In early 2021, the future of online program management company (OPM) 2U looked bright. The previous year, the global pandemic disrupted higher education and the world at large. As universities scrambled to maintain instruction, this online program management provider seized the opportunity presented by the sudden shift to virtual learning.

For the full year 2020, the company's revenuegrew by more than a third, reaching $774.5 million. By February 2021, its market value hit $4 billion, solidifying its leading position in the OPM market.

"We understand that as disruptors, the responsibility to prove the sustainability of the business we built lies with us," 2U co-founder and then-CEO Chip Paucektold investors at the time. "We never doubted it, and for the rest of you, this chapter should also be turned."

In 2021, 2U acquired MOOC platform edX, aiming to significantly expand its alternative credential offerings and cross-promote courses. The rapidly expanding 2Upaid $800 million。

for the deal. However, that year ultimately became the company's high-water mark, rather than the dawn of a new era.

The company on Thursdayfiled for Chapter 11 bankruptcy protection, just three years after Paucek proudly claimed the company's sustainability. This filing highlights that 2U was not actually sustainable at the time—at least not at its scale: after years of ambitious expansion and facing a changing higher education landscape, circumstances had shifted.

Industry growth trajectory

2U launched its first program in 2009 in partnership with the University of Southern California's Rossier School of Education—a Master of Arts in Teaching. Between 2009 and 2013, the company launched eight graduate programs. Within three years after its initial public offering in 2014, it had started 15 more graduate degree programs.

During these years, its university clients grew to more than a dozen, including some of the most recognized names in higher education: Syracuse University, New York University, UC Berkeley, and others. Today, 2U has over 40 university clients in its degree program business.

2U helped universities rapidly develop and expand programs in the fast-growing online market. It could invest capital to create programs and handle the technical aspects, while providing partners with marketing, data analytics, and even course design services. In return, 2U historically took approximatelya 60% share of program revenue. Toward the end of the last decade, 2U began expanding more intoshort-term and alternative credential programs.

According to theChapter 11 filingsubmitted by 2U Chief Legal and Financial Officer Matt Norden on July 25, over 60,000 students have graduated from 2U-supported graduate degree programs, another 85,000 have completed its boot camp courses, and more than 300,000 have completed executive education courses. He also noted that the graduation rate for its degree programs was 72% in 2023.

During the pandemic, demand for 2U's services increased, but the massive shift to online learning did not prove as lasting as OPM players had hoped.

As Norden explained, the market 2U operated in underwent another transformation after the early pandemic period—which coincided with the company completing its massive acquisition of edX.

On one hand, when vaccines reduced the lethality and threat of COVID-19, students began returning to physical classrooms.

At the same time, as the broader world reopened, e-commerce and other digital services experienced varying degrees of contraction.

Norden noted in the filing that this led to layoffs at tech companies, which in turn reduced demand for the tech education credentials on which 2U relied. Meanwhile, the adoption of artificial intelligence outpaced 2U's expectations, reducing demand for coding boot camps.

Reputational damage

Not all obstacles on 2U's growth path came from the market.

At the end of 2022, a group of former University of Southern California studentsfiled a class-action lawsuit against 2U and the university. In the complaint, students alleged that the OPM and the university used manipulated rankings to attract students to enroll in the university's online education programs. Earlier this year, a federal judgedismissed the claims against 2U。

Shortly after, in spring 2023, USC facedanother lawsuit, this time brought by former students enrolled in the university's online Master of Social Work program developed in partnership with 2U. They alleged the university marketed its online program as "identical" to the on-campus program, even though "numerous aspects" of the online version were outsourced to 2U.

Later that year, 2U and USC agreed tophase outtheir partnership on most of USC's online programs that the company had helped build. The parties did not state a reason for the split in their announcement, only saying the decision was "thoughtful." They maintained that the partnership was "characterized by innovation, commitment, and a shared vision for quality education."

The company's practices also came under media scrutiny, including a 2022investigationby The Chronicle of Higher Education. A former professor who taught in a hybrid physician assistant degree program developed with 2U at Arcadia University told the publication that the company "basically wanted to turn our PA program into a cash cow."

"They clearly didn't care about program quality," the professor said.

Other universities have also ended partnerships with 2U, and others—including the University of North Carolina at Chapel Hill—have reportedly beenconsidering scaling back their partnerships。

Beyond the reputational risks associated with partnering with 2U, as online course development becomes increasingly common, more universities may choose to handle it themselves.

According to Kevin Carey, vice president of education and work at the left-leaning think tank New America, institutions are essentially asking themselves: "'Hey, do we really still need these people? Can't we do it ourselves?'"

Financial distress

For fiscal year 2024, the company expectedrevenue of $733 million—a fewmillion dollars less than its revenuefour years earlier.

Declining revenue combined with over $900 million in debt became a heavy financial burden for the company.

Although 2U had cut costs, launched new programs, and terminated others in an effort to achieve profitability, it still struggled to generate cash under its debt burden. Due to long-term operating losses, 2U's accumulated deficit approached $1.6 billion.

"It's not like it has factories or special trade secrets that can be resold."

—Tim Hynes, global head of credit research at Debtwire

Facing potential defaults and liquidity issues, the company issued a "going concern" warning in its securities filings earlier this year—an accounting term indicating the company faced the risk of insolvency or being unable to finance its operations. The company had been negotiating with creditors over a potential restructuring plan to keep operating.

Although the company noted in pre-bankruptcy filings that if it failed to reach an agreement with lenders or obtain a capital injection, itmight have to liquidate, the company insisted in public statements that this option was not under consideration.

Tim Hynes, global head of credit research at Debtwire, said in an interview earlier this year that the company's creditors would likely prefer restructuring over liquidation, for a simple reason—as a technology company and service provider, 2U did not have many assets to liquidate.

"It's not like it has factories or special trade secrets that can be resold," Hynes said in April.

Of the company's approximately $1.4 billion in assets, over $1 billion were intangible. This included $650 million in so-called goodwill assets—based on the premium it paid for past acquisitions, including edX, involving factors such as brand recognition—and another $357.1 million in other various intangible assets, according to 2U's latestquarterly earnings report.

When it filed for bankruptcy on Thursday, 2U had reached an agreement with lenders and bondholders representing approximately 87% of its outstanding debt, which would provide about $110 million in new capital and reduce its debt by more than half to $459 million.

The agreement, still subject to court approval, would also take the company private again, with bondholders exchanging shares for debt relief.

2U said it would not only continue operations without interrupting student programs during bankruptcy, but that the Chapter 11 restructuring, planned for completion in September, would position it for future innovation and growth.

The restructuring plan "should allow the company to move forward more productively without worrying about liquidity constraints and upcoming debt maturities," Debtwire's Hynes said Thursday. "It can focus on driving profitable business operations."

"We are concerned"

2U's restructuring agreement is designed to keep the company operating into the future. But questions about 2U and the OPM market remain. One of the biggest questions: If an OPM goes under, what exactly happens?

"There are a large number of students enrolled in these programs. We rarely hear any of the universities with these partnerships talk about what would happen if one of them went under."

—Kevin Carey, vice president of education and work at New America

"We don't really know what would happen, but we are certainly concerned," New America's Carey said. "There are a large number of students enrolled in these programs. We rarely hear any of the universities with these partnerships talk about what would happen if one of them went under."

He added that the U.S. Department of Education has left this issue for universities to resolve on their own.

In April, a department spokesperson told Higher Ed Dive that the agency was "concerned" about the potential impact of OPM financial failures. In the same statement, the spokesperson said the agency "believes institutions have a responsibility to ensure students are not harmed by any potential failure of an OPM."

Carey noted that an exception in federal regulations allowing revenue-sharing arrangements between universities and companies like 2U gave rise to the OPM market—and the Education Department said in early 2023 it wouldreview that guidance。

The guidance allows universities to share revenue with companies that provide enrollment assistance as part of a broader package of services, as 2U did. The department said it wouldissue revised guidance。

as early as later this year. "But it doesn't say what happens if an OPM shuts down," Carey said, as many universities have done in the past. "So I think this precisely highlights the need for the department to act now."

Following 2U's bankruptcy, others also called on the Education Department to strengthen oversight of OPMs.

"This regulatory gap puts students at significant risk—as we are seeing today—and the Department of Education needs to act immediately to reduce further harm," Stephanie Hall, senior director of higher education policy at the liberal think tank Center for American Progress, said ina statement on Thursday.

Eileen Connor is president and director of the Predatory Student Lending project, which is assisting students in the USC class-action lawsuit. She also issued a similar statement on Thursday. Connor said the Education Department has a "responsibility to develop better regulatory policies to protect students from predatory arrangements between schools and for-profit companies like 2U."

When asked about 2U's bankruptcy and calls for stronger OPM regulation, a department spokesperson said in a statement to Higher Ed Dive on Thursday that the agency had been "closely monitoring" 2U's financial situation over the past several months, "and we are particularly focused on ensuring that students' educational programs are not disrupted."