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With purchase of edX, this company is betting big on a prestige brand in online higher education

2U, based in Maryland, finishes $800 million deal to acquire platform created by MIT and Harvard

Christopher Paucek, chief executive of 2U Inc., works at headquarters in Maryland. (Marvin Joseph/The Washington Post)
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The pandemic that shuttered campuses worldwide last year also created a rare opportunity for online higher education. And a company based in Maryland just placed an $800 million bet that it can seize the moment.

For that sum, 2U Inc. bought an online course platform called edX that was created nine years ago as a nonprofit and joint venture of the Massachusetts Institute of Technology and Harvard University. The platform has a brand with prestigious origins and more than 40 million registered users around the world.

The deal, announced in June, closed on Nov. 16. Now edX is essentially the front door of a for-profit company that helps colleges and businesses provide online courses geared to career development and credentials up to bachelor’s and master’s degrees.

Christopher “Chip” Paucek, co-founder and chief executive of 2U, drew an analogy to the parent company of a famous search engine. “The way to think about it is, 2U becomes Alphabet,” Paucek said. “EdX is our Google.”

Higher education is prone to big talk of market-disrupting forces. Often, those predictions fade as potential students, whether teenagers or older adults, gravitate toward tradition. While mergers and closures do happen from time to time, many small colleges thought to be in jeopardy of shutting down somehow manage to find students and stay open.

Still, the coronavirus pandemic opened the eyes of the world to the potential — and limits — of studying online. Paucek said he sees opportunity for growth.

The post-pandemic future of college? It’s on campus and online.

He cited a degree-completion program that Morehouse College offers, with support from 2U, that aims to help Black men in the United States or abroad who may have dropped out of college take online courses to finish a bachelor’s.

The program launched in August. A key selling point is that online tuition is $600 per credit hour, a little more than half the list price for the 2,300 residential students who attend the historically Black men’s college in Atlanta. The online students are typically part time. About 220 have enrolled so far in business administration, ranging in age from 27 to 72, and the college believes it can attract hundreds more as it expands course offerings. Admission is selective, and the college said the online program is held to rigorous standards.

“It’s exceeded our expectations,” said Morehouse President David A. Thomas. Revenue is on track to match expenses in this academic year, he said, and perhaps provide a small surplus. “We’re drawing applicants from across the continental United States. Next year we will explicitly market the program on the African continent, [in] the Caribbean and across the Black diaspora.”

2U helped Morehouse market the program and provided technical support, Thomas said, noting, “They were willing to make a $3 million investment to get this up and running.” The Morehouse president said 2U will make money on the program if it succeeds. “If we have high attrition rates,” he said, “then they suffer just like we suffer.”

The company’s track record is not without controversy. The Wall Street Journal recently reported that an online master’s program in social work at the University of Southern California — for which 2U recruits students — had left many graduates with high student loan debt compared to their earnings. The degree had been priced at $115,000.

USC, which controls tuition, is lowering the price for the degree to about $84,000, the Journal reported, and taking steps to raise admission requirements. Paucek declined to comment on USC’s program or pricing policies. But he said 2U benefits financially when colleges and universities set reasonable tuition rates because lower prices reduce the cost of marketing and recruiting.

“Affordability is key to the model,” Paucek said. “That’s real. As the cost goes up, it gets harder and harder to get people interested. And we pay for all that.”

Paucek said he tracks outcome and student debt data for all programs the company services. “Yes, we measure it,” he said. “We are careful.” He advocates full transparency for the online education industry and said he welcomes government oversight of it. “We think the work we’re doing is extremely high quality,” he said. “Sunlight is a positive.”

Paucek, 50, who lives in Annapolis, co-founded the company in 2008. He does not denigrate in-person education. He earned a bachelor’s degree the old-fashioned way from George Washington University in 1992, with financial aid from federal Pell grants, and he recalls the jolt of arriving in the nation’s capital as a teenager who had rarely traveled far from home.

“GW completely changed my life,” he said. “All of a sudden this kid from South Florida was four blocks from the White House.” Now Paucek jets far and wide to run his company.

Among 2U’s clients are GWU with online master’s degrees in public health, Georgetown University with an online master’s in nursing, Yale University with an online master’s for physician assistants, and the University of California at Berkeley with an online master’s in data science and analytics. 2U also helps the London School of Economics and Political Science offer online bachelor’s degrees. In all, the company works with more than 185 colleges and universities.

The publicly traded company is based in Lanham, Md., with a 12-story headquarters just inside the Capital Beltway that has been mostly empty during the pandemic. It has about 4,000 employees in offices around the world, including one in South Africa, and it projects revenue in 2021 of $945 million. Many employees are devoted to marketing and recruiting, with others helping colleges and universities with curriculum development, the technical details of course production and delivery, and other tasks associated with online education. (It’s hardly as simple as Zooming a bunch of lectures.) The company stresses that schools retain full control of admission, pricing and content.

Among its competitors is the higher education company Coursera, based in Mountain View, Calif., which held its initial public offering this year. Jeff Maggioncalda, Coursera’s chief executive, said interest in the platform has spiked. In January 2020, he said, Coursera had 47 million registered learners. It is now up to 92 million. (These kind of self-reported figures, from Coursera or from edX, are not comparable to college enrollment. They include people from around the world with varying levels of interest in pursuing all kinds of course content.) Coursera works with 175 universities and numerous businesses and other institutions.

“The rate of change is just so fast,” Maggioncalda said. “It’s very dynamic. The pandemic created a lot of attention” from students, educators and investors.

Coursera, like edX, was once an object of major fascination as a provider of what were known as MOOCs, or massive open online courses, from prestige universities. The phenomenon, which arose nearly a decade ago, promised to shake up higher education.

Some in academia believe MIT and Harvard should have held on to edX as a high-profile nonprofit venture in the growing online world. “Their decision to fold is a major, and potentially fateful, act of betrayal,” Jefferson Pooley, a professor of media and communication at Muhlenberg College, wrote in July in the Chronicle of Higher Education.

MIT and Harvard officials defend the decision. They say edX demonstrated major progress and huge upside potential in its mission of providing high-quality online learning. “Taking full advantage of that potential will require capital investments at greater scale than is readily attainable for a nonprofit entity like edX,” Harvard Provost Alan Garber told the Harvard Gazette. Net proceeds from the sale have gone to a new nonprofit organization under MIT and Harvard that will explore education innovation.

Under the purchase terms, edX will operate as a “public benefit company.” It will continue to offer a free track for auditing courses for at least the next five years, and it will protect the intellectual property rights of faculty and universities. 2U also agreed to certain privacy restrictions on the use of data connected to edX-registered learners.

Anant Agarwal, an MIT professor who was chief executive of edX, has joined 2U as chief open education officer. He said edX’s university partners support the merger. “Not a single partner has opted out because of the deal,” he said.

One of edX’s partners, Boston University, announced when the deal closed that it plans to offer an online master’s in public health with support from 2U. The degree, expected to launch in January 2023, will cost $24,000, according to Provost Jean Morrison. That is far less than the current price for the in-person version at roughly $87,000.

Morrison said the initiative echoes an online MBA program BU recently began, also priced at $24,000. She stressed that none of these kinds of programs are meant to replace the core work of the research university in classrooms, libraries and laboratories. She also said the degree and diploma are the same for these master’s programs, whether courses are delivered online or in person.

“We do think that by engaging with online education, that will allow us to have access to a broader range of students than we would otherwise have,” Morrison said. “It allows us to expand our reach.”

One such student is Jermaine L. Smith, an MBA candidate at BU who lives in New Orleans and takes classes entirely online. Smith, 40, a father of two who is a nonprofit executive, said he was drawn by the price, the convenience and the reputation of BU. He said he has borrowed a modest amount to attend but is repaying loans as he goes.

“I’ve been really pleased with the investment so far,” Smith said. “I don’t mind spending a little bit of money. But I don’t want to spend $30, $40 or $50,000 to go to any run-of-the-mill school.”

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