Layoffs, Deferred Tuition and More Transparency Among 2U Changes Since Stock Fall

Sep 12, 2019

2U CEO Chip Paucek came to New York this week in part to assuage concerns around his publicly traded online degree program provider. In July, the online education company’s stock tumbled more than 50 percent after Paucek announced that the company expects double the net loss for this fiscal year and it would debut fewer graduate programs in 2020.

“The stock has taken a hit, but the company is doing great,” Paucek said in an interview just before taking the stage at the annual Back to School conference hosted by the BMO Capital Markets investment bank.

The price of the stock has crept upward to $19.57 at the market’s open on Tuesday, up from $12.80 on July 30. Since then, the company has unveiled several updates to remain competitive with a changing online program management market.

On the morning of the conference, the company unveiled a deferred tuition payment plan, where eligible students can defer up to 50 percent of total tuition until after graduation. They then pay no more than 10 percent of their annual income until they’ve paid back what they deferred. 2U partnered with education funding platform EdAid to offer the plan. Simmons University’s School of Nursing is the first 2U partner to offer students this option.

Paucek claims the payment plan differs from the income-share agreements popular with coding bootcamps. He says the 2U plan is a regulated credit agreement with no private investors whereas income-share agreements remain unregulated, funded by private investors targeting returns of 15 to 20 percent a year.

Unlike deferment plans, students who accept income-share agreements can sometimes pay back much more than the cost of upfront tuition, he notes. Purdue students who use the Indiana university’s income-share agreement, for example, pay a maximum of 2.5 times their funding amount over the payment term, regardless of earned income.

A day before, the company also committed to publishing a transparency report in 2020, which will offer details on its programs. Data will include enrollment breakdowns by gender, race and age; retention and graduation; employment and license passage outcomes; ad and digital marketing spend; time to completion; average attendance rates, student satisfaction ratings and hour requirements. “We have nothing to hide,” Paucek says.

Paucek also announced the company merged its student admissions and student support teams and slashed 1.5 percent of its staff, which now numbers nearly 4,000 employees.

The cuts, he added, will save the company up to $3.5 million during the second half of the year and up to $12 million in annualized savings. The employees affected are mostly management-level.

And despite tempered expectations, 2U’s core business in online graduate programs continues to grow. The company is offering a new online master’s degree in social work program with Syracuse University. It has also partnered with online program manager Keypath Education and Emerson College in Boston for an online master’s degree in digital marketing and analytics.

2U claims to serve over 150,000 students with over 250 digital and in-person education offerings, including graduate programs, certificates, bootcamps and short courses.

Paucek wasn’t part of a separate discussion on outsourced services for universities, but others in the industry debated whether 2U’s approach—offering bundled services in return for a large share of the school’s tuition revenue—is a viable business model.

John Katzman, a former 2U CEO and co-founder alongside Paucek, told the crowd 2U’s stock trouble is proof that revenue-share graduate programs are dead. Katzman’s current online program manager, Noodle Partners, offers its services a la carte instead of in 2U’s traditional bundled model. “Investors looking for a deus ex machina, it’s not coming,” he said.

Steve Fireng, CEO of online program manager Keypath Education, disagreed. Some universities still request the revenue-share graduate program model, he said. “The model isn’t dead,” he said. “It’s different.”


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