2 Colleges Flounder Under Chinese Owners

Two colleges, one for-profit Chinese education company and too many problems to count.

Bay State College in Massachusetts has seen three presidents in three years amid financial struggles that have led to the institution providing limited classes for students and receiving warnings from its accreditor. On the other side of the country, the NewSchool of Architecture & Design in California has seen an exodus of board members and five presidents in two years. In addition, former employees—as well as documents obtained by Inside Higher Ed—suggest that both colleges have struggled to pay vendors and employees on time.

Despite the distance, the two for-profit colleges share more than turmoil and turnover: both are owned by Ambow Education, a company with headquarters in China and the Cayman Islands.

Currently trading at $0.31 cents a share, Ambow Education seems to be in deep trouble, with accreditors taking action, threats of lawsuits looming and a possible state investigation underway in Massachusetts, where students have been unable to enroll in classes needed for their degrees.

‘Sham Transactions and Kickbacks’

On its website, Ambow Education calls itself the “leading provider of K-12 educational services in China” with a business model that “covers K-12 in school education, tutoring services, international education programs and online educational offerings.” But in recent years the company snatched up two U.S. holdings: Bay State College and the NewSchool of Architecture & Design.

Ambow’s plans for those two institutions are unclear; company executives and college officials ignored multiple requests for comment. But critics say no comprehensive strategy has emerged in the midst of collapsing enrollment, relentless turnover and no clear pathway to long-term sustainability.

And it isn’t just the colleges that are struggling; the company itself is also financially strained.

“Clearly, this is a financially distressed company,” said Ariel Sokol, founder of Kolari Consulting, which provides financial consulting services to clients in both K-12 and higher education.

Looking at the financial information publicly available, Sokol noted the operating losses are adding up, prompting questions about Ambow’s long-term viability. A news release from Sept. 30, for example, showed that net revenues decreased by 36 percent, or $164 million, for the second quarter of 2022. The operating loss in that time was $3.3 million.

In addition, the company’s chief financial officer, Kia Jing Tan, resigned suddenly last month.

The current financial challenges come nearly a decade after Ambow Education collapsed in 2013. According to Reuters, a major shareholder accused Ambow’s president and CEO—who remains in place—of “blocking an internal investigation into alleged sham transactions and kickbacks.” That forced the company into provisional liquidation.

Now critics worry that Ambow is driving the two U.S. colleges it owns to a near certain end. Several critics requested anonymity to discuss Ambow, fearing reprisal from the company.

A Mess in Massachusetts

Former employees, students and the Massachusetts attorney general all have questions for Bay State College. Not only has the institution burned through presidents, but critics allege that the rent has gone unpaid for months, the college recently missed payroll, enrollment is collapsing and some students can’t take the classes they need to complete their degrees. That has attracted the attention of state authorities, who have been reaching out to Bay State students.

“Our office is working to get more information about the situation at Bay State College. We encourage students to reach out to our office and the Board of Higher Education with any concerns or complaints,” a representative from the Attorney General’s office said by email, declining to elaborate further on a potential investigation.

Not surprisingly, the New England Commission of Higher Education—Bay State’s accreditor—placed the college on probation, noting in a June statement that “the institution did not demonstrate that its resources are sufficient to sustain the quality of its educational programs and to support institutional improvement now and in the foreseeable future and that it has an effective system of governance and sufficient administrative capacity.” Though a NECHE official said he was unable to comment further, he noted by email that a site visit to Bay State is scheduled for next month.

Bay State is also having problems paying employees, which some former officials noted is common for the institution. Earlier this month Ambow Education’s regional chief financial officer for its U.S. operations, Kevin Derrivan, sent an email to Bay State employees noting the college would miss payday due to money-transfer issues.

“We are writing to inform you that there will be a one-day delay in the receipt of payroll for this pay period. Regretfully, we have had an unexpected delay in transfer and transmittal of payroll. You should see your direct deposits posting to your account on Friday,” Derrivan wrote on Oct. 6.

Derrivan and other officials did not respond to requests seeking more information. But multiple former employees confirmed that late payments are not unusual, and the transfer issues likely refer to challenges getting money out of China into Ambow’s U.S. holdings.

Steven Combs, former president of Bay State College, was the only one of multiple ex-employees who agreed to speak to Inside Higher Ed on the record. While he noted a mostly positive experience during his tenure, he acknowledged that the college had problems paying vendors on time.

“There were definitely some timing issues,” he said. “I think part of it was that you get the bulk of your revenue once a year at the start of the fall semester, and then you get another little refresh in January, at the start of the spring semester. But cash flow was an issue because we didn’t have any reserves, so when we needed money, we’d have to go to Ambow. And then they would have to go through their process of getting the money to us. Because of some of the banking regulations between the U.S. and China, they couldn’t just send money over.”

Bay State’s financial statements show a college that has been struggling with deficits. Before he arrived in March 2020, Combs said the college was running a deficit of around $4.1 million for the year before he started, which he eventually lowered to about $1 million. (Combs left in April over what he describes as a disagreement over the vision of the college.)

“We made great strides. And based on the enrollment plan that we put together, I was very confident that we would at least break even on the budget, if not get into the black in the next year, and certainly would show profit in the following year. But when I left, a lot of things changed,” Combs said.

Bay State’s enrollment peaked roughly a decade ago at 1,200 students. Back then it was owned by the Pfannenstiehl family, who held other investments in for-profit colleges and sold Bay State to Ambow Education in 2017. Interim president Jeff Mason recently told local radio station WGBH that enrollment is currently around 300 students.

However, one former official suggested the current number is much lower—between 150 and 175. Some critics claim that Ambow promised an influx of up to 1,000 Chinese students, which never came.

As Bay State has struggled with ongoing deficits, Ambow has pumped money into the college, absorbing millions in losses. But given what many see as an unsustainable business model, critics believe that Bay State is operating on borrowed time, with the possibility of an abrupt shutdown looming on the horizon.

“The amount of money that college is losing a year is more than they have in cash reserves right now. And so the real question is: What happens one day if Ambow just decides they’re not going to keep funding this operation anymore and they’re not writing any more checks?” one source said.

Chaos in California

While Bay State flounders, another institution some 3,000 miles away also seems to be in peril.

Ambow Education purchased the NewSchool of Architecture & Design in 2020. Like Bay State, NewSchool was struggling financially at the time of purchase. And former college officials say things haven’t improved, noting constant turnover at both the presidential and governing board levels.

The president and CEO of Ambow Education—Jin Huang, a Chinese national—reportedly made a fortune in the technology world, money that officials expected would then be directed toward the company’s individual colleges. But critics say those dollars and dreams never materialized.

“When this new owner came along, as I understood it, she was supposed to be bringing money into a school that was suffering, like many during the pandemic,” one former college official said.

“The NewSchool of Architecture & Design is imploding faster than Bay State,” another former official said.

The college isn’t paying rent, security costs or other basics, a different former official said. Former president Gisela Loehlein was also allegedly going unpaid; she resigned abruptly over the summer after a short time in the position. Loehlein declined to comment on her departure, but sources familiar with the situation say that she quit because she was not being paid.

One former official said numerous board members resigned at NewSchool, recognizing the dire financial situation of the parent company when it failed to pay Loehlein—who had been recruited from China—her salary and moving expenses.

NewSchool’s website only lists two current board members: ChiaoLing Hsu and ShaSha Chang—both of whom are also on Bay State’s governing board. However, according to documents filed with the state of California, the board was restocked last month. According to Ambow’s website, Hsu is also the chief operating officer for the parent company.

The website for NewSchool does not list a current president, but Hsu also holds that position, according to the website for the Western Association of Schools and Colleges Senior College and University Commission, NewSchool’s accreditor. That makes Hsu the fifth president since 2020.

The revolving presidential door began with the death of longtime president Marvin Malecha in 2020, who was in office when Ambow took over. A number of short-term successors cycled in and out of the job after Malecha, including Denise DeZolt, from February 2020 to September 2020, and then Tom Clawson—a former board member at both Bay State and NewSchool. Loehlein, who took office in April 2022, initially worked overseas due to visa issues but resigned a few months later shortly after arriving on campus. Amal Mougharbel then stepped into the executive post but reportedly resigned after a short stint.

“WSCUC is closely monitoring NSAD and is aware of the personnel changes. The Commission directed a Special Visit which was conducted Friday, October 14, and a recommendation from the visit team will come forward for commission action,” WSCUC president Jamienne Studley wrote in an email, noting a report will be posted online following a review by the commission.

The Bigger Picture

Former officials familiar with Ambow’s business model believe that the company’s aim isn’t to operate the two colleges but rather to use them as a test laboratory for the shared-services arm of Ambow. They think Ambow wants to use Bay State and NewSchool to develop a roster of U.S. clients to provide e-learning solutions alongside human resources, IT and various other offerings. That would help turn Ambow into a service provider—more of a technology company than an education company.

But even if that is the end goal, some critics argue that the shared services that Ambow already delivers to Bay State and NewSchool are overpriced and inadequate and that valuable college employees have been cut in vital positions, like HR, that are now lacking on both campuses.

One source called the shared-services model imposed on the two colleges “a total scam.”

Robert Shireman, director of higher education excellence for the progressive think tank the Century Foundation, noted a number of concerns at both of Ambow’s colleges based on issues flagged by Inside Higher Ed.

“Certainly the involvement of an investor in the control of an institution, especially on the academic side, raises concerns,” Shireman said. He added that while it can be difficult to separate the academics and finances of for-profit institutions, it does raise questions when a company stocks the boards with members of its management team.

Likewise, presidential turnover is another red flag.

“The turnover at these institutions is certainly something to be worried about. A new president every year is a problem, and a new president after a few months is a sign of serious problems,” Shireman said.

As its two U.S. colleges struggle, Ambow is unwilling to offer any insights on its future. And while financial experts note that on paper things look bad for the company, they also point to the potential for a turnaround—even though the most recent financial details show signs of trouble.

“One of the advantages of being a publicly traded company is that there’s transparency with respect to the financials. And these guys could raise capital if there are investors out there who believe in the investment thesis,” Sokol said. “So just because 2021 was a challenging year for these folks doesn’t mean that [Ambow Education] will necessarily fall apart.”