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Insuring Against Drop in Chinese Students

U of Illinois at Urbana-Champaign is paying $424,000 to protect itself in case of a falloff.

November 29, 2018
 

The University of Illinois at Urbana-Champaign has paid $424,000 to insure itself against a significant drop in tuition revenue from Chinese students.

In what is thought to be a world first, the colleges of business and engineering at the university signed a three-year contract with an insurance broker to pay the annual six-figure sum, which provides coverage of up to $60 million.

The university came up with the idea in 2015 and implemented it last year but received permission from the broker to discuss it in public only earlier this month.

Jeff Brown, dean of the Gies College of Business, told Times Higher Education that the insurance would be “triggered” in the event of a 20 percent drop in revenue from Chinese students at the two colleges in a single year as a result of a “specific set of identifiable events.”

“These triggers could be things like a visa restriction, a pandemic, a trade war -- something like that that was outside of our control,” he said.

Tuition revenue from Chinese students makes up about a fifth of the business college’s revenue.

Brown said that the insurance would cover the colleges’ losses if the decline was temporary and buy the university time to “make some adjustments to where we recruit” if it became a longer-term issue.

“Hedging the risk that we face gives us more confidence to be able to continue proactively investing in the very strong relationships that we have in China,” he added.

“We chose the $60 million figure because that roughly is our exposure across the two colleges. If demand had actually completely disappeared, we’d be ‘made whole’ for that year.”

Last month, Peter Varghese, chancellor of Australia’s University of Queensland, suggested that universities should put revenues from Chinese students into a trust fund to insulate themselves against a future drop in enrollments from East Asia.

Sylvie Lomer, lecturer in education at the University of Manchester, said that Illinois’s move was “an interesting development” and “represents the logical extension of the marketplace in international higher education.”

“There are a number of institutions in the U.K. which would be overexposed to this particular form of risk … so this could be a long-term trend,” she added.

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