- 2U CEO Chip Paucek told analysts during a conference call Thursday that the online program management (OPM) company is in the process of responding to a letter from two Democratic senators who question whether revenue-share models are legal.
- In a set of letters, Sens. Elizabeth Warren and Sherrod Brown asked 2U and four other OPM companies to share details of their contracts with colleges and universities, contending they could violate federal law.
- Paucek stressed that 2U's partners retain control of their online programs. "We really like what we have to say," he said of the company's response to the lawmakers. "Institutional independence, in our case, couldn't be more relevant to the entire story of 2U, not just legally, but philosophically."
In revenue-share models, OPMs take a portion of tuition revenue — sometimes as much as around 60% — in exchange for launching and helping to run a college's online program.
The senators argue that model may violate the Higher Education Act, which bars colleges from paying commission for help enrolling new students, and that it leads "to aggressive and deceptive recruiting practices."
2U estimates around 38% of its revenue in 2019 came from tuition payments derived from Title IV-eligible student loans, Paucek said on the call. He also emphasized that the company's partner institutions retain control over their admissions standards and tuition prices, and that the online programs have outcomes comparable to or better than colleges' campus-based offerings.
"We're excited about what we have to say with regard to the power of the business model even in the states of those two particular senators," he said. 2U has at least two university partners in Ohio and five in Massachusetts, according to its website.
Paucek also highlighted 2U's recent transparency push.
In September, the company called on its competitors to share who their customers are, how they set tuition prices and their student outcomes. Some analysts viewed the move as an attempt to get ahead of regulatory changes that could target the sector.
Yet it's unclear if colleges and universities will want to share such information, which could tie the hands of their OPMs. And analysts say the senators' inquiries may dampen growth in the sector if institutions back away from the revenue-share model in response.
2U announced this summer that it planned to slow the pace at which it adds graduate programs and to have smaller program sizes going forward, news that sent the company's stock into a freefall. 2U noted there was heightened competition for online students.
Paucek told analysts on the call Thursday that 2U plans to add five graduate programs in 2020, down from 17 in 2019. Programs could each include multiple degrees, a spokesperson told Education Dive in an email.
He stressed that the slowdown will help the company improve its financial position before ramping up new program launches in 2021. "We are slowing — it’s not a pitstop," he said.
The company also estimates that new enrollment will reach averages in the mid- to high-200s per program in that segment, lower than its previous expectations.
2U's total revenue climbed 42% year-over-year to $163.2 million in the fourth quarter, while revenue from its graduate program segment rose 12% to 108.2 million.
However, the company has been shifting its business model beyond graduate degrees to include offerings such as short courses, boot camps and, recently, undergraduate degrees.
2U outlined its diversification plans in early 2019 with a framework it calls the "career curricular continuum," which spans MOOCs to undergraduate and graduate degrees. It also acquired boot camp provider, Trilogy Education Services, and partnered with another OPM to support smaller and lower-cost programs.
So far, this strategy appears to be paying off. Revenue from the company's alternative credential segment more than tripled year-over-year to $54.9 million, due in part to the Trilogy acquisition.
This week, the company expanded its footing in the undergraduate market by partnering with the London School of Economics and Political Science to offer an additional six online bachelor's degrees. This follows an announcement this fall that the pair would offer an undergraduate degree in data science and business analytics. All seven programs will target adult learners and cost around $26,000 for students outside of the U.K.
For 2020, 2U is projecting revenues between $725 million and $750 million and a net loss between $220 million and $200 million.
The company brought in $574.7 million in revenue in 2019, up 40% from the prior year. And it widened its net loss from $38.3 million in 2018 to $235.2 million in 2019.
"2019 was challenging," Paucek said. "We believe we've turned the corner going into 2020."