2 Stocks Disrupting the Education System

These two companies are changing the face of the U.S. education system.

MyWallSt Staff
MyWallSt Staff
Jul 29, 2019 at 2:29PM
Consumer Goods

This article was first published by MyWallSt.

The education system in the U.S. has certainly seen better days. The average student graduates college with $29,800 in debt, and the total amount of U.S. student loan debt is currently sitting at about $1.56 trillion.

Every year, 1 million people default on their student loans, and it is predicted that 40% of loan borrowers may default on their loans by 2023. With the price of a degree rising almost eight times faster than wages, something needs to change.

Desks in a classroom.

Image source: Unsplash.

These two companies aim to change how we view education and disrupt the system

1. 2U

2U (NASDAQ:TWOU) is at the forefront of the educational revolution. Partnered with some of the world's most prestigious colleges and universities such as Harvard and Yale, this company provides the infrastructure for alternative online degree programs.

What really gives 2U the opportunity to change the education system is that colleges can now reach a much wider geographical area. Due to the online nature of the courses offered, it is now possible for thousands of students to enroll for a course that would usually be limited to a few hundred.

While this increase in revenue generated by more students attending college could be passed on as savings to the students, colleges have refused to budge, with some online degrees costing roughly $60,000. There is still a long way to go, but by providing this online infrastructure, which removes some of the other costs associated with college tuition like accommodation and travel, 2U is taking a step in the right direction.

This disruption to the education system has not gone unnoticed. Revenue grew 44% in 2018, to hit $411.7 million, and a further 31% in Q1 2019. By acquiring the adult-education company Trilogy, 2U increased its roster of partners from 36 to 68. founding CEO Christopher Paucek believes this acquisition will extend 2U's reach and enable the company to reach $1 billion in revenue by 2021 -- one year earlier than previously anticipated.

These 68 partners are vital to its business strategy. By forming long-term contracts its their partnered universities, 2U has created a sticky business model that is clearly succeeding -- in the past 11 years of operations, 2U has never lost a single client.

2U is disrupting the education system in more ways than one. Beyond the extortionate cost of education, one of the major complaints graduates have about the education system is that it never prepared them for the workforce. By focusing on practical and technical skills, 2U believes that it is future-proofing the degree.

2. Chegg

If the cost of college attendance wasn't bad enough for students, the price of textbooks has also been steadily increasing. Over the past 30 years, textbook prices have increased 812%. In the same time, the average tuition fee has increased 559%. In an attempt to help students with this financial burden, Chegg (NYSE:CHGG) offers the rental of both physical and digital textbooks.

This California-based tech company is a one-stop shop for students across the world. Since Chegg was founded in 2005, it has expanded significantly and now offers a wide range of student services, from homework help and online tutoring to internship matching and scholarship searching.

These services now make up the bulk of Chegg's revenue, coming in at 77% of total net revenue. In Q1 2019, Chegg announced services revenue grew 34% year over year to $75.3 million. This increase came from the growth in subscriber numbers, which grew 31% to 2.2 million in the same period.

While Chegg is not yet profitable, by acquiring companies such as StudyBlue and WriteLab and expanding its services lineup, it believes it can become cash flow positive in the long term. By offering students a unique and personalized experience, Chegg is changing the traditional way we learn.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in 2U and Chegg. Read our full disclosure policy here.