Higher Education Inquirer : EdTech Meltdown

The Silicon Valley tech downturn has been creating reverberations in other parts of the economy and in other areas of the US.

Edtech, a small subset of the tech industry that overlaps with higher education, is facing major headwinds as skepticism about higher education and the economy grows. Even two industry insiders, Noodle CEO John Katzman and Kaplan executive Brandon Busteed have been critical of the short-term thinking and questionable outcomes of edtech. Katzman has called some companies in the space "more adtech than edtech," implying that some do little more than marketing and advertising for colleges and universities.

Ultimately, it's US consumers who are feeling the greatest pain as participants in online education--a mode of instruction that for millions of people may have more risks than benefits--within an increasingly dysfunctional economy that produces expensive education and fewer good jobs.

Significant problems that were observed in large subprime colleges like University of Phoenix, Corinthian Colleges, ITT Tech, DeVry University, Colorado Tech, and the Art Institutes more than a dozen years ago have resurfaced in edtech. And other problems unique to edtech have emerged.

Chegg is an edtech company based in Santa Clara, California, and provides homework help, online tutoring, and other student services. The company's value grew more than 300 percent in 2020, during the Covid pandemic, but has faced headwinds for the last two years. This includes allegations that Chegg enables students to cheat on homework and other assignments. Derek Newton has chronicled this problem in the substack The Cheat Sheet.

[Chegg shares grew in 2020 during the Covid pandemic. Source: Seeking Alpha]

Coursera is a publicly traded MOOC based in Mountain View California. Shares started trading in April 2021. The company has under-performed as a profit making enterprise. Massive Open Online Courses were once seen as a wave of the future in adult education but their popularity has waned.

[Coursera has underperformed since its IPO in April 2021. Source: Seeking Alpha]

2U (based in Lanham, MD) and Guild Education (based in Denver) and are two edtech companies based outside of Silicon Valley.

2U is a publicly traded Online Program Manager (OPM). The company services major universities such as the University of Southern California and University of North Carolina with support for some of their online degree programs. 2U has received an enormous amount of funding from Cathie Wood, a major Silicon Valley investor, and has continued to receive support despite a long record of financial losses.

Some 2U investors have grown tired of persistent losses--and it has shown in the declining share price. The company also faces increased scrutiny in DC for recruiting consumers unable to recoup the cost of education for high-priced masters degrees in areas such as social work. 2U acquired edX, the Harvard-MIT MOOC in 2021 and its profitability remains to be seen.

In 2023, 2U sued the US Department of Education for attempting to require more transparency between OPMs and their clients. This strategy is similar to the defensive strategy that subprime colleges have used to stop gainful employment regulations, and more recently, borrower defense to repayment rules.

[2U shares have dropped more than 90 percent over the last 5 years. Source: Seeking Alpha]

Guild Education is a privately held corporation that grew to an estimated $4.4B evaluation in a few years. Guild serves businesses by administering online education benefits for large corporations such as Walmart, Target, and Macy's. While its work may help companies with their bottom line, they appear to do little for their workers.

At least ten of Guild's investors are based in Silicon Valley, including Silicon Valley Bank and venture capital firms in San Francisco, Palo Alto, and Menlo Park, California. Valuations.fyi reports Guild's estimated value at $1.3B, a 70 percent drop from its peak in June 2022.