What’s New
The beleaguered online-program manager 2U filed for Chapter 11 bankruptcy on Thursday after more than a year of financial turmoil that has called into question the future of online education at dozens of colleges.
The creditor-backed “pre-packaged” deal, if approved by a judge, would mean a change in the company’s debt and ownership structure — and an end to 2U’s publicly traded status. Thursday’s filing was made in U.S. Bankruptcy Court for the Southern District of New York.
A 2U spokesperson emphasized in an email statement to The Chronicle on Thursday morning that “programs and services will continue seamlessly without any disruption whatsoever.” 2U works with more than 250 colleges and corporate partners to run online degree programs, boot camps, courses, and other offerings.
The Details
The proposed restructuring would more than halve 2U’s debt to some $459 million, according to a news release, and would generate $110 million in new capital from the company’s lenders. It would also extend loan-maturity dates — when final loan payments are due — by more than two years.
2U is looking to expedite the process and have its restructuring sorted by September, with the goal of minimizing disruptions for colleges that use 2U to run their online academic offerings.
Even so, sources The Chronicle spoke with on Thursday noted that there may be indirect — but still notable — ramifications of such a restructuring in the long term, especially if 2U becomes a private entity.
2U’s status as a publicly traded company gave colleges “a lot more access and understanding” into its finances, said Jeremy Bauer-Wolf, investigations manager in the higher education program at New America, a Washington, D.C.-based think tank. “Now that that’s being taken away, that’s really concerning, right? ... It’s adding murkiness.”
The Backdrop
The bankruptcy news wasn’t unexpected. Sector analysts like Phil Hill have for months raised the possibility, noting 2U’s $1-billion debt load — due in large part to its acquisition of edX, a massive open online course (MOOC) provider, in 2021 for $800 million — as well as looming payment deadlines, plunging stock prices, and trouble with certain parts of its business, including boot camps.
In just a few years, the company’s market value fell precipitously, from a high of nearly $5.5 billion in May 2018 to roughly $11.5 million as of mid-week.
2U’s struggles have played out in what’s become an increasingly hostile environment for online-program managers, or OPMs. More colleges are looking to move their online operations in-house, dissatisfied with revenue-share arrangements that can siphon off 50 percent or more of tuition dollars. The U.S. Department of Education has also sought increased regulatory oversight of the sector in the last two years, though such efforts have stalled. A recent news release from the department suggests that it plans to issue guidance by the end of this year regarding colleges’ arrangements with vendors for recruitment services in particular, which many OPMs offer.
So while other online-program managers haven’t sought bankruptcy as 2U has, a number of them have had to pivot — even chop off — portions of their business in response to a changing market and regulatory landscape. Pearson, for example, sold off its online-education services arm last year. Wiley sold its OPM business to Academic Partnerships (now rebranded as Risepoint).
What to Watch For
“Pre-packaged bankruptcies with strong creditor support usually get approved by the court,” a financial restructuring and bankruptcy attorney wrote in an email to The Chronicle on Thursday. (The attorney asked to not be cited by name, as he’d not yet reviewed 2U’s specific filings.) So 2U has a good shot of getting this deal approved.
And 2U may, in fact, get the reset that it seeks with such a restructuring. Two independent sources The Chronicle spoke with Thursday recalled the ed-tech giant Cengage, which emerged from bankruptcy in 2014 and continues to operate.
Experts like Scott Goldschmidt, a partner at the law firm Thompson Coburn, wouldn’t be surprised if some colleges are reviewing their contracts’ termination clauses, though. And he advises them to. “See what kind of rights you have” in this situation, he said. “And if you’re stuck in the contract, look to 2U to provide thoughts and leadership on what’s going to change about their business and practice, and try to hold their feet to the fire.”
Goldschmidt told The Chronicle that although it’s more likely for contracts to have termination clauses for something like a sale or change of ownership versus bankruptcy, it’s not unheard of. (He noted that he hasn’t seen any 2U contracts.)
Even before Thursday’s news, at least a few 2U partners had reportedly considered moving programs in-house and renegotiating contracts, according to internal notes from an April meeting of the 2U University Partner Advisory Council that The Chronicle obtained through a public-records request. And in some cases, as with the University of South Carolina and the University of North Carolina at Chapel Hill, that scaling back is already happening.
Even so, Paxton Riter, co-founder and chief executive of iDesign, an OPM, believes that many institutions will continue to find value and necessity in the services that online-program managers like 2U provide.
“There are going to be some that will try to go in-house completely and fail, because it’s a massive undertaking and it requires a ton of expertise, and work, and money,” Riter said. “Some may take pieces in-house and outsource other pieces of the service model. And some will continue to want the full-service model.
“I don’t think it’s going to be one or the other.”
Dan Bauman, a Chronicle senior reporter, contributed to this article.
