2U struggles as US universities go it alone on online delivery

Two years after its startling purchase of the online course platform edX, sector leader 2U is foundering, reflecting what experts saw as an unexpectedly swift gain among US universities in being able to provide remote classes themselves.

2U, founded in 2008, spent $800 million (£630 million) in 2021 to buy most of edX, the pioneering assembly of virtual class offerings created by Harvard University and the Massachusetts Institute of Technology. Early in the Covid era, 2U said the pandemic-driven shift to online helped make it the nation’s largest provider of non-degree post-secondary credentials.

But 2U has now hit a clear low moment, removing co-founder Chip Paucek as its chief executive after more than a decade in the role; closing all its remaining remote offices; and ending some key institutional contracts, including that of its original partner, the University of Southern California, amid legal and financial troubles. Around the time of Mr Paucek’s removal, the company’s stock value was down about 80 per cent from the beginning of the year and, from a valuation in excess of $5 billion in 2018, it is now worth around $80 million.

The company was widely questioned and criticised over the edX purchase, given that the Harvard-MIT team found it difficult to cover costs with a primary focus on free courses for low-income students, and that 2U was seen as trying to monetise just a selection of courses showing relatively robust popularity.

Then this year, the foundational USC relationship soured. 2U had helped give USC’s School of Social Work the world’s largest enrolment, but some of its former students filed a lawsuit, accusing USC of providing an inferior education through the online option.

The 2U model also is under political pressure, with federal policymakers facing calls to end the right of such private companies to participate in tuition-share agreements, given the abuses that have been associated with that model in the past.

The accumulation of problems may suggest managerial shortcomings, said Amber Villalobos, a higher education policy expert at The Century Foundation, a progressive thinktank. But more fundamentally, Dr Villalobos said, it probably reflected US universities increasingly realising that they can handle many of the services that 2U offers.

Institutions initially partnered with 2U and similar third-party online servicers through tuition-share agreements in which the company created and operated the online programme, Dr Villalobos said. More common now, she said, is for institutions to accept smaller contracts for limited services that leave the campus in control of its curriculum, or institutions to create and run the online operation itself.

“These trends signal that the need to fully outsource an online programme to a third-party company is hitting a wall,” Dr Villalobos said.

Her Century Foundation colleague, Robert Shireman, a former US Department of Education official in the Obama administration, had a similar assessment. “The colleges better understand what it takes to stand up a programme,” said Mr Shireman, a senior fellow at the foundation. “So doing it themselves – with some contractors, but not so much of an all-encompassing general contractor – is less daunting than it used to be.”

Despite its troubles, 2U remains a leader in online post-secondary education, reporting annual revenue near $1 billion, with an emphasis on a variety of options in degree and non-degree pathways. And while 2U has fought to defend tuition-share agreements, it’s also putting greater emphasis on fee-based services that run for about half as long as standard contract terms of five to 10 years. Overall, a 2U spokesperson said, the company expects to begin at least 80 new degree programmes in 2024.

paul.basken@timeshighereducation.com