Study Group – View From A Bridge – management, education and personal thoughts

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

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

Another Canadian University Pathway Coming Soon?

Pathway operators have been focused on getting contracts with universities in Canada for several years but there has been little real momentum. All the more interesting to catch rumours of Navitas nearing a breakthrough with Ryerson University. It’s worth having a look at whether there’s any strength to them.

Exhibit one would be the university’s Senate Meeting Agenda of 1 October 2019. Pages 78 to 83 have a summary of meetings ‘from the President’s Calendar’ and there, hiding in plain sight on page 82, is the entry:

Jul 29, 2019: Over dinner, I met with Rod Jones, group CEO for Navitas worldwide; Scott Jones, nonexecutive chair of the board for Navitas worldwide; and Brian Stevenson, president and CEO, university partnerships, Navitas North America. We discussed the potential for Ryerson to bring in international students through the pathways to university education that Navitas offers.

The information had previously been shared at the Board of Governors meeting on September 20, 2019. So we know that Ryerson’s President Mohamed Lachemi has been meeting with senior people from Navitas although that might not be considered unusual. But there’s a little bit more to report.

Recent social media shows President Lachemi escaping the Canadian winter in the past couple of weeks and ‘expanding Ryerson’s relationships with leading universities’ in Australia. This might be unexceptional but the twittersphere also suggests visits to Griffith College and Deakin College – two Navitas centers – arranged by Navitas. And it sounds like there have been more meetings with senior Navitas folk.

There’s no way of confirming the market gossip and I am always happy to clarify the situation if an authoritative source gets in touch. Ryerson has certainly been in conversation with at least one external operator in the past but given the rise of Canada as an international student recruitment magnet it’s questionable what benefits such a relationship brings. Some commentators might argue they could organize themselves to take advantage of the momentum behind enrollments.

Once clue might be that Ryerson looks to have been left lagging despite the surge in interest for the country with the world’s longest bi-national land border. There are thirty Canadian universities listed in the THE 2020 World Ranking top 1000 and the percentage of international students at Ryerson is the lowest of all. At 4% it is well behind other, admittedly higher ranked, Toronto institutions like the University of Toronto (21%) and York University (24%).

Ryerson’s global ranking in the THE ranking 601-800 bracket places it behind the other Navitas partners in Canada. The University of Manitoba is ranked in the 351-400 bracket and has 17% international students and Simon Fraser University is in the 251-300 bracket with 30% international students. This might suggest that there is plenty of scope for Ryerson to grow with the right sort of support.

It would be the third public research university to partner with Navitas and would give the portfolio added depth. The only other pathway provider with representation in Canada is Study Group who have one public research university in Royal Roads and two sub-degree colleges in Stenberg and the Center for Arts and Technology.

With US enrollments still struggling and the maturity of the UK and Australian pathway markets it’s easy to see why there is interest in Canada. Interest remains strong amongst students and agents with little sign of applications slowing. But everyone with a history in international recruitment knows that past performance is no guarantee of future success.

The international student boom in Canada has come with some issues that are increasingly grabbing the headlines. There are allegations of students being ‘duped by unscrupulous agents’, scarcity of part-time work and up to 39% of study visa applications being rejected. It’s difficult to believe that interest will slump quickly or precipitously but it may be time for wise heads to consider what a sustainable rate of growth might look like.

Image by David Peterson from Pixabay

MORE US PATHWAY RUMORS AS THE MARKET TIGHTENS

Things seem to be moving fast as the big pathway players realise that winter is coming, both physically and metaphorically, to their US operations. Hot on the heels of the recent Study Group closures there are strong rumors of Navitas reviewing its US partnerships and cutting staff. Shorelight has also taken action through changes to its senior management team and staff lay-offs in the past month.

The Navitas partner changes are still at the point of speculation and no brand names have been removed from the list of partners as of today. But the ‘Search Navitas programs’ area of the website turns up no results for Virginia Commonwealth University, Richard Bland College or University of Idaho. Searches for University of New Hampshire courses lead to a broken ‘this page isn’t working’ link.* By contrast the Florida Atlantic University pages, UMass and Queen’s College pages seem fine, as do the Canadian university partner links.

Dr Brian Stevenson took up the reins as CEO and President of Navitas’ University Partnerships North America division at the start of this year. With his strong links to Canada it’s possible that there is a major shift of emphasis that would reflect the continuing popularity of Canada as a student destination. There certainly seems little prospect of any but the best or most market-oriented US universities being a profitable proposition in the near future.

In October InsideHigherEd noted the decline in Chinese student enrollments and its potential impact on US universities but the next news might be about the changing preferences of students from India. 2019 saw the UK have a 42% year on year increase in visas issued to Indian students and there is every sign that the coming year will see similar growth. With changes in post-study work visas coming into effect for 2020 enrollments universities and pathways are already reporting substantial interest.

Back in 2014 Karan Khemka, then a partner with the Parthenon Group, said: “The U.S. third-party/outsourced pathway market is less than half the size of the Australian market despite having a higher education system that is 10 times the size. We anticipate that growth will be constrained only by the pace at which private providers can develop the market.” That was one of the drivers for over $1bn of private investment being made in pathways.

The reality is that, with CEG and EC leaving the market, Study Group cutting back and Navitas now looking hard at its options, the past 18 months has seen a decrease of well over 10% in the number of US pathways. By contrast the UK and European pathway market continues to grow and Australia has just loosened its post-study visa regime a little further. It seems likely that this is the prevailing direction of travel for the foreseeable future.

*Searches undertaken on 30 October 2019. As with all commentary in this blog any authoritative comments or corrections are welcome and will be recorded.

Image by PublicDomainPictures from Pixabay

More US Pathway Cutbacks

Keeping pace of the developing pathway scene among the private providers in the US requires constant attention. Study Group has taken action within its US portfolio and no longer recruits for four brands featured on the company’s website a few months ago. After this year’s closure of CEG’s US centers and EC Higher Education’s withdrawal from the market it’s further evidence of the pressure on international student recruitment.

The closed Study Group pathways are Roosevelt, Widener and Merrimack while West Virginia was a direct recruitment option. The Merrimack relationship extended back over a decade, Widener and Roosevelt were opened in 2012/13. West Virginia came online in January 2018 with recruitment commencing in fall 2018.

These changes leave Study Group with four regionally-ranked and seven nationally-ranked university partners according to USNWR 2020 listings. Among the nationally-ranked, two were taken over from EC while only three sit above 200: Baylor (79), Vermont (121) and DePaul (125). Three of the four remaining regionally ranked universities, Oglethorpe, Western Washington and Lynn were signed in 2017, so there may be contractual impediments to early action.

US News Ranking 2020 of Study Group US Partnerships (closed institution in red)

The Study Group closures mean that, as far as I can track from public information, the company has launched 14 university partnerships in the US of which five have now been closed in the past two years. Between CEG and Study Group more than 10% of US private-pathway provider centers have closed in the past two years. These tended to be smaller operations in terms of student numbers, but it reflects the stress that the sector is under.

As global competition grows, the potential for private pathway providers to recruit successfully to less prestigious and/or lower ranked institutions seems increasingly questionable and even bigger names have seen enrolments declining. It is difficult to see that the increasing view of Admissions Directors from Masters/Baccalaureate institutions that pathways ‘will become more important’ is well founded. Neither is it obvious that the billion dollar private equity fuelled dash to build pathway capacity in the US is going to pay off in the foreseeable future.

With UK international recruitment prospects resurgent under a new Post-Study Work regime, the growing quality of emerging options around the world and the continuing assertiveness of Canada, Australia and Germany, it’s probably time for a rethink.

Image by Gerd Altmann from Pixabay

Changing Perception of US Pathways

It’s been the quietest year for nearly a decade in terms of announcements about new pathway partnerships in the US, and the 2019 Inside Higher Education (IHE) survey of College and University Admissions Officers suggests a shift in perceptions by institutions. The closure of several centers in the past year and disappointing enrollments at a number of institutions have given plenty of reason to be cautious. But faith persists in some sectors.

In the Survey only 12% of public doctoral institutions strongly agreed that “Pathway programs will become more important to US higher education in the current environment.” In the 2018 survey that percentage was 22%. Among Private Non/Profit Doctoral/Masters institutions, the percentage of respondents agreeing or strongly agreeing to the statement fell from 60% to 51%.

Table 1 – Pathway Programmes Importance to US Higher Education (IHE, 2018)

Table 2 – Pathway Programmes Importance to US Higher Education (IHE, 2019)

However, there has been an almost Damascene conversion among Public Master’s/Baccalaureate institutions, where 28% now strongly agree in pathways’ growing importance, compared to 15% last year. This is mirrored in the Private Non-profit Baccalaureate section where 56% agree or strongly agree compared to 33% last year. While, at an aggregate level the survey shows declining enthusiasm for pathways it is clear that they still hold an allure for some institutions.

The real question for the new enthusiasts will be whether the private pathway providers have much appetite for non-doctoral institutions. The portfolios of the ‘big two’, Shorelight and INTO, contain universities offering doctorates some have quite limited offerings. Study Group have a mixed bag of institutions and recently some at non-degree level in Canada, and Navitas has some non-doctoral universities on the roster.

Potential for new, high-profile partners may become even more limited as stronger US institutions become increasingly comfortable with their capacity and capability to manage enrollments without resorting to a third party. While, to date pathway providers have been the more likely party to terminate partnerships empowered or disappointed universities might begin to question underperforming relationships or decide they can do better alone. The scene is set for more turbulence as people come to terms with the new global mobility conditions.

Furthermore, the UK’s move to institute a two-year Post Study Work (PSW) visa for students enrolled from 2020 may bring further pressure and undermine the US’s position as a favored destination for international students. After a 33% surge in Chinese undergraduate applications to the UK for 2019/20, the UK Home Office reported that the number of Indian students choosing to study in the UK increased 42% from June 2018 to June 2019. It is likely that following the PSW announcement, India’s numbers will continue to grow rapidly for the 2020 intake.

Alongside that, the US is heading for an election year where the future of global relationships, student visas and existing post-study options could be part of the political debate. Just as the financial markets dislike turbulence it is difficult to see why a student would choose to invest in an uncertain future. The relatively safe havens and emerging, quality options around the world could seem increasingly attractive.

For Study Group and Navitas any difficulties in recruitment to the US will be mitigated by increasing momentum behind their considerable portfolios in other parts of the world. INTO’s mix is more finely balanced but its recent focus has been on the US and it has just lost the University of Gloucestershire as a UK pathway partner. Shorelight is wholly US based and will face the full force of global headwinds.

It certainly seems likely that pressure on sales teams, cost of acquisition and other “promotional” tactics will increase. Local difficulties, such as those Shorelight are facing in Kuwait, will also impact on the ability to recruit sufficient students for existing partners let alone new ones. Life is unlikely to get any easier in the short term and may get a lot worse, which might seem to mitigate against continuing expansion, particularly with sub-optimal partners.

However, ‘doubling down’ is a popular phrase in the US and has come to mean ‘to strengthen one’s commitment to a particular strategy or course of action, typically one that is potentially risky.’ The IHE survey suggests that at least one sector of the market is increasingly interested if pathway operators have the appetite. But in terms of recruitment it might be worth remembering that, as the UK’s ‘Iron Lady’, Prime Minister Margaret Thatcher said in 1997, ”you can’t buck the market.”

Image by Gerd Altmann 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

US University Pathways – Build It And They Will Come?

In 2014 Karen Khemka, a partner with the Parthenon Group, said “The U.S. third-party/outsourced pathway market is less than half the size of the Australian market despite having a higher education system that is 10 times the size.We anticipate that growth will be constrained only by the pace at which private providers can develop the market.” (Inside Higher Education, Bridge or Back Door? 30 April, 2014). With reports recently indicating that two leading providers in the US, Study Group and INTO, are for sale it’s a good moment to see what has happened.

Khemka’s statement came towards the tail end of a period when more than a billion dollars was invested in private pathway providers with the potential for pathway development in the US a strong incentive. But the next billion-dollar question facing potential investors may be whether US pathways were really a field of dreams where you could, to borrow loosely from the film, ‘build it and they will come’. Or has attention to the supply side of the equation ignored the challenges of changing patterns of demand around the world?

To size the growth in capacity in the US I took the NAFSA publication Landscape of Third-Party Pathway Partnerships in the United States (NAFSA, 2017) as a starting point. The publication identified eight providers who were partnering with 45 institutions on 1 April 2016. The criteria was that these partnerships had to be ‘contractual agreements between universities and third-party entities to provide English language courses along with academic credit.’

I revisited each of the third-party entities listed to determine what relationships they have added. It is reasonable to say that the wording of some media statements and the content of web-sites is, either by accident or design, unclear about the exact nature of the relationship or offering. However, Table 1 summarises my understanding of new partnerships that meet the original criteria and notes the dates they were announced.

Table 1 – New US Pathways of Eight Providers Announced 2016 to 2018

* Source: Landscape of Third-Party Pathway Partnerships in the United States (NAFSA, 2017)
**I can find no public announcement of the Shorelight partnership with Utah but it is reflected on the web-site of each organisation

Table 2 shows arrangements listed on the providers’ websites but which I have omitted. I am happy to accept any authoritative corrections in my understanding of the nature of the partnerships or courses provided and to add any partners I have missed. I have not gone beyond the original group of providers although a number of additional providers, such as EC Higher Education, have also developed pathway courses in recent years.

Table 2 – Partnerships listed on provider websites but not meeting criteria

The eight providers have added 21 new partnerships to the 45 shown in the original study – a growth of 47%. This suggests that the private providers have set about growing their businesses in the US with a good deal of vigour and some degree of success. At the time of Khemka’s quote in 2014 Shorelight was a new player but they have moved on to secure the most partnerships just four years later.

That growth in pathway capacity comes at a time when the global balance between supply and demand is in a state of flux and the future is somewhat less certain. The expanding availability of degrees taught in English and the ambitious targets of both traditional recruiting countries and emerging destinations has radically changed the competitive environment. While much of the world is adding rocket fuel to its recruiting engines the US looks to have loaded its unleaded petrol engine with diesel.

In the US a decline in non-degree new enrolments in 2015/16 was followed a year later by both graduate and undergraduate new enrolments declining. And non-degree enrolments continued to fall in 2016/17 which may be a leading edge indicator of further decline. The IEE Fall 2017 International Student Enrollment Hot Topics Survey says ‘Responding institutions report a 6.9 percent decline of international students enrolling for the first time at a U.S. institution, continuing the declines first seen in Fall 2016.’ (IEE, November 2017)

Table 3 – US New International Student Enrollment, 2006/07-2016/17
Source: Institute of International Education (2017). Open Doors Report on International Education Exchange. Retrieved from http://www.iee.org/opendoors

Like many sectors higher education is being obliged to rethink the fundamentals of supply and demand as demographics, competition and disruptive technologies undermine the old certainties. It is a challenging moment to be launching new initiatives and building capacity based on past performance.

NOTES AND CORRECTIONS

This post was updated on 24 September 2017 to include Lynn University as a Study Group partner announced in May 2017. Other related statistics have been updated. At the time of announcement it was billed as ‘is set to open in January’ – presumably 2018. As of the date of this correction the partner is billed on the Study Group site as ‘Launching Soon’.

GETTING TO GRIPS WITH PATHWAYS – A THORNY SUBJECT?

After looking at the broader picture on winners and losers in HE recruitment I’ve focused on a small number of high profile university partnerships to give some texture about those with pathway providers. Diving into the detail published by universities gives some insight as to whether pathway provision is delivering a stable stream and enhancing direct recruitment through global brand-building. Comparisons against the national picture indicate whether they are doing better than the sector overall.

Detailed breakdown of pathway volumes and progression rates are usually deemed commercially confidential and are rarely matters of public record. As a proxy I have looked at overall international student enrolment for the institutions involved as one would expect a thriving pathway of any size to provide a solid underpinning for broader recruitment efforts. Where possible I have supplemented this with Quality Assurance Agency for Higher Education (QAA) or University Annual Report data (available through the BUFDG site.

The examples I have chosen show sharply different outcomes at the university level. The underlying detail from supplementary sources suggests that the pathway is a contributing factor to those outcomes. In a broader context some institutions have done better than average and some not as well.

While the detail is UK related there is little reason to believe that the same isn’t true of the US and I’m doing some more work on that hypothesis for a later blog.

Three Big Players and Partners
Institutions are never wholly comparable but the universities of Newcastle, Liverpool and Sheffield are all large, metropolitan, Russell Group universities with substantial global ambitions. In the Times League Table 2018 Newcastle is 26th, Liverpool is 42nd and Sheffield is 21st. Newcastle and Liverpool have partnered with INTO and Kaplan respectively since 2007. Liverpool recently extended for another 15 years while Newcastle opened a new London campus with INTO in 2015 and are also in for the long haul. Sheffield was with Kaplan but switched to Study Group from September 2015.

Information published in University Annual Reports on overall international student enrolments in the five years from 2012/13 to 2016/17 suggests that Liverpool have, to date, weathered the headwinds facing the UK better than Sheffield or Newcastle. Source: University Annual Reports and Financial Statements 2012/13 to 2016/17

The university financial statements suggests that any changes to fees have not been sufficient to make up enrolment shortfalls. The fee income reflects the down-turn in student numbers for Sheffield and Liverpool in the 2016/17 year but also suggests weakness for Newcastle over the past two years.
Source: University Annual Reports and Financial Statements 2012/13 to 2016/17

To provide a comparative performance for the universities I have used HESA data for all international enrolments (all levels, full-time and part-time) in the 129 universities in the 2018 Times League Table. This is a measure which should include students enrolling across the whole year and should account for pathway progression from all intakes. It usually differs from the University Annual Report enrolment figures which are generally taken from a count in December of the academic year. I review the complexity of the broader HESA data in an earlier blog.

All the universities outperformed the average in the first two years under review. Liverpool and Sheffield achieved this between 2014/15 and 2015/16. Liverpool continued to outperform the sector from 2015/16 to 2016/17.
Source: HESA

Understanding The Pathway Performance
There is some insight into the changes at the pathways for Liverpool and Sheffield through the Quality Assurance Agency reports. For INTO Newcastle there has been no similar educational oversight although my understanding is that the changing visa situation will mean that ISI will provide oversight in the future which may lift the veil. My observations below are drawn from published material including university annual reports.

Newcastle and INTO
The University notes in its 2016/17 Annual Report that the enrolments at INTO Newcastle ‘had a disappointing year with a 7% reduction in student volumes’ which was comparable to the University’s direct recruitment decline. As a 50/50 joint venture partner the University also reports on its share of joint venture income and surplus/deficit. For completeness I have shown both the Newcastle-based and London-based operations but note that the latter has substantial undergraduate and postgraduate intakes in addition to pathways.
Source: University of Newcastle Annual Reports 2012/13 to 2016/17

The London joint venture is still in start up mode and student numbers are reported as having grown from 24 in year one to 184 full time and 20 part-time students in year two. The income and operating surplus/deficit are reported as:
Source: University of Newcastle Annual Reports 2014/15 to 2016/17

Liverpool and Kaplan
What is most striking about reviewing performance through the lens of the University Annual Reports is that it can reflect a level of engagement and shared commitment – or in some cases not. On page three of the 2016/17 Liverpool University report the Vice Chancellor reflects on the long-standing relationship, the renewal agreement for the next 15 years and the investment in new facilities for the pathway. The report notes that the partnerships with both Kaplan and Laureate International ‘are vital to the University’s international outlook and global ambitions.’

The Annual Report notes that Kaplan’s International College opened in 2007 with 146 students and has seen 6,500 students study at the College, with 20% of the institution’s international recruitment achieved via its pathways. Future investment includes construction of a new, 47,000 square foot, 13-storey college building due to open in 2019.

A key determinant of a successful pathway relationship is the extent to which the University partner embraces the strengths of the private provider and clears roadblocks to innovation and recruitment. Both parties are undermined if the University does not engage productively at both a senior and operational level. The 2016 QAA Report for Kaplan International College at Liverpool notes ‘The close working relationship with the partner university, which enables highly effective and regular processes for developing, monitoring and reviewing of programmes’.

Sheffield and Study Group
Sheffield International College was first established by Kaplan with the University in 2006. In 2010/11 it had over 1100 students and this number had ‘grown’ by 2013 despite no new programmes being introduced (QAA Reports 2012 and 2013). Over a period from March 2014 to September 2015 there was a transition to Study Group.

The November 2016 QAA Review indicates that 933 students were in the Centre and the next report in October 2017 says that ‘student numbers fell by around 12 per cent between 2015-16 and 2016-17’. On the upside it was noted that 7 per cent more students entering programmes at USIC being eligible for progression to the University. The timing of the QAA review makes it difficult to draw firm conclusions about full-year recruitment.

It’s still early days in the partnership and the whisper in the sector is that the University protected its commercial interests in the event of any performance issues – perhaps a sign that universities are becoming more commercially minded. The PIE noted in August 2017 that ‘Providence Equity Partners, which owns higher education provider Study Group, is reportedly preparing to sell the company for £700m’ so there is a lot at stake as the company manages the expectations of its large stable of partners. Interesting times as the UK itself comes under relentless market competition from Canada , Europe, Australia and the emerging destinations in Asia.

Closing Thoughts
Nobody who is looking from outside can full understand the dynamics of a relationship between University and pathway provider. Anyone who has been at the sharp end knows that personalities, department politics and academic apathy are all facts of life as is, from time to time, a revolving door of senior decision makers. An initial meeting of minds at the highest level is usually not enough for sustained success so the working relationships need to become rapidly embedded.

What is for sure is that the chances of maximising performance are vastly enhanced by realistic expectations, responsiveness to market and action on shared commitments. Universities need to see the pathway as being fundamental to their success and treat the provider as an equal partner with important skills. Providers need to be honest about what they can deliver and manage how their portfolio is balanced to meet targets and business plans.

And perhaps, given the age of the pathway model and the way the market is changing it is time to consider whether further innovation is needed. Over the years I have heard several major pathway players define their approach as ‘disruptive’ or ‘transformational’ but it is difficult to see how pathways are any different now to when they were introduced.

Notes and Corrections

Comments are always welcome and I think it is a good thing to note any corrections or amendments to the text.

30 April 2018 10.05amPDT – amendment to correct ‘Newcastle and Liverpool have partnered with Kaplan and INTO respectively..’. Correction to clarify that INTO partner with Newcastle and Kaplan partner with Liverpool.