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2U — one of Syracuse University’s online education providers — may have to file bankruptcy or liquidate if it can’t cover its debt, leaving SU and other universities to reconsider their partnerships with the company.

SU uses the service edX, which operates under its parent company 2U, Inc., for many of its online degree programs. But, the company has struggled with nearly $900 million in long-term debt and has not had a profitable year since going public in 2014.

The company warned of “substantial doubt about its ability to continue as a going concern” without additional capital or reduced debt, according to a 2023 filing with the United States Securities and Exchange Commission — causing uncertainty for the hundreds of colleges and universities that use its services.

“We are aware and monitoring the challenges 2U is facing,” a university spokesperson wrote in a statement to The Daily Orange. “Our priority is the continued academic progress and success of all of our students including those enrolled in our 2U-supported programs.”

Currently, SU employs 2U for a variety of its online graduate programs and course offerings, including in the Martin J. Whitman School of Management, S.I. Newhouse School of Public Communications, College of Engineering and Computer Science, School of Information Studies, Maxwell School of Citizenship and Public Affairs and the School of Social Work at David B. Falk College of Sport and Human Dynamics.

2U is at risk of being delisted from the NASDAQ Stock Market’s Global Select Market, according to a March filing with the SEC. The company has been trading below $1 for the majority of 2024. To remain listed on NASDAQ, the company must boost its closing share price to $1 or more for ten business days in a row. As of Wednesday night, the company’s share price was at $0.35.

Phil Hill, an educational technology consultant, said the combination of competition among online program management providers, increased interest rates and regulatory concerns has led to 2U’s “financial crisis.” He added that if the company doesn’t refinance this year, it will go bankrupt.

Even if 2U goes bankrupt, Hill said it will still be able to operate. He added that in any scenario — such as if the company declares bankruptcy, remedies its debt by selling parts of the company, convinces debt holders to refinance the company’s debt or gets acquired by another company — the company will be “focused on their finances and keeping the company financially alive.”

“It’s not a matter of suddenly Syracuse loses its services,” Hill said. “(SU’s) programs will need to determine (if they) are getting the same services while 2U is so focused on its finances and fixing their situation.”

The company’s financial struggles have resulted in restructuring and the mutual termination of relationships with partner universities, such as the University of Southern California — a university that will operate its online programs in-house.

While working with 2U, the company took more than half of USC’s online tuition dollars and contributed to a budget crisis in its social work school, according to the Los Angeles Times.

Graduates of USC’s online Master’s in Social Work program filed a lawsuit against USC in May 2023, claiming that the school hid that its online program was outsourced to 2U and said it provides a “fundamentally different” academic experience compared to the on-campus program. On April 2, the Los Angeles Supreme Court issued an order allowing discovery in the case to move forward.

As 2U engages in “constructive discussions” with lenders, improves its performance and “right-size(s)” its balance sheet, the company is not considering any options that would cause the company to cease operations or end programs in which students are currently enrolled, a 2U spokesperson wrote in an email to The D.O.

“2U is taking action to position the company for long-term success,” the spokesperson wrote in the email. “We are confident that we can navigate our current challenges while maintaining the quality of our offerings.”

Student Borrow Protection Center Executive Director Mike Pierce wrote in a statement that the focus for universities, regulators and enforcement agencies is to protect students from 2U’s potential collapse. He wrote companies like 2U are “propped up” by college partners; they have grown dependent on the company to deliver instruction, recruiting, marketing and financial aid to students.

“Students are bearing the burden from risks taken by private-sector ed tech firms like 2U,” Pierce wrote. “The writing is on the wall: 2U is spiraling, and the regulators and enforcement agencies have done nothing to prepare for the inevitable impact this will have on the students who were fleeced or misled by a company working in the shadows.”

Ben Kaufman, a fellow at the SBPC, echoed that SU must remain focused on protecting and mitigating harm for students amid 2U’s financial struggles.

“The biggest question is just, if 2U is facing financial problems, what is Syracuse doing to prepare for the possibility of disruption at 2U, to protect students from bearing the brunt of it?” Kaufman wrote in a statement to The D.O.

Hill suggested that university administrators choose to either negotiate a better contract with 2U, pursue partnerships with other online education providers like Coursera or provide online education programs “in-house” rather than outsourcing due to the “risky environment” of OPMs. He added that 2U’s financial crisis will most likely cause “scrutiny” if SU introduces a new online program in the future.

Contract management and an internal review of SU’s online capabilities will also be an important factor in making a decision that best benefits online students, Hill said.

There is significant concern among online education activists about the OPM model of companies like 2U, with some wanting it outlawed, Hill said. He said these activists will most likely leverage 2U’s financial situation, the USC lawsuit and increased federal regulations targeting online education to dissuade other schools from partnering with similar OPM providers.

“I don’t think online is going away, but it is just becoming more and more risky because of regulatory issues and financial issues,” Hill said. “It’ll slow things down, but the biggest impact will be in the media and the public perception.”

Published on April 11, 2024 at 1:06 am

Contact Samantha: saolande@syr.edu