Online education giant 2U files bankruptcy

Maryland-based 2U, one of the nation’s largest online education companies, filed for Chapter 11 bankruptcy protection Thursday and will go private, after years of explosive growth and debt.

Since 2008, the company has partnered with 260 colleges and universities, including Georgetown University, Morehouse College and the University of Southern California, to build online courses and degree programs. Growing competition and a highly leveraged balance sheet began to weigh down the company in recent years, resulting in multiple rounds of layoffs since 2022.

To turn the company around, 2U is entering into a deal with lenders and noteholders that will cut its debt load by 50 percent to $459 million, extend the maturity of its loans and provide $110 million in new capital. The company is seeking court approval to tap $64 million of that new capital to keep the doors open during the bankruptcy proceedings, which it expects to complete by the end of September.

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2U will emerge from those proceedings as a private company backed by its existing lenders and noteholders, including funds managed by Mudrick Capital Management, Greenvale Capital and Bayside Capital.

The company said the restructuring process will not disrupt services for students or colleges.

“New capital and a healthier balance sheet will enable us to continue our long-standing mission,” Paul Lalljie, 2U’s chief executive, said in a statement Thursday. “The steps we are taking today will enable us to continue investing in our offerings, services, and world-class team to deliver unparalleled online learning to meet the needs of students.”

At its peak, 2U was valued at $5 billion in 2018, but the company — now valued at $11.5 million — has lost money every year since going public a decade ago. It spent many of its resources on technology and production, and strategic acquisitions. 2U made news in 2021 when it bought edX, a platform developed by the Massachusetts Institute of Technology and Harvard University, for $800 million. That deal delivered more than 230 education partners to the company but also plunged 2U into debt.

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Around the same time, the company began facing intense criticism of its revenue-sharing agreements and program quality. In 2021, the Wall Street Journal reported that a $115,000 online master’s program in social work at the University of Southern California, where 2U recruited students, left enrollees with high student loan debt relative to their earnings.

A year later, three graduates of USC’s Rossier School of Education sued the school and 2U, alleging the two conspired to mislead prospective students with doctored U.S. News & World Report rankings data. They claimed the profit-sharing agreement USC had with 2U, which receives a share of tuition revenue, incentivized both parties to peddle false claims about the education school.

The pair denied the charges, but USC — once 2U’s largest client — began to pull away from the company. In November, 2U told investors that USC was paying $40 million to the company to end the partnership, a revelation that sent shares plummeting.

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With business in a downturn and looming debt payments, 2U has refinanced loans, cut costs and tried negotiating with lenders since last year. Still, the company has struggled to stabilize its balance sheet. After Nasdaq warned 2U that it was at risk of being delisted from the exchange, the company initiated a reverse stock split in June.

Shares of 2U plunged nearly 64 percent to $1.51 following the Chapter 11 announcement Thursday.

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