On the heels of a turbulent year, 2U appears to have turned a corner. The past three months have brought "unprecedented demand" to the online program management (OPM) company's entire suite of offerings, its CEO, Chip Paucek, said on a call with investors last week. 

Paucek said the company is seeing "historic highs" in enrollment, including in some of its oldest degree programs, as well as a surge in interest from universities that want to bring their offerings online. During the call, Paucek painted a rosy outlook for 2U, whose stock price has roughly doubled since mid-March — around the time many U.S colleges began shutting down their campuses because of the coronavirus. 

This marks a shift from last year, when 2U's stock tumbled after company officials said they expected to launch fewer graduate degree programs and have smaller program sizes going forward. Investors subsequently sued the company, alleging that 2U didn't disclose that the online education market was growing increasingly competitive and misled them about the sustainability of its growth. 

However, Paucek suggested last week that the coronavirus is bringing lasting changes to higher education. "Universities need to embrace hybrid online education for the fall, and more importantly, further into the future if they want to thrive," he said. "There's a big difference between the emergency remote instruction and intentional high-quality online education." 

As a result of the pandemic, colleges are likely to prioritize investing in online programs and consumers could be more willing to enroll in them, experts say. 

Yet some of the same problems that permeated the sector before the pandemic may be waiting on the other side. That includes an inquiry by Senate Democrats into revenue-share agreements — in which an OPM takes a cut of an online program's revenue in exchange for launching it — and increased competition that could drive down the price of online education. 

Aiding the transition online 

As the coronavirus forced colleges to pivot toward online and hybrid instruction, 2U and other OPMs offered their services to help them do so. 

Earlier this year, 2U debuted new products, including 2UOS Essential, which bundles technology and support services to help 2U's new and existing partners prepare online courses for the fall term. It includes a product called Studio in a Box, which helps instructors create asynchronous video content for courses. 

Amherst College, for instance, is using this service to bring its large, lecture-style courses online for the fall. This frees up bigger lecture halls so students can spread out during smaller, in-person classes, the Massachusetts school said. 

Paucek told investors the company expects to strike more deals like this as "institutions confront growing uncertainty over the upcoming school year." 

2U also announced in May that it's expanding its partnership with Simmons University, in Massachusetts. The university is using Studio in a Box to create online versions of more than 300 undergraduate courses, which will be available this fall. 

Other OPMs have seen similar surges in business. Paxton Riter, co-founder and CEO of iDesign, said colleges have been seeking out the instructional design firm to help them transition online. 

In response, the company has been offering a new service center for instructional design support that helps faculty members learn how to teach courses in an online or hybrid format. Vanderbilt University, in Tennessee, and the University System of Maryland have both signed onto use it. 

"It's basically a help desk on steroids," Riter said, describing a ticketing system in which his team is responding to individual faculty requests across the institution and providing support. The company has hired roughly 40 employees since March, most of whom are working on the new service. 

Though demand could dip after the crisis subsides, the coronavirus crisis likely catalyzed a shift toward online education that was already underway, said Jeffrey Meuler, a senior research analyst at Baird.

"It's highly likely that five or ten years from now, ... the percentage of students that are going fully online at top-tier universities is going to be significantly higher than it was in the past," Meuler said, adding that 2U is "well-positioned to benefit from those trends."

Roadblocks ahead?

The last few months have been a boon for online education, though it's not without challenges, Riter said. That's because the more saturated the market becomes, the more price-sensitive students are likely to be. 

"OPM partners are going to have to do a really good job of lowering prices for online programs for long-term sustainability," he said. "I believe we're beginning to see that unfold." 

In 2U's case, Paucek told investors last week that Simmons University will also begin offering fully online degree programs next year that will be priced below the campus-based versions. The company has also rolled out undergraduate online degree programs with the London School of Economics and Political Science. 

Another potential challenge for 2U, as well as some other OPMs, is the use of revenue-share models. Paucek said the company is seeing more demand for these types of agreements from new and existing partners, pointing to the financial blows colleges have sustained from the pandemic. 

But this model is under scrutiny. In January, two Democratic senators wrote letters to five OPM companies, including 2U, asking for the terms of their contracts with colleges and universities. 

They argued that these agreements could violate a federal law that bars colleges from receiving federal aid as a result of paying commissions for recruiting and enrolling new students. Paucek stressed in a call with investors in February that its partner universities retain independence. 

The outcome of the November elections could increase some of the pressure on revenue-share agreements. It's an open question who would staff the U.S. Department of Education if Joe Biden won the election, and whether "attacking OPMs" would be a priority, said Trace Urdan, managing director at Tyton Partners, an investment banking and consulting firm. "All of that kind of stuff is just out there lurking," Urdan said. 

John Katzman, the founder of OPM Noodle Partners and the co-founder and former CEO of 2U, raised similar points. He is among those who contend that revenue-share agreements are raising the cost of higher education. Noodle Partners offers fee-for-service arrangements, which some say gives colleges more control, as well as temporary revenue-share agreements that shift to the fee model once upfront costs have been covered.

There's "no momentum" behind typical revenue-share agreements, Katzman said. "If Democrats win this election," he added, "I'm not sure that model is even legal a year from now."