11. Stock-Based Compensation

The Company provides equity-based compensation awards to employees, independent contractors and directors as an effective means for attracting, retaining and motivating such individuals. The Company maintains two share-based compensation plans: the 2014 Equity Incentive Plan (the "2014 Plan") and the 2008 Stock Incentive Plan (the "2008 Plan"). Upon the effective date of the 2014 Plan in January 2014, the Company ceased using the 2008 Plan to grant new equity awards, and began using the 2014 Plan for grants of new equity awards.

2014 Plan

In February 2014, the Company's stockholders approved the 2014 Plan. The 2014 Plan provides for the grant of incentive stock options to the Company's employees and its parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of stock compensation to the Company's employees, consultants and directors. The 2014 Plan also provides for the grant of performance-based cash awards to the Company's employees, consultants and directors.

A total of 2,800,000 shares of the Company's common stock were initially reserved for issuance pursuant to the 2014 Plan. In addition, the shares reserved for issuance under the 2014 Plan include (a) those shares reserved but unissued under the 2008 Plan, and (b) shares returned to the 2008 Plan as the result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2014 Plan pursuant to (a) and (b) is 5,943,348 shares). The number of shares of the Company's common stock that may be issued under the 2014 Plan will automatically increase on January 1st of each year, for a period of ten years, from January 1, 2015 continuing through January 1, 2024, by 5% of the total number of shares of the Company's common stock outstanding on December 31st of the preceding calendar year, or a lesser number of shares as may be determined by the Company's board of directors. The shares available for issuance increased by 2,625,292 and 2,357,579 on January 1, 2018 and 2017, respectively, pursuant to the automatic share reserve increase provision under the 2014 Plan.

In addition, shares subject to outstanding stock awards granted under the 2008 Plan and 2014 Plan that (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company; or (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award, return to the 2014 Plan's share reserve and become available for future grant under the 2014 Plan, up to the maximum number of shares of 5,943,348.

As of December 31, 2017, the Company had 4,415,593 shares reserved for issuance under the 2014 Plan. Further, as of December 31, 2017, under the 2014 Plan, options to purchase 2,412,307 shares of the Company's common stock were outstanding at a weighted-average exercise price of $24.77 per share and 1,413,423 restricted stock units were outstanding.

The compensation committee of the Company's board of directors, acting under authority delegated from the board of directors, granted on January 1, 2018, option awards to employees to purchase an aggregate of 8,731 shares of common stock at an exercise price of $64.51, restricted stock unit awards for an aggregate of 7,609 shares of common stock and performance stock awards for an aggregate of 56,575 shares of common stock, in each case under the 2014 Plan.

2008 Plan

In October 2008, the Company's stockholders approved the Company's 2008 Plan. The 2008 Plan was most recently amended on May 8, 2013. The 2008 Plan provided for the grant of incentive stock options to the Company's employees and the employees of the Company's subsidiaries, and for the grant of nonstatutory stock options, restricted stock awards and deferred stock awards to the Company's employees, directors and consultants. Upon the effective date of the 2014 Plan, the Company ceased using the 2008 Plan to grant new equity awards, and began using the 2014 Plan for grants of new equity awards. Accordingly, as of January 30, 2014, no shares were available for future grant under the 2008 Plan. However, the 2008 Plan will continue to govern the terms and conditions of outstanding awards granted thereunder.

As of December 31, 2017, options to purchase 2,146,864 shares of the Company's common stock were outstanding under the 2008 Plan at a weighted-average exercise price of $4.22 per share.

Stock-Based Compensation Expense

Stock-based compensation expense related to stock-based awards is included in the following line items in the accompanying consolidated statements of operations and comprehensive loss:

	Year Ended December 31,
	2017		2016		2015
	(in thousands)
Curriculum and teaching	$	3	$	—	$	—
Servicing and support		4,036		3,245		2,270
Technology and content development		3,306		2,392		1,548
Marketing and sales		1,742		1,317		1,057
General and administrative		12,843		8,869		7,624

Total stock-based compensation expense	$	21,930	$	15,823	$	12,499

Prior to January 1, 2017, the Company adjusted stock-based compensation expense for estimated forfeitures of stock-based awards. As described in the "Recent Accounting Pronouncements" section of Note 2, beginning on January 1, 2017, the Company accounts for forfeitures (and the impact on stock-based compensation expense) as they occur.

Stock Options

The terms of stock option grants, including the exercise price per share and vesting periods, are determined by the Company's board of directors or the compensation committee thereof. Stock options are granted at exercise prices of not less than the estimated fair market value of the Company's common stock at the date of grant. Stock options are generally subject to service-based vesting conditions and vest at various times from the date of the grant, with most options vesting in tranches, generally over a period of four years. Stock options granted under the 2014 Plan and the 2008 Plan are subject to service-based vesting conditions, and generally expire ten years from the grant date.

The Company values stock options using the Black-Scholes-Merton option pricing model, which requires the input of subjective assumptions, including the risk-free interest rate, expected life of the option, expected stock price volatility and dividend yield. The risk-free interest rate assumption is based upon observed interest rates for constant maturity U.S. Treasury securities consistent with the expected term of the Company's employee stock options. The expected life represents the period of time the stock options are expected to be outstanding and is based on the "simplified method." Under the "simplified method," the expected life of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. The Company used the "simplified method" due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. Expected volatility is based on the historical volatility of the Company's common stock over the estimated expected life of the stock options. The Company assumed no dividend yield because dividends are not expected to be paid in the near future, which is consistent with the Company's history of not paying dividends.

The following table summarizes the assumptions used for estimating the fair value of the stock options granted for the periods presented.

	Year Ended December 31,
	2017	2016	2015
Risk-free interest rate	2.0% - 2.1%	1.1% - 1.9%	1.5% - 1.9%
Expected term (years)	6.00 - 6.08	5.43 - 6.50	5.56 - 6.08
Expected volatility	46% - 49%	50%	50%
Dividend yield	0%	0%	0%

The following is a summary of the stock option activity for the year ended December 31, 2017:

	Number of Options			Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding balance at December 31, 2016		4,882,237		$	10.74		6.30	$	95,081
Granted		605,640			40.90		8.95
Exercised		(846,821	)		7.81		3.97
Forfeited		(65,853	)		23.63
Expired		(16,027	)		13.26

Outstanding balance at December 31, 2017		4,559,176			15.10		5.88		225,283


Exercisable at December 31, 2017		3,357,682			8.96		4.92		186,529


Vested and expected to vest at December 31, 2017		4,559,176			15.10		5.88		225,283

The weighted-average grant date fair value of the Company's stock options granted during the years ended December 31, 2017, 2016 and 2015 was $19.65, $11.41 and $12.54 per share, respectively.

The total unrecognized compensation cost related to the unvested options as of December 31, 2017 was $15.6 million and will be recognized over a weighted-average period of approximately 2.4 years.

The aggregate intrinsic value of the options exercised during the years ended December 31, 2017, 2016 and 2015 was $24.9 million, $24.9 million and $25.8 million, respectively.

Restricted Stock Units

Throughout 2017 and 2016, the Company granted restricted stock units under the 2014 Plan to the Company's directors and certain of the Company's employees. The terms of the restricted stock unit grants under the 2014 Plan, including the vesting periods, are determined by the Company's board of directors or the compensation committee thereof. Restricted stock units are generally subject to service-based vesting conditions and vest at various times from the date of the grant, with most restricted stock units vesting in equal annual tranches, generally over a period of four years.

The following is a summary of restricted stock unit activity:

	Number of Restricted Stock Units			Weighted-Average Grant Date Fair Value per Share
Outstanding balance at December 31, 2016		1,412,934		$	20.60
Granted		620,259			41.74
Vested		(494,504	)		18.98
Forfeited		(125,266	)		26.16

Outstanding balance at December 31, 2017		1,413,423			29.95

The total compensation cost related to the nonvested restricted stock units not yet recognized as of December 31, 2017 was $31.5 million and will be recognized over a weighted-average period of approximately 2.1 years.

Employee Stock Purchase Plan

On June 5, 2017, the Company's stockholders voted upon and approved the Company's 2017 Employee Stock Purchase Plan (the "ESPP"). The ESPP provides for (i) multiple offering periods each year and (ii) that the purchase price for shares of the Company's common stock purchased under the ESPP will not be less than 85% of the fair market value of the Company's common stock on the purchase date. Notwithstanding the foregoing, the Compensation Committee of the Company's Board of Directors may exercise its discretion, subject to certain conditions, to make changes to certain aspects of the ESPP including, but not limited to, the length of the offering periods and that the purchase price will be 85% of the lesser of the fair market value of 2U's common stock on the purchase date or the fair market value of 2U's common stock on the first day of the offering period. The first offering period begins on January 1, 2018, and will end on June 30, 2018. Eligible employees will be able to select a rate of payroll deduction between 1% and 15% of their salary or wage compensation received from the Company as in effect at the start of the offering period, subject to a maximum payroll deduction per calendar year of $25,000. The ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. A maximum of 1,000,000 shares of 2U's common stock may be issued under the ESPP, subject to adjustments for certain capital transactions.