The looming collapse of 2U underscores the urgent need for stronger consumer protections against ed tech
By Mike Pierce | February 13, 2024
Yesterday, 2U notified its shareholders that, due to declining revenue across its business and the strain posed by very high levels of corporate debt, “there is substantial doubt about its ability to continue as a going concern.” This follows on the heels of a mass layoff at the EdTech giant, the latest sign of distress at the scandal-plagued online higher ed pioneer. Federal regulators need to take action before it is too late.
As of mid-2023, more than 75,000 students were currently enrolled in 2U programs, including more than 50,000 pursuing degrees at programs in partnership with brand-name public and private colleges. The combined enrollment across these 2U programs makes 2U equivalent to the eighth largest college in America.
The combined enrollment across these 2U programs makes 2U equivalent to the eighth largest college in America.
Last year, one observer called 2U “America’s Worst Run Company.” It remains to be seen whether 2U can avoid bankruptcy, which may now be imminent.
2U’s looming collapse has been years in the making. Late last year, 2U announced that it was parting ways with its most visible client—the University of Southern California. 2U’s deal with USC had allowed the private college to offer online courses to students across the country, including a Master in Social Work degree program that became the largest social work school in the country, enrolling more than 3,000 students at its peak.
The end of this arrangement is not a shock. Allegations of fraud and mismanagement swirled around 2U and USC for years, leading to class action lawsuits by former students against both the ed tech firm and its school partner for running an “online diploma mill,” along with increased scrutiny by lawmakers and federal education officials.
In the wake of this announcement, 2U’s stock accelerated its years-long skid, bottoming out at less than fifty cents per share—just 1/200th of its 2019 peak. Analysts attribute this decline not just to the dissolution of the 2U-USC deal, but to more fundamental challenges, including declining enrollment in both 2U’s degree-granting online programs and short-term “coding bootcamp” business.
We’ve repeatedly warned federal and state regulators about colleges’ over-relying on ed tech firms like 2U, specifically because of the risks to tens of thousands of students from a collapse.
Dozens of colleges close each year, often due to financial mismanagement by college leaders. College closures happen so frequently that Congress created the “closed school discharge” student debt relief program decades ago—establishing a process for current students to be freed from federal student loan debt should their college close. Unfortunately, this debt relief option doesn’t clearly apply to 2U’s students. As far as the Department of Education is concerned, students “attend” a “program” offered by 2U’s partner colleges, not a single, massive online college run by the firm itself.
Put another way, a student enrolled at a hypothetical “University of America Online” would automatically qualify for student debt relief under existing law. However, in the event of 2U’s potential collapse, the students across the country enrolled at the very real American University Online may find themselves deeply in debt, with no choice but to abandon their degree or relocate to American University’s physical campus in Washington, DC.
For the 1-in-3 students enrolled in 2U programs who are not pursuing degrees—students like those enrolled in “alternative credential” programs including EdX or Trilogy coding bootcamps—the situation may be even more dire. For more than two years, 2U, along with its partner colleges and private student lenders, have faced credible allegations of deception, fraud, and double-dealing related to the illegal private debt-financing scheme used to fund students who attend these programs. Federal higher education and consumer financial protection laws expressly prohibit public colleges from cutting revenue-sharing deals with private student lenders and from letting private lenders use college logos when marketing financing to students. 2U has served as the middle-man in what appears to be an illegal “preferred lender” scheme and, should it fail, students will be left with thousands of dollars in high-rate private debt and no credentials.
Federal education and consumer protection officials must act in tandem to protect students from the entire, interdependent network of firms that deliver higher education online and drive students into debt—providing a clear set of guidance to students, colleges, student loan market participants, and the ed tech industry. Students cannot be forced to bear the financial burden if corporate greed causes the market for online higher education to collapse.
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Mike Pierce is executive director of theStudent Borrower Protection Center (SBPC). Prior to founding SBPC in 2018, Mike was a senior regulator for the student financial services industry at the Consumer Financial Protection Bureau.