Postscript on FutureU Podast: The WSJ article on USC

Two days ago I shared a post about the FutureU podcast episode, hosted by Jeff Selingo and Michael Horn, where the three of us discussed the Online Program Management (OPM) market – “Explained: What is an OPM?” It turns out that on that same day the Wall Street Journal published an article about the University of Southern California (USC) and its online Master of Social Work program that comes from 2U’s longest-term and highest total revenue client. That article can help explain another one of the key discussion points in the podcast [emphasis added].

Cost of Education and Grad Programs

Michael Horn: And that’s one of the other criticisms of these OPM arrangements is people alleging that they’ve driven up the cost of higher ed. Now, if you say that to someone at 2U, they’ll quickly say it’s actually a heck of a lot easier for me to sell a low cost program from Simmons say than a high cost program from another university. And so it’s actually in our advantage to get the prices down, but there’s controversy around there all the same. And the point is that marketing costs take up a sizeable of these online program management budgets. And so if you can reduce it by having a captured pool, if you will, of registered users, that could be a very intriguing way. And indeed Coursera has done that with the University of Illinois, for example, with their iMBA program where they dramatically cut the cost down. [snip]

Jeff Selingo: Phil, something you mentioned there that I want to dive a little bit deeper on and we’ll make these last couple of questions just kind of more lightning round. You’ve talked about the professional market, graduating professional market. What about the undergraduate market? Why isn’t there really an OPM for the undergraduate market?

Phil Hill: Well, undergraduate in general, students are not as adept at online education as graduate. Partially because you know, it takes time management, it takes self discipline. It also takes the students say, I know why I’m doing this and undergraduate a lot of times, it’s just, Hey, I’m going to school. Yeah, I selected this major, but I might change. I don’t know what’s going on. And I haven’t developed some of these self-study skills or time management. And undergraduate tuition is a lot more constrained, particularly with public institutions than the masters or professional, so even though they’re public, a lot of the masters and professional programs could charge very high prices for their programs, which gives a bigger opportunity for an OPM, so that’s why it’s been difficult. However, I think all of the OPM providers or most of them would like to get into undergraduate now. I wouldn’t say that we’re saturated, but there are so many online masters and professional programs already. You can’t just build it and they will come anymore. You need to expand. You need to be specific about where you’re going.

These combined points about the OPM market’s role in encouraging higher prices for master’s or professional programs was the direct subject of the WSJ article.


The nonprofit school used its status-symbol image to attract students across the country, including low-income minority students it targeted for recruitment, often with aggressive tactics. Most students piled on debt to afford the tuition, which last year reached $115,000 for the two-year degree. The majority never set foot on the posh Los Angeles campus but paid the same rate for online classes as in-person students.

Recent USC social-work graduates who took out federal loans borrowed a median $112,000. Half of them were earning $52,000 or less annually two years later, a Wall Street Journal analysis of newly released U.S. Education Department data found. Compared with other master’s-degree programs at top-tier U.S. universities, the USC social-work degree had one of the worst combinations of debt and earnings.

The article includes interviews with several students of the program, pointing out the massive debts incurred. The worst example:

“I realize now I could have gotten the same job with a much cheaper degree from a different school,” said Susan Fowler, a 37-year-old mother of two, who enrolled in USC’s master’s-degree program because of its prestigious name and the flexibility of its online classes.

Ms. Fowler, a 2018 graduate, enjoyed the program but owes $307,000 in total student-loan debt, including about $200,000 from the master’s degree. She said she earns $48,000 as a community mental-health therapist in Mount Pleasant, Iowa.

Not Just One of Many Clients

At the time of 2U’s IPO in 2014, USC and its Education and Social Work programs comprised more than two thirds of the company’s total revenue, as described in its S-1 filing [emphasis added].

A significant portion of our revenue is currently attributable to programs with the University of Southern California. A decline in enrollment in these programs could significantly reduce our revenue.

Our two longest running programs, launched in 2009 and 2010, are with the University of Southern California, or USC. For the years ended December 31, 2011, 2012 and 2013, 94%, 78% and 69%, respectively, of our revenue was derived from these two programs. We expect USC will continue to account for a large portion of our revenue until our other client programs become more mature and achieve significantly higher enrollment levels. Any decline in USC’s reputation, any increase in USC’s tuition, or any changes in USC’s policies could adversely affect the number of students that enroll in these two programs. Further, the faculty or administrators of these two schools could become resistant to offering courses through our platform, making it more difficult for us to attract and retain students. These graduate schools are not required to expand student enrollment in their online programs and, upon the expiration of their contracts, they are not required to continue using us as the provider of their online programs. If either of these programs were to materially underperform for any reason or to terminate their relationships with us, it would significantly reduce our revenue.

2U has grown and expanded since 2014, but USC has been a big part of its history. And as the S-1 shows, 2U called out the risks that are hitting that school over the past few years.

Grad Plus

The WSJ article does an excellent job of calling out the Department of Education’s role in high-cost master’s and professional programs.

Taking on significant debt to pay for a social-work master’s degree is possible through the free-flowing availability of federal loans for graduate students. The Grad Plus program, which lets students borrow as much as colleges charge, has provided a valuable revenue stream for universities. They can urge students to take out loans to cover any tuition shortfall, plus money to cover books and living expenses.

In increasing enrollment in its social-work program, USC benefited from federal loan dollars: Graduates from 2015 through 2018 collectively borrowed more than half a billion dollars in federal student loans, more than those at any other graduate program in the country, the Journal found. USC had an endowment of $5.9 billion last year, making it one of the 20 wealthiest private schools in the country.

There is a lot more in the article worth reading. My main point above, however, is that this story from USC is an valuable example of the controversy we discussed in the podcast, and it helps explain the strategic changes being made by 2U (particularly in its pending acquisition of edX) to join Coursera in an Online Education Platform market that allows multiple entry points for students and enabling support for lower-tuition programs.


The WSJ article this week, and another one from the LA Times in 2019 describing the financial problems when program revenues started to drop, are clear that USC executives deserve the majority of blame in this saga. USC leadership took the online program revenue for granted, assuming that it would not drop, and they set the tuition and admissions standards. In the LA Times article, the school released a statement stating:

The university, which has contracted with the company through 2030, said the factors that led to the school’s budget crunch were “much broader” than its relationship with 2U.

“Generally, this partner relationship has been positive,” the university said in a statement.

In this week’s article, the worst item directly tied to 2U was a misleading web site.

Students who searched Google for the best online social-work programs a few years ago likely would have found a website run by 2U that purported to be a “comprehensive directory” of social-work degrees. It listed USC first among featured programs and could have been confused for an independent evaluation of the degrees if a prospective student failed to read the fine print, an archived version of the page from 2017 shows.

The website has since more prominently disclosed 2U’s involvement. The 2U spokeswoman said that the company has taken “significant measures” to ensure its site is transparent.

But 2U should not be viewed as blameless, or culpable only for the misleading website. In my original definition of an OPM in the podcast, I pointed out that “a key part of [an OPM] is it’s a primary partner for this creation.” 2U was there to provide guidance, and they could see the tuition dollars and student debt situation early on. USC and 2U have funded scholarships for the program, but that approach does not address the core problem that is leading to the PR debacle. An OPM provider should provide guidance to its university partners regarding tuition levels that are sustainable by market forces, and sustainable for students to be able to manage debt.

A decade ago, the topic of student debt for graduate students was not as big of a public issue, but applying any level of common sense would show the risks for both the reality and perception of charging MSW students such high rates. There might not be regulatory issues involved for this OPM contract, but as the S-1 pointed out, there are reputational risks, and 2U is deservedly taking public heat for its enabling role.

There is a real discussion 1 to be had on the OPM market and its role in the cost of higher education. Both for good (enabling lower costs) and for bad (encouraging high costs).

1 And by real, I mean in good faith and looking to improve the future environment, not as a PR campaign.