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2U Announces Layoffs and New Approach to Tuition Sharing Agreements

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On Thursday, 2U announced general layoffs and changes to its business strategy as it refocuses the company around edX, the popular MOOC platform. he purchased last year.

Online Program Management, or OPM, has built its business on helping colleges get online programs up and running, offering services such as marketing, recruiting and course development. In exchange, the educational institutions give 2U a cut of tuition revenue for their programs.

2U officials announced that the company is revamping that part of the business model, saying it will offer tuition-sharing agreements starting at 35% of program revenue — with higher rates available to colleges that want more services.

The new tuition fee distribution model comes amid growing criticism of the deals. Some lawmakers and policy advocates say tuition-sharing agreements force OPM to aggressively recruit students for online programs to boost its own revenue.

Most recently, the US House Appropriations Committee called on the Department of Education cancel the regulatory instructions which allows companies to use these models for service packages that include recruitment. A recent U.S. Government Accountability Report found that the Ed Department is not doing enough to ensure that OPM contracts comply with federal laws and guidelines aimed at preventing aggressive hiring practices.

Pressure also increased by 2U.

A a recent Wall Street Journal report found that the companies’ recruiters used “.edu” email addresses to contact prospective students and also called from the area codes of the universities whose programs they were marketing. The students told the publication that they did not know that a third-party company was recruiting them to participate in the programs.

2U announced Friday that a 35% tuition-share option will be available to colleges that use its core suite of services, which includes program development and student support. Colleges that want additional support services, such as paid digital marketing, curriculum development and faculty recruitment, will pay higher rates. Under this model, tuition share agreements can be as high as 60%.

The company also said it would lower its revenue share for any college that agreed to significantly lower the cost of online tuition.

Placing edX in the center

2U’s total revenue increased to $241.5 million in the second quarter of 2022, an increase of 1.8% year-over-year. However, the company’s revenue from the degree program declined to 143.1 million dollarsdown 2.1% from last year.

The company is making moves to expand its offerings to include more alternative credentials, such as bootcamps and online courses. The company’s alternative credentials segment grew to $98.4 million in the second quarter, up 8.1% from a year earlier.

2U has expanded its alternative education offerings through acquisitions, including the purchase of Trilogy Education Services in 2019 and edX last year. 2U officials have previously expressed plans to make edX the company’s consumer-focused brand.

Chip Paucek, CEO of 2U, doubled down on this strategy during a call with analysts Thursday to discuss the company’s earnings.

“Over the past six months, we’ve grown more confident in our platform strategy, which puts edX at the center,” Paucek said. The move is aimed at reducing the company’s marketing costs and improving profitability in the long run, he said.

Since becoming a public company in 2014, 2U has never posted a profitable year. Second-quarter results were no different, with the company reporting a net loss of $62.9 million, nearly triple the year-ago period.

The restructuring will result in annual cost savings of about $70 million, said Paul Lally, 2U’s chief financial officer. The company will incur restructuring costs of between $35 million and $40 million until the layoffs are completed.

The cuts will be “across the board,” Paucek said.

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