Dive Brief: 

• A group of former students filed a class-action lawsuit this week against the University of Southern California and 2U, alleging that they lured students to enroll in the institution’s online education programs by advertising artificially inflated rankings. 
• The lawsuit alleges that the University of Southern California incorrectly submitted data to U.S. News & World Report’s influential annual rankings of education schools. It says the university then worked with 2U, a public company that helps it run some of its online programs, to use the doctored rankings to advertise its online education programs to prospective students. 
• The lawsuit was filed in the Superior Court of California of Los Angeles County. The former students allege that 2U and USC violated California law by making untrue or misleading representations, engaging in unfair competition and deceiving consumers. 

Dive Insight: 

The lawsuit stems from the USC Rossier School of Education’s decision earlier this year to withdraw from U.S. News’ annual ranking of graduate education schools. When the university made the call, it revealed it had provided the influential publication with inaccurate data for at least the past five years. 

But the lawsuit says the incorrect data submissions began more than a decade ago. The former students allege that these inaccuracies began around the time USC entered a contract with 2U, a company that helps colleges launch and run online programs in exchange for a cut of their revenue. 

USC and 2U struck a contract in October 2008 to create an online master’s in teaching. Although the university was the company’s first client, today 2U brings in close to $1 billion in revenue through contracts with other colleges and a large MOOC platform. 

At the time they struck a deal, online programs weren’t widely trusted. Thus, 2U’s success hinged on its ability to build confidence in USC’s online graduate program, according to the lawsuit. 

“Defendants knew that preserving or bettering that ranking was key to growing USC Rossier’s online program while furthering their reputational and financial interests,” the lawsuit says. 

During that period, USC also submitted its “first batch of altered data,” according to the lawsuit. It did so by cherry-picking data about a sliver of its in-person doctoral students instead of providing data representing all of its graduate education students. 

“The fraud paid off: between 2008 and 2009, USC Rossier vaulted from #38 to #22,” the lawsuit says. “In the years that followed, USC Rossier jumped even further, consistently landing in the top 20, ultimately soaring to an inflated high of #10 in 2018 — all while USC Rossier’s online offerings and enrollment expanded.”

In 2015, USC and 2U launched a new program — an online doctorate degree. However, the university never submitted any data from this program to U.S. News because these programs would have been poorly ranked compared to its in-person offerings, the lawsuit alleges. 

Despite the inaccuracies, 2U and USC continued to advertise its position in the rankings. They also never disclosed to students that the rankings weren’t reflective of the university’s online education programs, the lawsuit says. 

The former students allege that the contract between 2U and USC incentivized the university to engage in this scheme. Under the terms of a contract, which has been amended at least once, the university agreed to pay the company an undisclosed portion of its programs’ tuition revenue. In exchange, 2U said it would provide services including marketing and recruitment. 

Companies like 2U typically receive between 40% and 60% of revenue in return for their services. However, the original contract states that 2U was entitled to receive a higher share of tuition revenue if certain enrollment thresholds were met, according to the lawsuit. 

Although the contract gave USC the ability to set admissions standards and determine which students to admit, it enabled 2U to have “outsized influence on that process,” the lawsuit says. 

For instance, 2U told investors that it typically wouldn’t contract with other colleges to offer competing programs — unless their current clients refused to grow programs so they could admit all qualifying students. If USC tried to limit admissions, the university risked the company launching a competing program at another institution. 

That created fertile ground for fraud, according to the lawsuit. 

“It was no surprise then that 2U would use aggressive recruiting and that USC would permit it,” it said. 

In an emailed statement Wednesday, a 2U spokesperson said the company denies the lawsuit’s “baseless and frivolous allegations.” 

"We will defend ourselves vigorously against these unfounded claims,” the spokesperson said. 

The lawsuit alleges that USC and 2U harmed students who relied upon the rankings to make college decisions. It also has allowed the university to charge the students significantly higher tuition than they would have paid at other universities in California. 

In the 2019-20 academic year, students who enrolled in USC’s online doctorate of education in organizational leadership — an offering that 2U helps manage — would have paid almost $116,000 for their degrees, according to the complaint. 

The proposed class includes all students who enrolled in an online graduate education program at USC from April 1, 2009 through April 27, 2022. 

A spokesperson for USC said it has not yet received the complaint but will review it when it does.