My early January blog on the two big US pathway operators focused on specific examples of INTO University Partnership’s (INTO) pathway problems without similar insights into some of Shorelight’s major partners. There had been some insights into lacklustre performance at Louisiana State University, Auburn University and the University of Kansas back in October 2019 (Shine a Light on Shorelight) but an update is overdue. There is also some news from INTO as it confirms new faces in senior management* and some fundamental changes in its relationship with university partners.
In the US the most significant point is that INTO has become the sole owner of what was established as a joint-venture with St Louis University. This follows the closure of joint venture operations at Marshall, Washington State and Colorado state over the past two years. INTO’s annual report does not list any shareholding in the pathway at Hofstra University so it now has only seven joint-venture partnerships in the US.
The big question, given that all of the most recent US announcement from both INTO and Shorelight have been for direct entry partnerships, is whether the bubble has totally burst on pathways. Without a significant return of students from China it is difficult to see that predominantly graduate growth from India is going to sustain them. Looking at the way enrollments have panned out in Fall 2021 suggests this could be the direction of travel.
Shorelight Stumble at Auburn And American
American University is generally reputed to be one of the star performers in the Shorelight portfolio but the enrollments reflect the harsh realities of the pandemic. The numbers indicate that enrollments in Accelerator/Collegiate/PSE courses were already in decline before Fall 2019. Despite the limited bounceback in overall enrollments to the US reported by Open Doors in Fall 2021 there is no evidence the Shorelight pathways are seeing an upturn.
Source: American University Office of Institutional Research and Assessment
The story continues when American University’s total Fall enrollments are reviewed. Separate axis are used to reflect the significant difference in volume between Chinese an Indian students and the only upturn in Fall 2021 was in Indian graduate students (about 10 students more year on year). The decline in Chinese undergraduates begins the year after the fall in Accelerator/Collegiate decline and suggests the longer term vulnerability that American University has to declining Chinese numbers.
Source: American University Office of Institutional Research and Assessment
The combined enrollments in the first and second term Global Masters Accelerator at Auburn University shows similar characteristics but with even more significant declines in volume. Total enrollment has fallen from a peak of 87 in 2017 to just 11 in Fall 2021 with the decline in Chinese students driving the outcome. Attracting students from India to pathway programs seems unlikely to make up the shortfall.
Source: Auburn University Office of Institutional Research
Less Spirit at INTO Saint Louis University
Saint Louis University has seen a significant shift in direct enrollment graduate numbers in 2021 with Indian students outnumbering those from China. This does not, however, go far enough to counterbalance the decline in Chinese undergraduates over the past five enrollment years. Evidence from other INTO pathway operations has shown that this plays out even more dramatically at pathway level because Indian graduate students generally have less need of the services provided.
Source: Saint Louis University Office of Institutional Research
INTO St Louis (INTO SLU) was first established as a joint venture in September 2017, becoming, at the time, the seventh INTO partner in the US. Between the financial reporting in 2018 and 2020 the debt owed by the joint venture to INTO had grown from £1.8m to £3.5m and the current circumstances suggest there is little likelihood of it being repaid in the near future. If pathways are not enrolling sufficient students they quickly become unviable and need significant financial support from parent organizations.
INTO’s most recent Annual Report is coy on the matter and simply reports that “subsequent to the year end INTO’s shareholding in INTO SLU LLC increased to 100%”. Having lost three pathways in recent years there was probably little appetite for losing another partner. The upswing in interest from Indian students may have tipped the balance to continue a pathway while getting exclusive rights for direct enrollment of international students.
Overall, INTO’s US operations all appear to be increasingly indebted to them with even USF slipping from creditor to debtor in the most recent report and accounts. While it is reasonable to expect new businesses to take a while to get into profit INTO hasn’t opened a joint venture in the US since Illinois State University in 2018 since when the total level of indebtedness across all US operations has nearly doubled from £18m to £35m.
Source: INTO University Partnership Annual Reports***
The most recent accounts for INTO Illinois State University LLC (INTO ISU) make quite interesting reading with the financial deal including a Promissory Note with INTO North America which allows borrowing up to $6m in operating capital with an interest rate of 6%. Another number that catches the eye is that marketing expenses were an eye watering 77% of tuition revenue. The pandemic caused the LLC to cease operations for a period of up to 23 months, effective August 1, 2020 (the “Deferment Term”) and it will be interesting to see what happens next.
China Crisis for Pathways?
It is no secret that the early growth of pathways in the US owed an enormous amount to English Language scholarship students from Saudi Arabia and the acceleration of incoming students from China. As numbers of the former fell away pathways became increasingly reliant on the latter which made the COVID-19 situation particularly difficult. The $64 million dollar (sic) (and maybe more) question is whether the future will see a significant return to those pre-pandemic conditions.
Looking on the bright side might involve pointing to the growth in Chinese undergraduate applicants to the UK (up 12% year on year in January 2022) for entry later this year. A more negative view might be reflected in the range of reasons summed up in “How Washington’s hawkish China policy alienates young Chinese”. Optimists could point to the recent ending of the “crackdown on Chinese research ties” while pessimists would suggest that the countries are “locked in a stalemate”.
Back in 2014, Peggy Blumenthal, a 30-years at IIE and a senior counselor to its then president, Allan Goodman, discussed the underlying issues with Science magazine and its worth a look. China had devoted significant resources to build graduate capacity, more of the professors had been trained in the US and Europe, and even at that time “the added value of a U.S. graduate degree has shrunk in relation to a comparable Chinese degree…for the vast majority of Chinese students.” It’s arguable that the quality of Chinese universities has increased further and that there has been little to significantly increase the lure of a Western degree.
What is also clear is that, as discussed in a recent blog, 2022 is likely to be the first year that all four major recruiting companies are competing effectively at the same time and there have been a number of increasingly powerful entrants to add to the mix. There seems every likelihood of continuing international tensions and the potential for students to be “weaponized” by their home government as a form of economic and cultural sanction.
The most prestigious universities in traditional recruiting countries have little need to worry but the early signs from Fall 2021 are not particularly encouraging for universities or pathway operators that have relied on Chinese students paying high fees. While the growth of graduate students from India might provide some direct recruitment solace for universities this is not going to resolve the issues facing the pathway sector. Shorelight appears to have already set its sights on building a direct recruitment portfolio of institutions over and above any pathway interest but since the University of Arizona announcement in June 2020 INTO appears to have no obvious sense of direction to face the changing market dynamics.
Notes
*Tom Hands has recently joined as Chief Recruitment Officer. He has previously worked in recruitment positions for Study Group, Navitas and Kaplan. Namrata Sarmah joined at the end of 2021 as Chief Product Officer having previously been Senior Director of Product at ViacomCBS
**As ever, research is presented in good faith but with a recognition that classifications of courses can be complex. I am happy to receive any authoritative corrections (with explanations) and would record them as notes on this blog.
***A review on 1 September 2022 showed that the INTO University Partnerships Annual Reports for 2020 and 2021 carry different figures in reporting of debtor information for INTO Washington State University and INTO Illinois State University. In the Report to July 31 2020 the debtor levels are shown as £3.156m and £5.438m respectively while in the Report to July 31 2021 (which shows the prior year as a comparison alongside the current year) the debtor levels are shown as £1.873m and £3.365m respectively. The July 31 2021 Report appears to make this change due to a prior year restatement and the graph has been adjusted to reflect that. This does not alter the explanatory text in the paragraph immediately before the graph.