The Chegg-FTC Settlement: Implications for Ed-Tech Subscription Models and Consumer Trust

The recent $7.5 million settlement between Chegg and the Federal Trade Commission (FTC) has sent shockwaves through the ed-tech sector, exposing systemic vulnerabilities in subscription-based business models and underscoring the growing regulatory risks for companies reliant on recurring revenue. At its core, the case reveals how opaque cancellation processes and lax data security practices can erode consumer trust and invite costly enforcement actions. For investors, the implications are clear: the long-term sustainability of ed-tech platforms hinges not only on innovation but also on strict adherence to evolving regulatory frameworks and ethical consumer engagement.

Regulatory Risk: A New Era of FTC Scrutiny

The FTC's action against Chegg centers on allegations that the company buried cancellation links deep within its websites, required users to navigate through “dark patterns” like misleading “pause” options, and continued billing consumers after they had canceled subscriptionsEd Tech Provider Chegg to Pay $7.5 Million to Settle FTC Allegations Concerning Unlawful Cancellation^[1]. These practices violated the Restore Online Shoppers' Confidence Act (ROSCA), which mandates that cancellation mechanisms be as simple as enrollmentFTC Continues Aggressive ROSCA Enforcement Agenda Against Negative Option Sellers^[3]. The settlement, which requires Chegg to overhaul its cancellation process and provide refunds to 200,000 affected users, marks a pivotal enforcement moment.

This is not an isolated incident. The FTC has intensified its focus on subscription services since 2020, filing 47 ROSCA actions as of 2025Eighth Circuit Vacates FTC Negative Option Rule^[4]. In 2024, Adobe faced similar scrutiny for allegedly obscuring material terms of its subscription plansFTC Continues Aggressive ROSCA Enforcement Agenda Against Negative Option Sellers^[3]. Meanwhile, the Eighth Circuit Court of Appeals' July 2025 ruling vacating the FTC's Negative Option Rule—due to procedural flaws—has introduced uncertainty, though the agency continues to pursue litigation aggressivelyEighth Circuit Vacates FTC Negative Option Rule^[4]. For ed-tech firms, the message is unambiguous: regulatory compliance must prioritize transparency and user-centric design.

Consumer Trust and the Cost of Complexity

The Chegg case highlights a critical vulnerability in ed-tech's subscription model: the erosion of consumer trust. According to a report by Cybernews, nearly 200,000 users were charged after canceling Chegg subscriptions between 2020 and 2025FTC Continues Aggressive ROSCA Enforcement Agenda Against Negative Option Sellers^[3]. Such experiences breed skepticism, particularly among students and parents who rely on these platforms for educational value. As one expert notes, “When users feel trapped by billing cycles, they lose faith in the entire ecosystem”—a sentiment that could deter adoption and drive churnChegg study apps to pay $7.5M for “nearly impossible to cancel” subscriptions^[2].

The FTC's emphasis on “simple cancellation mechanisms” reflects a broader shift in consumer expectations. A 2025 study by Harvard Business School underscores that subscription businesses must balance profitability with accessibility, ensuring that cancellation is as intuitive as sign-upSubscription model for edtech platforms: Driving Growth and Innovation^[5]. For ed-tech firms, this means redesigning user interfaces to eliminate friction, providing clear disclosures about auto-renewal terms, and avoiding manipulative tactics like mandatory surveys or fake “confirmation” stepsEd Tech Provider Chegg to Pay $7.5 Million to Settle FTC Allegations Concerning Unlawful Cancellation^[1].

Data Security: A Secondary but Critical Front

Beyond subscription practices, the Chegg settlement also exposed regulatory risks in data governance. The FTC alleged that the company's failure to encrypt sensitive user data and implement multifactor authentication led to multiple breaches, exposing millions of recordsSubscription model for edtech platforms: Driving Growth and Innovation^[5]. This aligns with a 2022 enforcement action against Chegg for similar lapsesEd Tech Provider Chegg to Pay $7.5 Million to Settle FTC Allegations Concerning Unlawful Cancellation^[1]. For ed-tech firms, compliance with privacy laws like COPPA, FERPA, and state-specific regulations (e.g., California's SOPIPA) is no longer optional.

The fallout from these breaches illustrates the financial and reputational costs of noncompliance. According to a 2024 analysis by Venable LLP, data security violations now account for 30% of FTC enforcement actions in the ed-tech sectorThe Federal Trade Commission's Enforcement Trends under the Restore Online Shoppers’ Confidence Act (ROSCA)^[6]. Companies must adopt robust data minimization practices, limit collection to essential information, and invest in encryption and access controls to avoid penalties and maintain institutional partnershipsSubscription model for edtech platforms: Driving Growth and Innovation^[5].

Long-Term Sustainability: Balancing Profit and Ethics

The Chegg case raises urgent questions about the viability of subscription models in ed-tech. While recurring revenue offers predictability, it also demands continuous value delivery. A 2025 Forbes analysis notes that post-pandemic challenges—such as declining enrollments and rising operational costs—have forced firms like 2U to restructureBoom, Bust And Rebuild? What’s Next For EdTech^[7]. Success in this landscape requires innovation that aligns with user needs, such as personalized learning tools and community-driven featuresSubscription model for edtech platforms: Driving Growth and Innovation^[5].

However, financial sustainability cannot come at the expense of regulatory compliance. A 2024 study by FasterCapital highlights that ed-tech platforms must diversify revenue streams while maintaining ethical billing practicesEdtech revenue streams and pricing: Innovative Pricing Models in Edtech^[8]. For instance, Coursera and Skillshare have thrived by combining subscriptions with freemium models and institutional partnerships, reducing reliance on consumer-facing subscriptions. Investors should prioritize firms that demonstrate agility in adapting to regulatory shifts and prioritizing user trust.

Conclusion: Navigating the Regulatory Tightrope

The Chegg-FTC settlement is a cautionary tale for the ed-tech sector. As regulatory scrutiny intensifies, companies must proactively address subscription complexity, data security, and consumer transparency. For investors, the key is to identify firms that treat compliance not as a cost center but as a strategic imperative. Those that fail to adapt risk not only financial penalties but also irreparable damage to their reputations in an industry where trust is paramount.