US university takes out insurance against drop in Chinese enrolments

Chinese students currently contribute a fifth of tuition revenue for the college of business at the University of Illinois at Urbana-Champaign (UIUC) and account for roughly one of every ten students at the university. Those steep proportions are found on many campuses across the US. But this may not always be the case: global growth in Chinese outbound is slowing due to a combination of demographic trends and greater higher education capacity in China. What's more, there is always the potential for other unpredictable factors (e.g., political disputes, financial crises, natural disasters, or public health emergencies) to disrupt mobility flows – from China or any other major sending country. Knowing this, UIUC’s colleges of business and engineering have taken an unprecedented step: they have taken out insurance to help protect them against any significant drop in Chinese students, to the tune of US$424,000 a year. The insurance is the first of its kind for a major American university.

Managing risk

The policy has been in place since last year but the university has just made it public with permission from the insurance broker (Lloyd’s of London, a specialty insurer). The coverage provides for payments up to US$60 million to the university that would be triggered if Chinese student numbers dropped by 18.5% or more due to defined factors outside of the UIUC’s control such as a pandemic, a trade war, or a visa restriction. Speaking about the genesis of the idea for insurance, Jeff Brown, dean of the university’s Gies College of Business and a risk management scholar, explained to Yahoo Finance that,

“One of the risks that I pointed out [when he became the dean in 2015] was that we had a large concentration of our revenue coming from tuition payments from students from China. We loved having Chinese students as part of our college, but there was a part of the risk there that was out of our control.”

Mr Brown said that the insurance allows the two colleges to “continue proactively investing in the very strong relationships that we have in China” because it lowers the risk attached to potential disruptions in that relationship. In a separate interview with MarketWatch, he added:

“If it was a one-time temporary shock it would essentially keep us whole. If the issue persists beyond a year, the policy buys us time to respond strategically rather than scrambling. It essentially replaces a year or so of revenue and allows us to rethink our recruiting strategies and our programmatic risk.”

As Yahoo Finance also observes, the deal is especially timely given the political tides in the US over the last two years. “When Brown first came up with the idea of insuring the school, Donald Trump was still one of 18 Republican candidates running for office. But one year into the insurance contract, many of Brown’s concerns seem more likely to become a reality now that Trump was elected president. This year, the university has seen the first decline in Chinese students’ enrolment in at least seven years …. Trump has been taking a hard line on both immigration and China.” This summer, for example, the US State Department announced that visas for some Chinese graduate students studying in fields including robotics, aviation, and high-tech manufacturing would be reduced from five years to one as a result of worries about intellectual property theft. The decision comes amid an overall climate of rising trade tensions with China, and it may not be the last one the Trump administration makes that will impact Chinese students.

Universities in other major destinations react

Volatility in major sending markets is a growing issue for major universities around the world. Not surprisingly, the UIUC insurance announcement has caught the attention of many in the higher education industry. In a recent interview with Times Higher Education, Sylvie Lomer, lecturer in education at the University of Manchester in the UK, called the University of Illinois deal an interesting development that “represents the logical extension of the marketplace in international higher education.” She notes that “There are a number of institutions in the UK which would be overexposed to this particular form of risk … so this could be a long-term trend.” Meanwhile in Australia, Peter Varghese, the chancellor of the University of Queensland, has recently suggested that universities should consider putting revenues from Chinese students into a trust fund to be drawn upon in the event of a falloff in enrolments from East Asian students.

A downward trend

The University of Illinois insurance deal occurs in a context of two consecutive years of declining international commencements in the US. And the 2018 Survey of College and University Admissions Directors found that nearly six in ten admissions directors (57%) are concerned about maintaining international student numbers at current levels. Three-quarters (74%) agreed – including 52% who strongly agreed – that “the policies and rhetoric of the Trump administration have made it more difficult to recruit international students.” Approximately 60% of all foreign students in the US currently come from only four countries. After China, the top senders in 2017/18 were India, South Korea, and Saudi Arabia. In 2017/18, South Korea sent 7% fewer students than the previous year (2016/17, which had also registered a 3.8% drop). Saudi Arabian student numbers fell by 15.5% in the last academic year, following a 14.2% drop in 2016/17. More broadly, the global trend is toward slowing growth in outbound student mobility. As a recent British Council study notes: “Overall, the number of outbound students from the 56 markets in the study sample grew by roughly 6% per year between 2000 and 2012. From 2012 to 2015, that growth began to slow to an average of 5% per year, which has the effect of pushing the 15-year average growth rate down somewhat to about 5.7%. Leaning mainly on population and economic forecasts for the next ten years, the study projects that annual growth rates will drop further still: to an average of 1.7% per year through 2027.” Even with the projections for slowing growth out of China, Chinese students still compose nearly a fifth of internationally mobile higher education students today (17% in 2017 according to UNESCO). There are 869,385 Chinese students abroad out of an estimated total of 5,085,159 international higher education students worldwide. Of the Chinese students abroad last year, 363,340 (42%) were in the US. For additional background, please see:

• “A roadmap for building more diversity in your international enrolment”
• “Four changes that are shaping the Chinese market”
• “China’s college-aged population to decline through 2025”
• “International student numbers reach new record in the US but commencements down again this year”
• “The China challenge: Diversification and managing risk in international education”