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UIUC hedges its bets against decline in Chinese students with $60m policy

The University of Illinois at Urbana-Champaign might be the first higher education institution in the United States to hedge its bets against declining enrolment from China with a $60 million insurance policy, the total tuition revenue from Chinese students studying business and engineering at UIUC.

at UIUC’s business school, Chinese students make up around 20% of the 3,000 graduate students enrolled. Photo: Facebook/ Geis College of Business

If enrolment drops 18.5% by July 2020, the insurance company would pay out up to $60m

More than 363,000 Chinese students study in the US each year – accounting for one-third of the more than 1 million international students.

And at UIUC’s business school, Chinese students make up around 20% of the 3,000 graduate students enrolled, the majority in specialised master’s programs such as finance and accounting.

“This is exactly the kind of risk one would like to insure”

When Jeffrey Brown became dean of UIUC’s Geis College of Business in 2015, he said his first order of business was taking stock of risks and opportunities in his educational portfolio.

“That’s what you get when you name a guy that studied insurance and risk management for a living as a dean,” Brown told The PIE News.

“One of the risks obvious to me was the fact that a sizeable share of our tuition revenue was linked to our very successful master’s programmes that had a large number of students from China.”

Brown said he looked at several strategies to mitigate the risk of relying on so many students from the same country, including diversifying enrolment and building financial reserves.

He also began to look at the possibility of insuring against a sudden drop in Chinese enrolment in the case of an expected political, economic, or health event. “This is exactly the kind of risk one would like to insure,” Brown told The PIE.

He added that 2015 when they started discussing the policy, there was no indication that the US would end up on a trade war with China.

“When we started talking about this, we didn’t have some magic crystal ball that allowed us to say, ‘Oh, president Trump is going to get into a trade dispute with China.’ It was just more of a healthy risk management practice.”

Initially, he got a lot of inquiries about the rationale for the policy.

“I don’t get that question anymore,” he added.

The policy went into effect in July 2017 and is underwritten by Lloyd’s of London.

“It took time because no one has ever written such a policy and they had to figure out how to price it,” Brown said.

If enrolment of Chinese students in the Geis College of Business and the Grainger College of Engineering drops by 18.5% by July 1, 2020, the insurance company would pay out up to $60 million. However, Brown said he doesn’t expect that the policy will be triggered.

“I will be delighted if we don’t need this policy,” he said.

“There has been a little more noise around uncertainty about visas and some people being delayed… but we’ve not really come anywhere near triggering the policy.”

UIUC pays approximately $425,000 per year for the policy, split between the two colleges based on their share of tuition revenue from Chinese students. According to Brown, the price tag is worth it.

“It allowed us some sense of security that we could make our plans and investments, knowing that if something did come along, we had a little bit more time to be intentional and thoughtful in how we responded because we wouldn’t be scrambling to close a big budget gap,” he said.

As far as Brown is aware, the policy is the first of its kind to insure against tuition risk, but he says there are other types of insurance that hedge against political risks.

“There’s been a lot of interest in it from both big and small schools”

Other universities and colleges have reached out to him to find out more about the policy.

“There’s been a lot of interest in it from both big and small schools, some exposed to China, some exposed to other countries where there are also geopolitical concerns, like Saudi Arabia,” Brown said.

According to Brown, the structure of the policy could easily be adapted, although the amount of coverage would be very university-specific dependent on the revenue implications of international enrolment.

“I think it would make a lot of sense for many other schools to do it, but I’m not going to make any predictions about how quickly,” he added.

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