Tag: INTO University Partnerships

CHINA CRISIS FOR US PATHWAYS?

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.

US Rebound, Pathway Woes and A World of Opportunity

Watching the gyrations of international recruitment as the pandemic, global tensions and the rise of online opportunities work their way through the sector is enough to make anyone slightly queasy.  There is still plenty to play for and with Australia looking ready to re-enter the fray in 2022 it is going to be a fascinating ride.  But for now it’s time to digest the latest Open Doors figures and have a small look under the hood to see what might be happening in the pathway sector.

The Open Doors press release trumpeted 914,095 international students for the 2020/21 academic year which was a 15% decline year on year.  But the inclusion of OPT (203,885) and non-degree students (21,151) doesn’t make a reasonable comparison with some other countries and when you strip them out the UG and Graduate student number is 689,069 – a 13% decline on the previous year.  The 45.6% year on year decline in new student enrollment becomes a slightly more palatable 39.9% with the removal of non-degree students.

But the real excitement was around the bounceback in the 860 university snapshot survey conducted by the Institute of International Education (IIE).  This suggested that new international students enrollments grew by 68% year on year to Fall 2021.  The obvious point to make is that if 2020/21 international student enrollment (including non-degree) was 145,528 then a 68% increase would take it to 244,487 which is still a lower new student intake than any year since 2011.

It’s good news that several US universities provide open and near contemporaneous access to detailed levels of information on international student recruitment which allows us to look under the hood and down to the pathway level.  It’s a state of affairs that Canada, the UK and Australia (which goes some of the way) should think of emulating.  Meanwhile, Fall 2021 updates from INTO University Partnerships (IUP) partners Oregon State University and George Mason University show how tough some are still finding things at direct and pathway levels.

Oregon State University (OSU)

IUP’s corporate website has an encouraging graph which shows the OSU international student growth story all the way up to 2019/20 so a visual moving the picture forward to Fall 2021 seems a helpful contribution.  The deterioration in undergraduate numbers is particularly evident as the university’s total enrollment falls to near 2012 levels and 2021 shows a further decline of 10% from 2020.  A wider consideration going forward may be that if there is a shift in major source countries the balance of UG to graduate enrollments may change for all universities with significant consequences for year on year stability.

Source: Oregon State University Institutional Research Office  

The situation for the INTO pathway operation at OSU is even more stark.  From a high point in 2014 the trend has been almost wholly downwards with a 78.7% decline in enrollments to 319 in 2021.  While the early stages of decline were in Academic English the most recent shrinkage has been in the core undergraduate and postgraduate intakes.

Source: Oregon State University Institutional Research Office  

INTO George Mason University (INTO GMU)

INTO GMU saw reasonable growth in its first two years and peaked at an enrollment of 387 in 2016.  Five years of decline has seen the 2021 intake down to 96 – a 75.2% fall from the peak with graduate and undergraduate numbers following similar paths.  INTO University Partnerships (IUP) July 2020 accounts show that INTO GMU’s level of debt to IUP had grown from £566k to £1.896m so it will be interesting to see how the 2021 annual report looks.

Source: GMU Office of Institutional Research and Reporting

To be fair and reasonable the announcement of the deal between IUP and GMU anticipated that the venture would add 1,000 international students to the university over five years.  In Fall 2014 the university’s census recorded a headcount of 2,136 non-resident aliens on GMU’s US campuses and by Fall 2019 that had risen to 3,247 so the original mission was accomplished.  The numbers for the pathway suggest that direct recruitment will have helped that along and tracking what happens next will be fascinating.

It’s difficult not to note that IUP, the pioneer of joint venture pathways, has had a bumpy few years with partnerships in the UK and US falling by the wayside.  Executive chairman, John Latham left the business on 31 October after being at IUP since April 2016 and just a few months after new Chief Executive, Olivia Streatfeild, was appointed around June this year.  INTO the Great Wide Open suggested some of the strategic issues the business faces with the suggestion that it “needs to establish some renewed momentum if it is to fulfil the promise of its early days of innovation, creativity and energy.”

Outside, the CEO and Chief Recruitment Officer, the IUP leadership team has been in place for five years or longer.  It’s a period that has seen six joint ventures close, three in the US and three in the UK, with little to match the growth of Shorelight in the US, no new UK partners and the recent addition of University of Western Australia in beleaguered Australia.  There are plenty of adjustments in the financial reporting but one measure of performance might be Total Comprehensive Income at Group level which looks to have moved from £8m to £12m over the period.

With the US and UK governments setting out to support ambitious growth targets and a reawakening of student mobility there should be good opportunities for nimble operations with a good foothold in key markets to move forward.  New operators and established companies, particularly in the UK, are showing that universities are still looking for support and Shorelight’s recent announcement of partnership with Austin College suggests there are opportunities in the US.  To borrow from Sherlock Holmes “the game’s afoot” but whether the answer is “elementary” remains to be seen.

Note: The data is gathered from public sources and referenced as necessary. In the event that there is a misinterpretation or error I am always happy to make amendments if approached with appropriate, verifiable information from an authoritative source.

Realities, Rumours and Days of Reckoning

Another week another private equity investment in pathways, but there’s no sign of the consolidation that would seem to make most sense in a sector beset by competitive pressures globally, rising costs of acquisition and restless partners.  Nonetheless, a few months of underlying movement with pathways closing or being won might suggest universities are beginning to look at their options in a more assertive manner.  This blog takes a quick run through the latest news and discuss a couple of emerging rumours*.

This week’s sale of Oxford International Education Group’s (OIEG) sale was a curate’s egg.  On the one hand there was the strategic backdrop of Nord Anglia buying the schools and colleges (via THI’s purchase of OIEG) to get a solid presence in the UK.  But the rump of the business leaves an assortment of English language offerings with a pathway business that has seen relatively slow growth in partnerships.

For many years there was a notion that pathway businesses and English language businesses had some sales, marketing and enrollment synergy but recent developments suggest other thinking.  The sale of Study Group’s Embassy language schools to EC came in November 2018 ahead of Ardian taking its majority stake in Study Group in February 2019.  Then in June 2019 English language provider EC sold its higher education arm to Study Group in a “strategic move” which EC suggested supported its “core strength” of full immersion English language provision.

THI does however make a lot of the synergy between Oxford International’s relatively new OI Digital Institute (OIDI), launched in 2020, as an online learning platform that sits neatly with Corndel and Learnship in their portfolio.  As far as I can see those brands offer diploma and language learning courses and OIDI has a range of English language courses, test preparation and non-credit bearing pre-Masters and PhD offerings.  It will be interesting to see how these line up against the credibility of CEG’s seven online degree partners, Study Group’s developing strategy with Insendi and Kaplan’s success at the universities of Liverpool and Essex.

The founders and management of OIEG have remained invested as part of the deal with THI but move from having a private investor with a minority stake (Bowmark) to one with a ‘controlling interest’ (THI).  A lot will be riding on the digital offering but also the capability of the English language business to recover from the drubbing the sector has received in recent years.  A rising exchange rate against the Euro deterring language students, the loss of European Union students to UK universities and the resurgence of the US as a student destination may give some headwinds.

Rumours

Most well-founded rumour is probably that CEG are teaching out at Coventry University and will be replaced.  There is no announcement but there seems no way of applying for a course at CEG’s OnCampus operation in Coventry starting in Autumn 2021.  The recent addition of Aston University and the University of Southampton to the CEG stable must have been welcome additions but it is difficult to see that they will quickly match the numbers at Coventry which were over 700 in 2018 according to a QAA report.

If one were to speculate there might be reasons to think that Study Group can leverage their relationship from the Coventry London Campus to win the prize of a pathway at the main campus.  But there have also been suggestions that Oxford International have a fighting chance given their CEO’s contacts with the university – including a contract stint working on international development.  There’s also the glowing recommendation from an Assistant Professor John Fowler of the university about the engagement with OIEG on the development of online, pre-university programmes.        

Less well baked but understandable in today’s feverish environment is the suggestion that INTO’s relationship with Oregon State University is under review.  The INTO team at the university seems well regarded and it may just be that a new President is running the rule over everything.  The fact that the President was previously President and Chancellor of Shorelight partner Louisiana State University (LSU) may add some spice but it’s worth remembering the Insider HigherEd piece which noted a target of 850 for the LSU pathway with only 136 enrolled students after three years.

There is no secret that INTO’s pathway joint ventures in the US suffered the loss of Marshall University in 2020 and Washington State University earlier this year, with reports suggesting that Colorado State University will also be closing.  Looking at the numbers for OSU indicates that the pathway center has had a very tough year with Fall 2020 enrollment declining 58.7% year on year from 809 to 334.  It may be tough to judge performance under current conditions but total enrollments at the pathway have been falling since a peak of over 1400 in 2014 so the trend is well established.  

Days of Reckoning

It is easy to forget how quickly the tides of fortune can change in the world of international student mobility.  The Australian charge to double digit enrollment growth appears to have foundered on a clumsy Government response to the pandemic and they may be out of the reckoning until 2023 unless there is a rapid turnaround.  A burst of interest in the UK has been partially challenged by the travel restrictions of the past year but the continuing extension of post-study work options will deliver opportunities and the data from UCAS suggests that Chinese numbers are particularly robust.  The post-Biden bubble in the US has seen rising interest from overseas but there are still problems in the tensions with China and the practical issues of getting visas.  In Canada there seems to be a growing interest in pathway programmes at lower ranked institutions and the threat from a resurgent US is looming.

For pathway providers, as for higher education more generally, the pandemic has thrown the need for high quality digital courses into sharp focus but without any certainty that students will want to engage in that medium when they can travel again.  For most universities the realities of high fixed costs in their geographical location mitigate against a wholesale shift away from trying to recruit students to attend in person.  It is just possible that the global student mobility world will return to something approaching the “old normal” rather than there being a “new normal” but with the added options of models incorporating digital and even, so some would suggest, virtual reality.

*Note

I am happy to accept authoritative responses, comments or corrections to any of the points made and will represent them in amendments to this blog.

Image by Gerd Altmann from Pixabay

PIGS TO PETTICOATS TO PATHWAY PROBLEMS

INTO’s London-based joint venture with Newcastle University is the second of the pathway provider’s high profile university partnerships to come to grief at the Middlesex Street building near Liverpool Street station.  The location was also the home of INTO’s venture with the ill-fated London Academy of Diplomacy, led by Joseph Mifsud who became infamous for his involvement in Robert Mueller’s enquiry into President Trump.  It’s reasonable to say that the site has seen more than its fair share of false starts, big ambitions and strange bedfellows – there’s even a Princess at one point.

The timeline of occupants, the financial fortunes of the joint ventures and the variety of pre-university, undergraduate and master’s courses offered suggests that making a success of a London venture is tricky.  There are many potential downsides to higher education investment in one of the most expensive cities in the world.  When ambience fall short of a true campus experience, facilities are limited and university faculty are more committed to their home towns it can be particularly hard going.

A run through the various occupants of Middlesex shows that even well ranked partners with global reputations might find it too difficult or too expensive to make things work.  The dates of operation are taken from public documents but may reflect a difference between an entity being incorporated and its first intake. Any authoritative updates are welcome.       

INTO University of East Anglia, London (2009-2014)

INTO UEA (London Campus) LLP was established as a joint venture in 2009 to provide academic and language courses, primarily to international students, at a purpose built study centre in London.  The intention was to offer pre-university courses along with “graduate and post-graduate courses taught by UEA academics”.   But UEA’s 2011/12 Financial Statement suggested that things were not going to plan and noted, “Trading to date is slightly down on the original plan, reflecting a slower build up in student numbers than originally anticipated.”

The University’s 2012/13 Annual Report comments, “In light of the current trading performance of INTO London, and the fact that accumulated losses will not be recouped for some time, the University made a capital investment of £3,000,000 in the joint venture in August 2013.”  An operating loss of £1.2m in 2011/12 had followed one of £2.5m in 2010/11 for the joint venture.   By early 2014 UEA had decided to retire at the end of July 2014 to focus on delivering teaching and research, “at our superb Norwich campus,”.

INTO City, University of London (2010-Current)

INTO City began trading in 2010 and focuses on pre-university courses.  By 2015 the joint venture had net current liabilities of £5.8m and its annual report noted “material uncertainty which may cast significant doubt upon the LLP’s ability to continue as a going concern.” Discussions were ongoing to reduce the charges from each partner, clarify governance and recapitalize the venture.

The outcomes suggest a rebalancing of risk and reward reflected in City’s 2018/19 Financial Statements which note that, “Prior to 1 September 2017, a 50 per cent share of the net assets and liabilities was included in City’s balance sheet and 50 per cent of its net income was reported in the consolidated income and expenditure account. Since 1 September 2017, City’s share of net income has been reduced to 15 percent.”  Always worth remembering that universities are primarily interested in pathway providers because of the income they receive from students who progress to full degree courses.  This may be a reason that City gives equal prominence on its webpages to the pathway arrangement with Kaplan International College 

London Academy of Diplomacy (2010-2016)

In an impassioned blog in 2013, UEA visiting lecturer Barry Tomalin advocated, “Don’t Let Diplomacy Fail”, to students at INTO’s London Academy of Diplomacy (known affectionately as “LAD”).  Under Professor Nabil Ayad, LAD had been with the University of Westminster, but from 2010 its degrees were validated by UEA and it operated out of Middlesex Street.  Another INTO partner, the University of Stirling, took over validating the Academy’s awards in 2014 by which time Professor Joseph Mifsud was Director of LAD. 

Brig Newspaper does a decent job of explaining the story of the “academic who attempted to connect the Trump campaign with Vladimir Putin” and INTO’s role with the Academy.  It highlights that LAD was closed in 2016 “citing financial difficulties” and an article in the Diplomat suggest that the Academy had 150 students in 2014.  Sufficient to say that the University of Stirling’s London-based activities arising from its joint-venture with INTO, whether with LAD or the short-lived Master’s program at a different site in the capital, no longer exist.

INTO Newcastle University London (2015-2021)

The Newcastle University London joint venture had an inaugural intake in 2015 and offered both pathway and degree courses.  Opened by HRH Princess Eugenie, a Newcastle graduate, in October 2015, it held the university’s aspirations that, ”..in collaboration with INTO, our London campus is expected to grow to 1,200 students.”  By 2018/19 the venture had grown to 504 enrollments but its operating losses had reached £2.4m.

Council minutes from the University indicate that discussions and negotiations about the future of the joint venture had been ongoing during most of 2019.  By April 2020 the University’s Council noted “that there was a compelling case to suspend undergraduate recruitment in 2020 on the grounds of insufficient applications, and judged that the consequences of the COVID-19 pandemic would make future viability even less likely.”  It seemed a short step from there to the recent announcement that the joint venture would close next year.

INTO London World Education Center (“WEC”) (2017-Current)

WEC is a wholly owned operation of INTO’s which began operations around 2012/13 and offers pre-university courses for international students.  The student outcomes are accepted for consideration for entry by over 100 UK universities.  The accounts for 2015/16 noted an expected move to Middlesex Street which would “represent a more desirable study location” than its previous home on Mile End Road but this appears to have been delayed until 2017/18.

Year one at the new location saw a rise from 123 to 157 students but 2018/19 saw a decline back to 126.  WEC’s operating loss grew from £1.9m to £2.4m year-on-year across the two periods.  WEC’s debt to other INTO group undertakings also appears to have risen to £8.9m in 2019 from £5.6m in 2015.  

London – A Golden Opportunity or a Battle for Survival?

The chequered history of the Middlesex Street pathway operation matches the shifting sands of the location.  The Street was known as Hogge Lane in the Middle Ages  because pigs were fattened up in the surrounding fields to feed Londoners. Ryther’s famous map of 1608 records a name change, with Hogge Lane becoming Peticote Lane (with the spelling later being standardised to ”Petticoat”) as the area had become known for merchants’ selling second-hand clothes.  Petticoat Lane Market became one of the most famous in London, but around 1830 prudish authorities thought it unseemly to have a thoroughfare named after an item of women’s underwear and it was renamed Middlesex Street.

Shakespeare is quoted as saying, “I hope to see London ere I die” and many universities and pathway operators have set their sights on the UK capital in the belief it is an irresistible magnet to international students.    And Benjamin Disraeli, twice British prime minister in the 1800s, said “London is a modern Babylon” which suggests its history as an appropriate location for language-oriented pathways.  It is certainly possible to see pathway successes in London, with an example being the Kaplan International Centre which continues to add to an illustrious list of partner institutions.

But with the fallout from Brexit, the potential resurgence of a more friendly US international student experience, and all the uncertainties of a post-pandemic world the future for London-based education is far from clear.  Expensive buildings and accommodation, limited commitment from faculty to travel to London and low progression rates from a London pathway course to a distant campus are all obstacles to be overcome.  It could be that legendary punk group The Ruts summed up the future for investors best when they sang, “Babylon’s burning with anxiety”. 

NOTES   

1. Information relating to joint venture finances is taken from the filings at Companies House (INTO UEA (London Campus) LLP (now INTO London Mdx Street LLP, INTO City LLP, Newcastle University INTO London LLP, and INTO London World Education Centre Limited.

2. Commentary on the ventures at Middlesex Street has been taken from official records but it is a complex history.  Any corrections, insights or updates from sources that can be validated are welcome. They will be noted and credited on this blog.

Image by TeeFarm from Pixabay

US Pathway and University Enrollments Looking Grim

Early signs are showing the scale of decline in Fall 2020 international enrollments in the US and how pathway enrollments may be even more disappointing. Everyone has been expecting a deterioration in numbers and it comes after several bruising years where many pathway providers have closed operations. INTO University Partnerships and Shorelight are the dominant players in a troubled market and their partners at Colorado State University and Auburn University make it possible to drill down to pathway level.

It’s an early snapshot of what is likely to be happening around the US in Fall 2020 and also an indicator of what the pathway pipeline of international students looks like. It makes for sombre reading if you are a big player in the US pathway business and represents a financial blow on two fronts. Low enrollments make it difficult to run the pathway profitably or get any contribution to overhead. It also means several years of lower income the operator gets from its percentage of tuition fee per student in the university in succeeding years.

INTO CSU and Colorado State University
At Colorado State University (CSU) the overall international numbers have been dropping slowly for a couple of years. But Fall 2020 total enrollments dropped 22% year on year. Longer term pain may be signalled by the declining pipeline from its pathway partner.

Source: Colorado State University Institutional Research Planning and Effectiveness

Since Fall 2017 the number of undergraduate and graduate enrollments in the INTO pathway at CSU has declined by 54%, but in absolute numbers the drop in enrollments of 42 students (35%) from Fall 2019 to Fall 2020 has been the largest ever. Graduate enrollment declines are outpacing those of undergraduate students but both are falling sharply.

Source: Colorado State University Institutional Research Planning and Effectiveness

It’s worth remembering that INTO closed its pathway business with Marshall University earlier this year. This was covered in a blog back in March 2020, with the growing levels of inter-company debt between INTO University Partnerships and several of its US pathways explored in a May 2020 blog. Colorado State University was near the same inter-company debt level as Marshall, and it seems unlikely to get any better after this year.

Shorelight and Auburn University
Auburn had been showing healthy growth and outperforming most US universities for several years. But total 2020 Fall enrollments are down by 18% on 2019. Underpinning this is a 21% drop in Chinese students whose numbers have fallen from 1881 to 1489 year on year.

Auburn University Enrollments by Country – all colleges/schools, departments and primary majors

While an 18% drop in total enrollments might not be too bad a result in the current year it does not look as if Auburn will be able to rely on Auburn Global, the partnership between Auburn and Shorelight, for stability or future growth. There has been a 69% drop year on year (384 to 119) in enrollments on four key Auburn Global programs. Perhaps more troubling is that this number is driven by a 66% decline in the number of Chinese students enrolled in the programs (325 to 109).

Auburn University Enrollments by Country – Auburn Global – Academic, Extended, and Masters Accelerator Programs (First and Second term)

It’s reasonable to add that Auburn and Shorelight are working hard to promote an online option starting in October. This is positioned as offering “the perfect solution for international students who would like to earn academic credits virtually this fall”. Students can earn 9-12 credits on the Academic Accelerator Program and 7-8 credits on the Extended Accelerator Program. They will work through Zoom and pay the same price as on campus students.

Long term observers of the global recruitment business know that there is an ebb and flow to country performance but it cannot be easy for private pathway operators trying to satisfy private equity holders when a market looks to be in free fall. Huron appears to have backed its investment in Shorelight with a further infusion of $13m in the first quarter of 2020 but that was pre-pandemic. There seems to be a lot riding on the possibility of online delivery being attractive to students but that remains an unknown quantity.

By way of a contrast the UCAS data on UK university international undergraduate acceptances suggests students are already voting with their feet. International students placed in September 2020 were up 10% (4030) to 44300 with students from China up 27% to 12980. There’s still plenty of uncertainty around and the growing number of coronavirus cases on university campuses may bring the party to a grinding halt. But, for now, many universities are chartering planes to fly students into the country to bolster their chances of turning enrollments into attendance.

Image by Gerd Altmann from Pixabay

US PATHWAY SECTOR FACES DOUBLE WHAMMY UNDER ENROLLMENT PRESSURE

It appears that the cull of pathway operations in the US has further to go. The Navitas website suggests that Global Student Success Programs at UMass Lowell, UMass Dartmouth and Florida Atlantic University have been discontinued.  All of them throw up the message, “The Global Student Success Program is no longer accepting new applications..” * It’s the same story for Virginia Commonwealth University and the University of Idaho links.

Looking more deeply, the figures from UMass Lowell show a precipitous drop in Navitas enrollments from 187 in Fall 2016 to just 81 in Fall 2018.  The numbers for 2019 aren’t available on the university site but a further dip seems likely.  If these are permanent closures it brings Navitas down to three pathways in US from eight at its peak.  Overall, the number of on-campus pathways in the US may have fallen to around 40 and its little wonder some are making a “pandemic sales pitch” that they are really masters of online technology.

With the pressure on US international enrollments growing year by year it’s difficult to see that there is a lot of good news to come.  Rumours abound and are difficult to verify but in recent weeks I’ve been told of a pathway run by one of the big two operators at a top 200 east coast university that is looking at a 70% decline in enrollments year on year.  It’s a very long way from the suggestion made in 2014 by Parthenon Group partner Karan Khemka, that “We anticipate that growth will be constrained only by the pace at which private providers can develop the market.”

We are seeing a wholesale realignment of the pathway sector but alongside that there may also be a double whammy as universities seek to renegotiate commercial terms in the light of changing market conditions.  For example, the University of South Carolina Board of Trustee minutes from April 2019 make for interesting reading as they reflect on the changing nature of the university’s deal with Shorelight.  The initial deal had been signed for seven years in 2015 and the proposal was to re-sign for another seven but with “better financial terms for the University”.

One big shift indicated was that USC would be allowed to keep 90% of the tuition paid by students in years following the pathway and pay Shorelight 10% of the tuition.  Under the initial agreement the split was 83% to USC and 17% to Shorelight, so on an out of state, undergraduate student fee of $16,700 that’s a cut of just over $1,100 a year per student.  It’s worth remembering that Shorelight noted early in their history that, “not only does the university not contribute anything upfront to get the program off the ground…but Shorelight reimburses the university for any expenses as it’s getting off the ground.”

The obvious question for traditional pathways is how they remain sustainable when the university is bearing none of the start up costs, and if the provider’s revenue share from students going into the university is being reduced.  In a recent blog I looked at the growing inter-company debt between INTO University Partnerships and its US pathways where, the collective debt owed by five joint ventures open for at least five years, had from under $5m to nearly $15m. The closure of the pathway at INTO’s partner Marshall University came as enrollments fell and inter-company debt rose sharply.

While $1100 a student doesn’t sound very much the real point is that this becomes a loss of $110,000 a year if you have 100 students progressing and $330,000 over the lifetime of the cohort. Add to that the increasing cost of acquisition of each student as global competition increases and the basic economics of a pathway come under serious pressure.

It also raises the question as to how sustainable are the remaining pathway operations as the US faces another bleak year for international enrollment.  A recent Open Doors survey reported 52% of US universities indicating a decline in enrollments for 2020.  Navitas research with agents recently suggested that declining student mobility and growing unpopularity could see the US lose between 160,000 and 350,000 international students.

Alongside the well-known and longer-term internal issues facing students who might previously have seen the US as their preferred option there is little doubt that competition is playing an increasingly important role.  The UK has made good headway and become a more popular destination this year which has led to an increase in undergraduate enrollment from China of 14% this year.  Canada continues to provide an attractive option with clear routes to citizenship that have been particularly successful in attracting Indian students in recent years.

Supply and demand are powerful and remorseless market disciplinarians.  The dash for growth in the US pathways came supported by over $1bn of private money flowing into the sector, but the economics of creating more and more supply at a point when demand was slowing have become evident.  With global competition for students increasing, student mobility threatened and universities finding alternative means of reaching the market – particularly online – it’s probably a hard road ahead.  

*As always I am happy to have authoritative corrections or clarifications and will record them.

Image by Gerd Altmann from Pixabay

No Easy Pathways – Even Before the Pandemic

As a relief from the global pandemic, it was interesting to take some time to look a little harder at recent developments from the Study Group, Shorelight and INTO camps.  It’s a further reminder of how the US pathway sector was climbing a mountain even before the pandemic brought new challenges to international student enrollments.

Study Group

Study Group looks to be adding to last year’s closures in North America with pathways at both Royal Roads in Canada and the University of Vermont shutting down.   Both institutions are still featured on the Study Group website but there is hard evidence in once case and strong rumour in the other.  As ever, I’m happy to accept an authoritative response and correction if this is incorrect.

Minutes from Royal Roads Board of Governors meeting dated March 31, 2020 state: “The Study Group partnership was entered in 2011 to deliver preparatory pathway programs and expand international student recruitment into university programs. Following a formal review, a decision was taken to not renew the contract when it expires August 2020…….. A team will be struck in early 2020 to manage the transition to wind down the partnership by August 31.”

The change comes as Royal Roads posts some interesting statistics about its international student enrollment expectations.  From 577 international student FTEs in onshore credit programs in 2018/19 they are forecasting 1,012 in 2020/21 – an eye-watering 75% growth.  The expectation is spelt out very clearly “…with revenue increasing by $4.5M (35%) from $13.0M in 2019/20 to $17.5M in 2020/21.”

While there’s no institutional announcement, strong feedback from the market suggests that the Study Group relationship with the University of Vermont will come to an end later this year.  The partnership started in early 2014 with the stated aim to ‘recruit approximately 140 international students per year with a two-term pathway sequence’.

The University doesn’t give exact details on the Study Group contribution but over the five years total Fall international enrollments rose to a peak in 2017 and fell back below 2015 levels in 2019.  Non-degree international enrollments peaked at 171 in Fall 2015 and have declined since to 88 in 2019.  It’s a story that’s been hear all around the US but it’s worth remembering as a sign of the times that this is a University ranked 121 by US News in 2020.

This follows Study Group’s announcement of three pathway partnerships closing in 2019 at the universities of  Roosevelt, Widener and Merrimack and the closure of the Oglethorpe University pathway earlier in 2020.  For those trying to keep up here’s the list (with closures highlighted in red) which includes DePaul and Hartford taken over from EC Higher Education in 2019. 

Shorelight

Shorelight’s website suggests that since its first partnerships in the US in 2014, it has grown to 19 partners.  The relationship with UMass Boston does not appear to be a traditional pathway (which seems to rest with Navitas).  The American Collegiate (DC and LA versions) do not appear on the list of traditional, full-service partners and appear to be short summer programs along with a year-long undergraduate level course through UCLA extension. 

Huron Consulting Group Inc. is a long-term investor in Shorelight Holdings LLC (the parent of Shorelight Education) with an initial investment of $27.9m in 2014 and 2015.  Huron’s recent Form 10-K filing showed that in the first quarter of 2020 it invested a further $13m.   The initial investments were zero coupon convertible debt instruments maturing on July 1, 2020 but that maturation date has been extended to 17 January 2024 which matches the date the new investment matures.

The pathway sector has seen a significant amount of investment in the potential of a strong US portfolio but the growing tensions are stark.  In a recent Boston Globe article, Ben Waxman, chief executive officer of International Education Advantage, argued “International enrollment is going to plummet like a rock” due to the pandemic.  In the same article Shorelight’s cofounder, Tom Dretler, said the company is still seeing increased interest from foreign students in enrolling in US colleges for summer and fall programs. He noted that universities will have to offer these students a more engaging online experience. Time will tell.

INTO University Partnerships (INTO)

Growing global and in-country competition were probably factors undermining the growth of early INTO success stories like Marshall University.  The pathway at Marshall closed earlier this year and leaves INTO with 11 partners in the US.  As noted in a previous blog, enrollment to both the pathway and directly to Marshall had been falling for several years.

A look at INTO’s most recent published accounts for the year to 31 July 2019 show that there may be more dark clouds on the horizon.  Taking US pathways that have been open five years or more (including Marshall) it is noticeable that the level of debt owed by the joint ventures to INTO has grown from under £5m to nearly £15m.  Colorado State University (CSU) and Drew are at or above the same levels as Marshall. 

It’s probably a bit early to see the direction of travel for new joint ventures Hofstra, Suffolk or Illinois State.  But St Louis University’s level of indebtedness has remained at around the same level for four years, and the University of Birmingham Alabama has moved from owing £895k in its first reported year to £4.96m in 2019.  Washington State University has seesawed with a first-year indebtedness of £1.74m followed by a recovery but then a rise back to £1.34m in the latest accounts.

None of this has stopped company founder Andrew Colin from moving up 133 places year on year in the Sunday Times Rich List published this month.  What’s interesting is that the Sunday Times valued the business (based on 2017/18 information) at £200m which would suggest that Leeds Equity’s 25% stake was worth £50m.  That’s after a £66m investment made in 2013.

Of course, all of this is before the coronavirus and a global pandemic that has created havoc with traditional student choices and may alter global mobility forever. The US was in decline as a destination of first choice for several years before the virus, and there is little to suggest it has risen to the competitive threat. A recent IDP survey showed the US lagging behind on key measures as students are making their decisions.

There is already evidence that Canada and Australia are responding more aggressively to support international student recruitment after the peak coronavirus period.  Even the UK had done more to revive its flagging fortunes and was looking towards a bumper intake in 2020.  It leaves pathway operators and universities in the US in a very tough place.

 Image by Arek Socha from Pixabay

The Dwindling Party* – More Pathway Closures in the US

Pathways providers are cock-a-hoop about the UK this year but there’s a slightly embarrassed silence about continuing closures in the US.  A quick spin through the websites tells us that INTO looks to be shuttering one of its early partners and Study Group has trimmed another from its stable.  And there are plenty of discussions about where the axe might fall next (with one contender noted below).

INTO’s portal for students claims 13 US partners but according to the corporate website there are “12..in the US”.  It’s not entirely clear which university was intended to be mysterious number 13, but a click on the number leads to just 11 partner logos shown.  The missing partner is Marshall University in Huntington, WV.

The Marshall deal was signed in November 2012 with the first students entering the pathway in August 2013.  It was the heady days of expansion in the US and the opening came the same year that Leeds Equity took a 25% stake in the INTO University Partnerships business for £66m ($105.8m). With Shorelight Education launched shortly afterwards there was a lot of private money betting that US expansion would guarantee international student growth for a long time to come.

But Marshall’s non-resident alien population and the strength of the INTO pathway have declined sharply in recent years.  Institutional data showing early fall statistics shows a fall of 37.6% enrolled at INTO Marshall and 38.7% in the university overall (which implies that direct recruitment was falling faster).    

Table One: Marshall University International Student Enrollments

With respect to Study Group, I reported on closure of three US Centers back in September but since that time yet another has disappeared from the list of logos on the website: Oglethorpe University.  A visit to the University’s website confirms that the last intake was September 2019, and that the International Study Center won’t exist after May 2020.  The partnership was announced in 2017 with President Lawrence Schall, stating, “As part of our globalization strategy, choosing the right pathway partner was important.”

Reasons for the closure are not easy to discern, as the Oglethorpe Fact book suggests significant improvement of international numbers year-on-year for 2019 entry.  The number of countries for represented for first-timers had also increased slightly.  Maybe the future did not look bright enough.     

Table 2: Oglethorpe University International Enrollments

  Fall 2018 Enrollment Fall 2019 Enrollment
First time, full time international 16 41
Full time traditional undergraduate profile 97 122

While walking through the pathway websites I also came across Cambridge Education Group suggesting that a pathway with Illinois Institute of Technology, first announced in early 2018, is still ‘coming soon’.  When I clicked on the link for Illinois Institute of Technology Direct Entry I found an error page.  Careless at best if this is an important relationship but perhaps indicative of more deep-rooted reconsideration.  As always, I am happy to clarify this if I receive an authoritative correction and explanation.

It seems likely that the US will suffer even more retrenchment in international student enrollments over the coming year.  The resurgence of the UK will almost certainly affect the US more than other locations, with the recently reported 93% increase in student visas from India just the early part of the surge to take advantage of enhanced post study work visas.  Of course, the implications of coronavirus have yet to play out fully and that may mean that all bets are off. 

*The Dwindling Party is a book by Edward Gorey where pop-up illustrations and verses divulge how, one by one, six members of the MacFizzet family, disappear during a visit to Hickyacket Hall, leaving behind only young Neville, who expects “it was all for the best.”  It’s an interesting metaphor.

Image by Mediamodifier from Pixabay 

More Pathway Jeopardy

INTO’s joint venture with the University of Gloucestershire is under ‘strategic review’ with the possibility of closure.  INTO is no longer accepting applications to start at the on-campus centre in 2019, which is understandable given the uncertainty but seems unlikely to improve future prospects.  It is anticipated that the review will be complete in early July. 

A number of ‘third party’ pathway centres in the UK and US have closed in recent years, including Navitas at Edinburgh Napier and Oxford International at the universities of Canterbury Christ Church and Bedfordshire.  In the US four CEG OnCampus pathways are closing, and EC’s higher education business has shut down with partners moving to Study Group. INTO Gloucestershire offers some insights into the dynamics at play in the joint-venture model.  

The centre opened in 2013 but has struggled to build enrolments or achieve operating profitability.  The most recent published figures show average enrolments falling for two years and lower in 2017/18 than 2014/15.  The University’s Financial Statements for 2017/18 noted ‘the highly challenging market’ and it seems unlikely that 2018/19 enrolments were much, if any, better.   

Table 1 – INTO Gloucestershire Average Enrolments  

Source: INTO Gloucestershire LLP Annual Reports

The University’s most recent Financial Statement concluded that the ‘financial performance of the JV entity combined with the net revenues from progressing students, continues to deliver a worthwhile partnership arrangement for the university which enhances the internationalisation agenda.’  With the UK likely to be heading for a good enrolment year this might seem to be a good moment to double down on the investment after weathering some difficult years.  There’s also the possibility of even better times ahead if proposed changes to post-study work opportunities become reality.   

But as the joint venture enrolments have slipped first year, full-time international enrolments have also stalled for the University. Published data doesn’t provide insights into progression from the joint venture but as UK universities have become more competitive for international students it’s possible that more are leaking away to better ranked or more favourably located institutions.

Table 2 – University of Gloucestershire Non-UK Enrolments with JV Enrolment Overlay

Source: HESA Data and INTO Gloucestershire LLP Annual Reports

A closer look at the financial story also suggests some reasons for caution on all sides.  Recent Financial Statements show the University has written off £2.8m of debt from the joint venture over two years with INTO University Partnerships (IUP) writing off £3.8m of debt in the same period.  Current financial year data is not available but the debtor balance owed by the joint venture to IUP at the end of 2017/18 was £1.77m.

Table 3 – INTO Gloucestershire LLP Debtor Balance to IUP and Written Off Amount

Source: INTO University Partnerships Annual Reports

The joint venture has been unable to operate profitably in its first five years of operation despite measures to make ‘changes to the model of paying for services supplied by the two respective parent organisations’.  One ratio for pathway watchers to consider is that the joint venture’s cost of sales rose from 73% in the peak enrolment year of 2015/16 to 87% by 2017/18.  Significant reductions in operating expenses have been unable to make up for the resulting decline in gross profit, but are likely to have reduced revenue to the partners for services they provide to the joint venture.  

Table 4 – INTO Gloucestershire Turnover, Cost of Sales, Operating Expenses and Operating Profit 

Note: Operating loss shown excludes exceptional items and interest Source: INTO Gloucestershire LLP Annual Reports

A university statement indicates that the strategic view was initiated jointly.  Increasing levels of indebtedness, less revenue from the centre paying for services and little prospect of a significant shift in the ability to recruit students would certainly concentrate the mind. As the joint venture’s Annual Report notes – ‘the principal risk facing the LLP is the continued under-recruitment of students to its programmes.’.


The university have confirmed that ‘no decisions have been made’ and that ‘no compulsory redundancy notices have been issued to staff either employed by the JV, or employed by the University outside of the JV, as part of this process’ and it is to be hoped that INTO and the University of Gloucestershire can find a sustainable way forward .  But if not, it would follow INTO University of East Anglia London and INTO St George’s University as the third of the company’s joint ventures to close.  That would leave eight joint ventures and two wholly owned operations remaining in the UK.   

Most pathway portfolios have partnerships that struggle to recruit and are likely to come under the microscope when times get tougher or business models are disrupted.  That’s why there is likely to be more realignment, restructuring and portfolio shuffling as the sector matures. I once heard an industry leader comment that the trough between launch and profitability is becoming deeper and longer – the question is whether some vessels are too leaky to make it to the other side.   

Image by Arek Socha from Pixabay

BIG QUESTIONS FOR PRIVATE PROVIDERS

The past few months have seen Ardian purchase Study Group, Navitas on course to be taken private and, most recently, news of EC’s North American Higher Education division moving to Study Group.  Between 2010 and 2014 the pathway market was characterized by over a billion dollars of private investment and a dash for growth in university partnerships.  But as global competition, technological disruption and changing demographics bite there are closures, sales and realignment.

As the market becomes more challenging investors have some strategic decisions to make. Recent developments and news coverage gives some grounds for speculation on what that might mean.

Cambridge Education Group/Bridgepoint Capital

In 2013 Bridgepoint Capital paid ‘an enterprise value of UK £185m’ (around $241m) for CEG.  One commentator suggested, “The pathways sector has delivered remarkable growth and profitability over recent years. Strategically the space is exciting..”.  It seems possible that the future will be about excitement in other parts of the portfolio. 

CEG recently confirmed the closure of its ONCampus individual pathway centers at Rochester, Rhode Island, CSU Monterey Bay and the University of North Texas.  The relaunch of ONCampus Boston in fall 2019 and direct recruitment at Illinois Institute of Technology keeps a toehold in US HE.  But with no further ONCampus developments in the UK since 2016 it looks like it has called time on pathways linked to individual universities.    

But the Group has other options and is investing in the CATS College brand (colleges for 14-18 year olds) with the first China centers opening in March 2019.  The two centers are in Shanghai and will provide a path for students to join CATS UK Colleges and other CEG options in the UK.  In the UK the company’s digital delivery arm has also been growing and added Cass Business School and the University of Hull as partners in 2018. 

It seems plausible that CEG is focusing on driving the CATS business and building a growth story around digital while putting pathways into a holding pattern.  

INTO University Partnerships/Leeds Equity Partners

In 2013 Leeds Equity £66m purchase of a 25% stake in INTO valued the business at around £266m.  Six years later the Sunday Times has ‘cautiously, put a £170m price on the operation’ (entry 876, Sunday Times Rich List 2019. Public filings show that in 2018/19 a preference dividend of £15m was paid for the first time, presumably to Leeds. 

INTO added the medium sized, public, Illinois State University and smaller, private institution, Hofstra to its US portfolio in 2018.  But data from Oregon State and Colorado State reflects the tightening of the US market and the possibility that new partnerships may erode the enrollments of existing partners.  INTO hasn’t opened a new UK partner since 2016 and average enrollments at mature partnerships (five years or more) and wholly owned centers shows that overall recruitment in the UK is no greater than 2014/15 levels.      

The company’s joint-venture model was a key differentiators in the early days but has been substantially replicated by a US competitor.  INTO is focused on pathways but has the potential to build business as a recruiter of non-pathway international students for existing or new partners.  If Leeds Equity are looking to move on this could be the moment where the business recapitalizes to buy out their 25% share and perhaps get some headroom to invest in new business opportunities.

Shorelight

Shorelight was six years old in January 2019 and is the only major pathway provider with no interests outside the US.  The portfolio grew in the last twelve months with the additions of  Cleveland State University (March 2019) and Mercer University (October 2018).  Eighteen university partners mean that there are a lot of seats to fill at a tough time for the US market.  

With the squeeze on international enrollment growth in the US, Shorelight probably needs to dominate pathway recruitment to deliver the results expected by partners.  The growth in pathway options and degrees delivered in English around the world has made it a buyers’ market for students and recruitment agents. Any outperformance in recruitment is likely to come at a price and provoke a competitive response. 

Declining markets, increasing costs and over-supply are not easy problems to solve and it may be time to look for new options to spread costs and risks.  Given Shorelight’s recruitment infrastructure and evidence of success with some good universities in the US it could be productive to pitch for a high-quality university in the UK, Europe or Australia.  A big name that doesn’t want to be part of the Kaplan, Study Group, Navitas or INTO portfolio might find a dedicated partner worth a conversation.         

Study Group/Ardian

The purchase of Study Group by Ardian positioned the investor with the ambition to make ‘strategic acquisitions’, and a belief that pathway growth would continue to be ‘double digit’.  It is difficult to see that organic growth in the US will be the main driver of the latter prediction.  But taking on EC’s operations in the US appears to signal an intention to continue to build market share. 

Other recent Study Group signings have been with sub-degree colleges in Canada providing a route to degree level study, post-study work and possibly citizenship.  It may be a smart way of infiltrating a market where universities have seemed relatively resistant to the lure of pathways. In 2017, 41% of international students at post-secondary level, including a 67% increase in those from India, studied in colleges.

Study Group’s business is diversified geographically and has high-school/college options as well as pathways.  The UK/Europe pathway business looks stable and recently announced a new partner in Aberdeen.  In the US the Managing Director has just left and it may be a good moment for strategic review in the context of market conditions. 

Image by Anemone123 from Pixabay