Online learning is being tested on an unprecedented scale amid the COVID-19 pandemic. As of April 7, more than 40 US states, plus Washington, DC, and Puerto Rico, had issued statewide stay-at-home or shelter-in-place orders that require students and workers not to leave home.1 In response, public and private universities and other schools are turning to online learning to mitigate disruption, and educators are reacting heroically by rapidly adapting to the new environment. Corporate training and adult-learning efforts are also shifting away from face-to-face modalities. Our epidemiological scenario research suggest that the necessity for remote or online learning2 could stretch well into the next school year, perhaps as late as summer 2021.
Some US educational institutions are far better prepared to respond to the coronavirus crisis than others, having invested more resources in technical infrastructure and in preparing their faculty to teach effectively online. But many more schools, universities, and training organizations are experiencing significant challenges, including the need to ramp up digital capabilities quickly, engage students consistently, and manage tight funding. Furthermore, the education technology and services companies that provide those digital capabilities are facing dramatic spikes in demand that require rapidly scaling infrastructure and adding personnel to meet the needs of educators and their employers.
The good news is that both venture and private-equity investors in education can be of great help to the companies in their portfolios. Specifically, education investors should provide funding to companies that are seeing increased demand for services and be ready to offer support for those that anticipate trouble ahead. These educational companies, in turn, can use the current period to prove their value to educators and universities by helping them navigate the crisis. First, however, investors need a solid understanding of the current education landscape so that they can act quickly and appropriately.
The outlook for education during the pandemic and beyond
In this article, we consider the needs of different types of education during three broad epidemiological and public-health scenarios—virus containment, virus resurgence, and pandemic escalation—each representing a different degree of economic disruption that few people in the United States have ever experienced (exhibit).3
In the virus-containment scenario, COVID-19 will be contained by May or late June. In the second and more pessimistic scenario, virus resurgence, physical distancing and other restrictive measures will last in some regions for several additional months, requiring many schools and universities to remain online through the fall term. In the most extreme scenario, pandemic escalation, the public-health response will fail to control the spread of the virus for an extended period, likely until vaccines are widely available, and education and training will be delivered mainly virtually through the summer of 2021.
Early-childhood education
Already, many early-childhood education (ECE) centers have shut their doors, and those that remain open are experiencing underenrollment as parents opt to keep their kids at home. As a result, many of these facilities are now facing or will soon face difficult financial decisions—how to pay rent and support their staff, for example—as both private-tuition income and attendance-based public financing dry up. Immediate financial distress is more likely for those smaller operators without liquidity; 30 percent of ECE operators reported that they could not survive a closure of more than two weeks without significant public-sector intervention.4 A return to growth even in the most optimistic epidemiological scenario, with centers reopening and students returning in late May or June, may come too late for many.
As indicated by the ECE market’s modest growth even through the recession of 2008–09, overall demand for care should return to growth when physical distancing ends. In the meantime, some centers are getting creative about how they support their employees and the families they serve, by, for example, redeploying staff as in-home teachers as local physical distancing rules allow. For families shouldering home-teaching responsibilities themselves, ECE centers offer mailed or printable lessons and (short) classes with teachers and peers by video conference.
The ECE market’s rebound in the medium term is likely to be tied to the macroeconomic recovery and the return of families to their previous day-to-day lives as well as the growth of federal or state support (which traditionally has been countercyclical). This return to current enrollment and tuition levels may be slower than expected, if partial physical distancing persists or if the virus proves to be seasonal and returns in the fall of 2020, per the virus-resurgence scenario.
K–12 schools
Primary and secondary schools are experiencing logistical challenges as the United States adopts a fragmented system-by-system, state-by-state, and even school-by-school approach to distance learning in response to the pandemic. Several states have canceled end-of-year standardized tests, and the challenges of completing in-class formative assessments and other critical end-of-year assessments, such as college entrance exams, have yet to be resolved.
Currently, distance learning is focused on core subjects and independent learning, with some demand for parental support or involvement. Thousands of teachers are responding creatively and heroically to keep learning apace, piecing together resources, rapidly reformulating lesson plans, and attending to students’ desires for connection during what may be a lonely and uncertain time. For instance, some schools have provided access via temporary hotspots and devices such as Chromebooks or iPads to students without access to computers at home or public libraries, which are closed in most areas, and, where possible, offer daily classes via video conference. Some schools and systems, though, are not providing clear direction to families and students, especially for students in the early grades who cannot as easily be engaged by online learning, leaving families to sort out lessons on their own.
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Schools also perform an important role in supporting the physical and emotional health of students as well as helping students with disabilities through, for example, ongoing speech therapy. While some schools and teachers offer ways to connect virtually, many students now have far fewer significant social or physical interactions outside their families. To combat this, certain school systems have launched remote counseling sessions for vulnerable students and their parents and have created social networks to link parents with each other.
In the medium term, schools will face the dual challenge of returning students to face-to-face schooling and remediating the gaps resulting from lost learning. These disparities could be especially large in a virus-resurgence or pandemic-escalation scenario, in which physical distancing would remain necessary into the next school year. Consumer spending on individual online support and tutoring may also increase, especially among affluent households and those with students pursuing college admission. Philanthropic organizations and the federal government could consider subsidizing families unable to pay for online tutoring.
More broadly, an extended period of physical distancing and school closures may accelerate the shift from print to digital for school courseware and demand more flexible remote-learning models for students in higher grades.
Higher education
Currently, universities are attempting a rapid shift to remote or online learning so that students can continue their studies. However, the rush has exposed a significant variation in digital capabilities and capacity among institutions and has initiated a scramble for investment in training and infrastructure. This shift has also exposed the gaps in students’ access to devices and their internet connectivity outside school.
In a pandemic-escalation scenario, students in most geographies would attend classes online through spring or summer 2021, and institutions with weak online capabilities might see spikes in their attrition rates and dips in their yield of new students. The situation would be compounded by declines in the enrollment of international students and dips in the auxiliary revenues they provide, including for room and board. In a pandemic-escalation scenario, we project that about half of the public and private not-for-profit institutions could face meaningful budget challenges.5 A select set of schools with the most mature online presence and stronger brands would be best positioned to communicate with and attract prospective students. These schools could potentially increase enrollment amid higher-than-usual attrition and school switching rates, which disproportionately affect schools with weaker online capabilities.
If physical distancing continues beyond the current term, it is also likely to accelerate the shift from physical to digital learning resources, such as online versions of textbooks.
Adult learning and corporate training
Corporate training is likely to slow down through 2020 and into 2021, even with the current short-term spike from a bored and captive audience isolated at home. Historically, market downturns have led to declines in employer spending on corporate training, especially in categories that are viewed as discretionary, such as interpersonal or managerial skills. In contrast, compliance training and continuing education for licensed professions have been more resilient.6
In the short term, the downward pressure on corporate training may be partially counteracted by consumers’ need for knowledge about timely topics (such as healthcare or remote working) or an increase in direct consumer spending from either furloughed or part-time employees stuck at home. During this period of physical distancing, learning leaders have also suggested making the shift from face-to-face learning to online modalities, thus accelerating a trend that existed before the pandemic.7
An escalation of the pandemic could extend the overall reduction in training spending through 2021, with flagging employer spending on training, especially for discretionary topics. This is likely to create an increased reliance on public spending for training in new skills, especially if unemployment remains high. Spend for reskilling will likely put a greater emphasis on skills for the modern economy, with a focus on digital and technical skills (computer programming, for instance) that are undersupplied now and are likely to remain so.
How investors can support education partners
Private investors in education can support their portfolios through these challenging times by exercising flexibility in the face of obstacles. As previously discussed, some companies are likely to experience an increase in demand for their educational services, while those that cannot adapt quickly to the changing education landscape are likely to experience difficulties.
Fund online platforms, tools, and coaching in response to demand
The most prominent companies in this new digital-learning model are online curriculum providers, online delivery and assessment services companies, tutoring and remediation companies, and training providers focused on in-demand specialties. Investors wanting to make the biggest impact should start by assessing how each company contributes to the educational landscape.
Digital curriculum providers and tools. As K–12 schools move online, digital curriculum providers, especially those that are best at recreating the social and interactive elements of the classroom, are likely to be in high demand. Few schools have experience with remote teaching, and their strategies have varied significantly, from sending printed resources home with students to using daily video classroom check-ins.
The demand for service providers that can support remote learning has increased significantly. Many of the digital curriculum players in K–12 are in a venture stage; regular use by even 2 percent of the more than 56 million K–12 students in the United States represents comparative scale, as many players are small. These providers are seeing dramatic spikes in usage, though teachers and students will need additional support to get the full benefit of the products.
Investors can help providers scale infrastructure swiftly, thus allowing educators to move online quickly and get their students and other learners up to speed. Offering free trials of products and services is a good way for providers to engage educators early and give them easy access to critical tools.
Online delivery capabilities. Higher-education institutions, especially those that must continue providing classes remotely through all or part of the next academic year, will scramble for online delivery capabilities. Smaller, lesser-known schools that tend to have less experience with online or remote teaching are unlikely candidates for the traditional online program management revenue-sharing model, which tends to favor brand-name schools and contracts with terms of ten years or more.
Companies that support online programs for higher-education institutions need to be flexible, offering capability-by-capability contracts, including those for marketing and enrollment management, instructional design, assessment, and faculty coaching. Investors can help their portfolio companies work though a strategic unbundling of their services and a thoughtful setting up of their terms for pricing, service levels, and contract lengths to best support higher-education institutions in the immediate frenzy of the crisis and in the long term.
Online assessment capabilities. The US federal government has delegated to the state authorities the decision of whether to administer spring and summer 2020 assessments; other countries (the United Kingdom, for instance) have already agreed on nationwide cancellations. An innovative online assessment company or platform could provide significant value to US educational institutions, especially during critical examination stages—college entrance exams, university finals, and professional licensure examinations. Many testing providers already have some remote proctoring capability and some tools to prevent cheating. Pulling off a rapid expansion of this capability to would-be test takers, especially for exams not previously administered online, will require a short sprint and probably a capital infusion.
Tutoring and remediation providers. Online tutoring companies are likely to experience an immediate spike in demand as parents and students react to the closing of schools and institutions. And, after students eventually return to school, remediation is likely to remain in high demand, as both institutions and individual learners look to bridge the content gap.
Investors can help tutoring companies by investing in new capabilities—for example, SMS-based tutoring, potentially supported by algorithms and the automation of the assessment or tutor assignment. In the likely case that school districts invest to remediate gaps for lower-income students, providers can meet public-sector demand by getting support for navigating product revisions and contracting.
Training and credential providers (in specific areas). While overall corporate spending on training historically has dropped during economic downturns, we anticipate a short-term increase in demand for providers of training and credentials. In addition, some companies may use remote working time for professional development, especially in professions with largely unoccupied personnel.
In the medium term, there may be a second wave of new users because of employer, state, and individual attempts to remobilize the job market by spurring employee reskilling. This could put a greater emphasis on skills needed in the modern economy, particularly digital and technical skills, which training and credential providers can support.
Anticipate potential trouble ahead for traditional services and operators
Physical distancing and an economic downturn are likely to affect enrollment-sensitive private operators, traditional print companies, and service providers not tied to longer-term contracts. Again, by understanding the educational landscape, investors can assess which companies need the most support during this uncertain time.
Private operators (especially in ECE). Private operators are experiencing an immediate drop in tuition income and uncertainty about their enrollment in the coming year. The early-childhood centers will be hit hardest, because operators must continue delivering services to families (versus K–12 providers, which might be able to muddle through online) and are therefore more likely to see drops in tuition revenue. For-profit higher-education campuses that already principally operate online may be more sheltered than those with less online experience. Investors can provide liquidity and bridge financing—especially in franchise models—and help centers seek concessions from landlords and temporarily redeploy staff.
Traditional publishers and bookstores. Traditional print publishers of educational materials will have to overcome limited sales as long as learning remains virtual, though the coronavirus-spurred changes may catalyze a widespread and lasting change from printed to digital formats. Brick-and-mortar retailers of educational books may experience similar dynamics. Investors may need to step in with financial support for publishers and bookstores in the short term and consider heavier investment to support the accelerated change to digital formats.
Service providers’ contracts. Service providers will need to be flexible during the switch to online learning, which is likely to disrupt the sales cycle for the 2020–21 academic year. They should also be ready to address a potential need for completely remote or online learning. Maintaining good relationships with schools and being flexible about their payment challenges will also be important for service providers, especially as the market prepares for a truncated procurement period after the coronavirus recedes. Taking such an approach is most critical for providers on short-term or annual contracts that are looking to renew; those on longer-term contracts (for instance, providers of student information systems or customer-relationship management) will feel the impact on contract growth more than retention.
Investors can also help service providers offer “freemium” models8 to support students, families, instructors, and schools during the period of physical distancing by removing the barrier of cost. Should educators believe these models provide them with significant benefits, service providers can explore longer-term commitments.
Whether the virus is contained quickly, resurges, or escalates, investors can help to ease the transition of US educational institutions bracing for rapid changes in how they operate and interact with students. By being flexible and strategic about where and how they allocate their resources, investors can provide vital support to companies that offer critical online-learning resources and digital tools to educators. Investors are also well placed to address liquidity challenges and support strategic redesign where traditional business models are under threat and should use the current situation to rapidly digitize and refocus educational providers. Whether COVID-19 is contained quickly, resurges, or escalates, through these interventions, investors can help educational institutions be resilient in the face of a global crisis.
