In October 2025, the education technology company Chegg made headlines by laying off 388 employees—approximately 45% of its entire workforce—in one of the most extensive layoffs in the edtech sector.
The company blamed free AI tools, such as ChatGPT, for undermining its business model. What was once a thriving homework help service has been brought to its knees by technology that anyone can use for free.
Chegg built its success on selling subscription-based homework help and textbook rentals to students. During the pandemic, business boomed as millions of students learned from home. The company’s stock price and subscriber numbers reached record highs in 2021. But everything changed when powerful AI chatbots became widely available at no cost.
By mid-2025, Chegg’s subscriber count had dropped 40% to just 2.6 million users. Revenue fell 36% in the second quarter to $105.1 million. Students stopped paying for services they could get free from ChatGPT or Google’s AI-powered search results.
CEO Dan Rosensweig admitted the company was caught off guard by how quickly AI disrupted their core business.
Harsh Reality for Workers and Investors
The October 27, 2025, layoffs particularly affected Chegg’s Bay Area workforce, resulting in the elimination of 388 positions. Chegg expects the cuts to save between $100 million and $110 million per year starting in 2026. Meanwhile, outgoing CEO Nathan Schultz walked away with a severance package worth more than $3.2 million, including cash, stock, and bonus payments.
Just days before the layoffs, board director Richard Sarnoff resigned due to disagreements over the company’s direction. The timing highlighted the chaos inside Chegg as leadership struggled to respond to the AI threat.
Investors have suffered massive losses. Chegg’s stock price fell 99% from its 2021 peak, erasing approximately $14.6 billion in market value. The share price dropped below $1, putting the company at risk of being delisted from the New York Stock Exchange.
Chegg received a delisting warning in April 2025 and announced in October that it would remain independent, having failed to find a buyer.
A Warning Sign for Other Industries
Chegg’s collapse reflects a broader trend. By October 2025, more than 181,000 tech jobs had been eliminated worldwide due to AI disruption, cost-cutting, and market pressures. While not all were in education, artificial intelligence is reshaping the tech sector as a whole.
Some education companies have adapted successfully. Khan Academy launched Khanmigo, an AI teaching assistant, partnering with Microsoft to expand access. Other platforms pivoted to live instruction and community features that AI can’t easily replicate.
The companies that embraced AI survived; those that competed against it struggled.
Chegg is now trying to reinvent itself by selling content to AI companies and colleges rather than directly to students. It’s also expanding into language learning and professional training. But with a 99% stock decline and a devastated workforce, the company faces an uphill battle.
The lesson is clear: when free technology can replicate your product, you must adapt quickly. Chegg’s story serves as a warning for any business built on selling information—AI is changing the rules, and companies must evolve or risk becoming obsolete.