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Illinois Insures Itself Against Chinese Student Drop-Off

Jeffrey Brown became dean of the University of Illinois at Urbana-Champaign in August 2015. UIUC photo

There have been a few troubling downward trends lately at the University of Illinois at Urbana-Champaign. Now the school is looking down the road to anticipate another one that could potentially kneecap the school.

The Gies College of Business, together with UIUC’s College of Engineering, has taken out an insurance policy to protect against the loss of tuition revenue from any significant drop in Chinese student enrollment. It is thought to be first for a business school, but Illinois’ $424,000 policy with Lloyd’s of London is no wild flight of fancy: As Poets&Quants has been reporting, international student enrollment has been dropping widely at second-tier schools. Illinois doesn’t want to one of the many victims.

“It’s not that demand has been volatile or that we expect a large drop,” Gies Dean Jeffrey Brown tells P&Q. “Rather, there are a number of factors outside of our control that could lead to an unprecedented decline. This could arise from geopolitical events like public health concerns. When faced with such a risk, one generally has three strategies available and we are doing all three.

“The first is to mitigate the risk, which we are doing by investing heavily in creating an exceptional student experience for those from China. The second is to diversify, which we are doing through our online programs. The third is to insure against the risk to deal with any residual risk, and that is what this policy is doing.”

‘THIS POLICY BUYS US TIME’

Tuition from Chinese students makes up about 20% of the business school’s revenue, Brown says. Chinese students comprise just over 10% of the undergrad population but much more, he says, in the specialized master’s programs — some of which were created specifically to appeal to Chinese students. School data how that Gies College of Business graduate programs are comprised of 18.19% Chinese students, or 507 students total. (According to U.S. News & World Report, 4.6% of Illinois MBAs are Asian, with Chinese specifically listed among the top five nationalities represented.) Even if you set aside Chinese students specifically, it’s easy to understand Brown’s concern: Between 2016 and 2017 the school saw a 12.3% drop in international students, to go along with a 12.7% drop in international base salary. The total international composition in the latest MBA class of 109 is 32.1%.

“There are no alarming trends,” Brown says, “but I’m trained in risk management.”

The insurance policy is a three-year contract to pay $424,000 annually, which provides coverage of up to $60 million. Brown says the idea was proposed in 2015 and put into effect last year but only made public recently, per the broker’s wishes. To activate the policy, the two schools would have to experience a 20% drop in revenue from Chinese students in a single year — if that drop could be attributed to a set of events outside the school’s control, such as war, visa restrictions, and the like.

The insurance, Brown says, would cover the colleges’ losses in the event of a temporary decline and give them time to adjust recruitment and other strategies in the event of a longer-term problem. “Imagine that there’s a health outbreak or one of our governments decides to restrict student visas as part of the U.S. trade war,” he says. “This policy buys us time so that we can deal with the issue more strategically, rather than reactively.”

Something the policy would not cover, however, is one of those aforementioned downward trends that currently troubles the Gies College: rankings. Gies tumbled 15 places this year in the P&Q ranking because it lost two rankings — Financial Times and Forbes — and suffered declines on U.S. News’ list (falling eight places to 48th) and Bloomberg Businessweek’s ranking (dropping 24 places to rank 69th). The loss of the FT and Forbes’ rankings were consequential because the school’s full-time MBA program had ranked 43rd among U.S. programs on the Financial Times list and 44th on Forbes’ ranking.

SOME EXPLANATIONS FOR A POSSIBLE LONG-TERM CHINESE ENROLLMENT DECLINE

Last year, P&Q reported that Chinese students have become so vital to the financial health of U.S. business schools that many schools are tailoring their programs — particularly specialized master’s programs — to help better acculturate students who otherwise tend to struggle in B-schools’ heightened learning atmosphere. Still, Chinese students often struggle to acclimate to the U.S. — which is one explanation for why many might opt to get their education in China instead. Another reason is political: Business programs are only eligible for one year of Optional Practical Training, a period during which undergraduate and graduate students with F-1 status who have finished or have been pursuing degrees for more than nine months are permitted to remain in the U.S. Compare that to the 36 months granted students in STEM programs. The shortened window poses challenges in finding internships and career advancement opportunities.

The predominance of female students from China taking the GMAT presents another dilemma. Fully two-thirds (67%) of all Chinese GMAT takers are women (compared to the U.S., where only 39%  of American citizens taking the GMAT test were women). Gender differences in communication style and confidence can make it even more difficult for female Chinese students.

Looking at GMAT data for Chinese takers of the graduate admission test,

“One thing that really struck me in this analysis was the dramatic growth of Chinese students who are already in the U.S. and taking the GMAT test, Rahul Choudaha, co-founder of data analytics website DrEducation, noted the age of many Chinese seeking entry to graduate business education. Many do so “by transitioning from their undergraduate program to a master’s degree,” Choudaha told Poets&Quants in 2017. “The scale of it seemed quite compelling to me. They are going into master’s programs but since they are having so little experience, it shows a very different climate and engagement in the classroom, because as we know most of the business school experience is about interacting, negotiating, participating.

“The inexperience of these students can create a negative word-of-mouth, and hence impact future enrollment and admissions trends.”

Choudaha says families with students in China and those whose children are students already living in the U.S. see graduate management education from a financial investment perspective, expecting — understandably — that business school will be an opportunity to advance careers. “But the skills needed to succeed in business school are a lot more challenging for Chinese business students,” Choudaha says. “So business schools have to do a lot more in terms of adapting to this new and growing segment of students.”

DON’T MISS CENTRECOURT CHICAGO: DEANS SCOTT DeRUE & JEFFREY BROWN ON THE MBA, ITS COST & VALUE