the public.”

But in the same breath, 2U acknowledged the need to improve its financial position — which has continued to weaken.

Revenue from its degree programs fell nearly 21% in 2U’s first quarter, to $111.5 million, while revenue from alternative credentials slid about 11%, down to $86.8 million, according to U.S. Securities and Exchange Commission filings. Alternative credentials includes 2U’s bootcamp business, which it has tried to beef up in recent years.

Overall, 2U’s first quarter revenue fell by almost 17%, according to SEC filings.

Notably, too, 2U said in SEC documents it does not expect to meet a requirement in a loan agreement that it must earn at least $900 million in recurring revenue over one year. Breaking this credit covenant could cause lenders to stop giving 2U money, make the company repay loans faster, or take its assets.

“We have continued to have a constructive dialogue with our creditors to timely address the revenue covenant and find the overall best solution to position the company for the long-term,” Matthew Norden, 2U’s chief financial officer and chief legal officer, told investors in May.

2U’s stock has also plummeted in value. It had dropped to under 30 cents per share in late May. Then recently 2U announced it was proceeding with a 1-for-30 reverse stock split, which consolidates shares — for every 30 shares, an investor now owns just one. That appeared to be an attempt to fend off the threat of being delisted from Nasdaq Stock Market’s Global Select Market because share price had fallen so low.

Despite the financial turmoil, 2U has pledged millions of dollars in bonuses for some of its top executives, according to an SEC filing. These will be paid out in installments through January 2025. Norden is slated to receive about $1.2 million, while Chief Executive Officer Paul Lalljie will earn $2.3 million. Two other officials, Andrew Hermalyn and Aaron McCullough, will each receive $726,000.

Further, 2U recently added a member to its board of directors, and will pay her $30,000 monthly, an SEC filing states.

2U’s cash flow is not its only problem.

Company investors sued in June, alleging the company violated federal securities laws for two years, from February 2022 to February 2024. Investors accused 2U, in part, of concealing that it was not maintaining its business with colleges and “as a result, certain degree programs and partnerships failed to materialize or were cancelled.”

2U has also this year started pulling out of a bootcamp arrangement in the United Kingdom. Ofsted, a UK government education watchdog, found few students were completing the online bootcamps 2U was running — and “too many learners had dropped out or were making slow progress on the course,” the agency said in a report dated in March.

Kenneth Corvo has observed firsthand what he believes are the substandard quality of 2U courses, and how they can devastate a college’s existing programs.

Several years back, administrators at Syracuse University, where Corvo is a professor of social work, had sought to ramp up online options, he said. But Corovo was suspicious of 2U, particularly since learning more about its alleged destructive practices in other states.

In 2019, the university announced a social work master’s degree with 2U, bringing the number of graduate programs the company had established there at the time up to 15. Faculty had voted to back the contract, but Corvo alleged administrators pressured them to do so, and that they had insisted they would move forward with the program regardless whether they had instructors’ support.

Corvo distrusted 2U from the start. Syracuse social work master’s programs require students to experience field work, but 2U “screwed up” placing them with practitioners, he said. The company similarly botched academic advising, which eventually fell to Syracuse’s existing social work faculty, not those 2U brought on, Corvo said.

And in Corvo’s view, 2U’s curricula, delivered through prerecorded lectures, “inevitably diminishes quality and produces homogeneity.”

In-person courses inspire spontaneity, allow students to ask questions and enable the instructor to weave present-day events or new developments in social work into lessons, he said. Not so through 2U’s type of asynchronous instruction.

“The assumption is that pedagogy is a fixed deliverable that stays frozen for x number of years, rather than being dynamic,” Corvo said. “The curriculum is frozen in time.”

2U’s marketing of the social work program worked, but not always in the way the university might have hoped. In the online degree’s first year running, Syracuse’s in-person social work degree lost 40% of its enrollment, Corvo said. The decline forced Syracuse to cut back in-person course offerings, he said.

The in-person program simply can’t compete with 2U’s, Corvo said. 2U recruiters can entice students to enroll with scholarships that come out of the company’s cut of the profits — while Syracuse cut financial aid for the residential program, he said. The university took away scholarships and graduate assistantships, depriving students of the opportunity to find mentorship, Corvo said.

Syracuse also isn’t drawing in an entirely new market of students, even with online expansion, he said.

“We thought we were going to be cannibalized, we didn’t know we would be eaten alive,” Corvo said.

Corvo said he doesn’t know why the university continues “in a death spiral with corporate pirates.”

It’s generally high-level leaders, administrators and program managers who tend to buy into 2U’s sales pitch, according to a former senior manager with the company, who requested anonymity to protect from professional repercussions.

Nationwide, faculty are often wary of 2U and its promises, and are the ones to push back on its model, the former employee said.

At Syracuse, at least one high-level official has close ties to 2U. Darlene DeRemer is a “life” member of Syracuse’s trustee board, which means she served the maximum number of terms as a voting representative. She doesn’t have voting power now but can attend and participate in meetings.

DeRemer is also chair and member of another board: Ark Invest’s, a firm that owns the most 2U shares out of all investors, more than 16%, as of late March.

Neither DeRemer nor Syracuse responded to requests for comment.

What happens to students like those at Syracuse should 2U fail?

Wealthy institutions may have the wherewithal to help students earn their credential or punt them to another program or college. But some colleges contracted with 2U because they couldn’t create such programs themselves and may not have the money to support students.

Institutions either aren’t discussing their plans publicly — or worse and more likely, don’t have those contingencies.

Faculty that New America spoke with at 2U partner colleges often weren’t even aware of how many programs the OPM had established for their institutions or if their colleges wanted to expand them.

Only four media representatives from the dozen 2U partner colleges that New America contacted responded to questions about 2U's potential decline.

Ben Johnson, an Ohio State University spokesperson, said in an email it “is monitoring this situation closely.”

“It would be inappropriate to speculate on the future of 2U,” Johnson said. “We are, and will remain, committed to helping all students enrolled in all Ohio State boot camps complete their programs.”

One Ohio State faculty member, who requested anonymity to protect from professional repercussions, said each individual school has historically handled contracting with OPMs. This generally leaves faculty in the dark about OPMs’ reach on campus.

But that may be changing.

Last year, Ohio State named Jason Lemon as its first vice provost and dean for online learning. Part of Lemon’s job is coordinating Ohio State’s strategy with online programs and according to the anonymous faculty member, does not want to work with an OPM. The faculty member said Ohio State also likely wants to avoid buying a for-profit college’s online infrastructure, as some other institutions have done. That includes Purdue University, which acquired Kaplan University in 2017 — but has since proven a financial and operational disaster.

“The guardrails are always going to be the quality of the programs,” the faculty member said. “We don’t want to have something that’s not up to our standards. We also want faculty to control the program — that’s something we always need to be careful about, not letting potential for-profit dollars come in.”

Lemon did not respond to a request for comment.

At the University of North Carolina at Chapel Hill, officials have no immediate plans to change its work with 2U or what services it provides, Todd Nicolet, vice provost for digital lifelong learning, said in an emailed statement.

This contradicts a recent Wall Street Journal report, which said UNC-Chapel Hill was looking for the exit door with 2U.

“Regardless of any services 2U provides, we remain committed to ensuring students have the ability to complete programs they start, as we do for all of our programs,” Nicolet said.

Representatives from the University of California, Berkeley and the University of Pennsylvania declined to comment. Other colleges, including Pepperdine University, which recently added six more 2U-sponsored programs, did not respond to requests for comment.

2U actually had an explosive ascent in its early days, particularly after it became publicly traded in 2014 and started bringing in new partner colleges. It was founded in 2008.

However, the company’s last few years proved challenging, particularly after 2U attempted a bigger foray into non-degree credentials. In 2021, it acquired edX, a provider of what’s known as massive open online courses, at the time lauding the potential to broaden further into bootcamps and short-term programs.

But this stressed its finances, and in the recent Wall Street Journal article, 2U’s former CEO admitted “the decision to use debt was a mistake” in the $800 million edX deal.

A separate 2022 Wall Street Journal investigation also exposed 2U relying on aggressive tactics and misrepresentations to lure students into programs.

Often, 2U recruiters did not disclose up front that they weren’t working for a college. In fact, they seemed to represent themselves more as an institutional admissions official, such as by using a college email address.

And they would sometimes reach out to students incessantly, peppering them with phone calls and emails — even if they weren’t interested. To ensure students would land in a 2U-sponsored program, too, the company began inserting language in its contracts that allowed it to redirect prospects to another program if they didn’t enroll in one they were initially interested in.

Sometimes it was colleges that pressured 2U to pursue student prospects, according to the former senior manager. But it was the company that urged them not to, for instance, divulge tuition costs unless a student asked, the former employee said.

The 2022 Wall Street Journal piece heightened lawmaker scrutiny on 2U’s business model. And about a year later, graduates of the University of Southern California’s online Master of Social Work, a 2U program, sued, arguing the top-ranked college misrepresented it — but that it is in fact more akin to a “large-scale diploma mill.”

That lawsuit is ongoing.

Still, more must be done. The federal Education Department indicated recently it would pursue the arduous process of rulemaking to beef up oversight of third-party servicers like OPMs. Yet a new rule would likely not emerge before 2025 — and if a new administration takes power, it could decide to abandon the regulatory process.

None of this will fix the more immediate problem, helping students enrolled in 2U programs. As of now, the Education Department considers it institutions’ responsibility to ensure students “are not harmed by any potential failure of an OPM,” a spokesperson told New America recently.

“The department encourages all institutions contracting with an online program manager they use for program delivery that is facing financial challenges to take steps to ensure minimal disruption for students in the event that an OPM is unable to provide the services it promised,” the spokesperson said.

And if that’s the case, then the Education Department needs to hold colleges accountable that do not protect their students. The stakes are too high to allow the issue to linger unresolved. Students dedicate time and money into their education, and deserve security that their chosen institutions will safeguard those investments.