Chinese-Run U.S. School for Indian Foreign Students Reaps Profits of $30 Million a Year

By David North, December 28, 2015

Related: Reporter: 2 Schools Are "Massive Academic Rip-Off" for Foreign Students

Northwestern Polytechnic University – a Chinese-managed entity near San Francisco now apparently being investigated by DHS – managed to make a thunderous profit of close to $30 million on gross receipts of a little more than $40 million in 2014. It has about 2,000 F-1 students, nearly all from southern India.

That's right – they spent about $10 million running the university, and took in about $40 million in payments from alien students. While NPU is nominally a non-profit institution, its profit margin of 75 percent is unlikely to be matched by the shrewdest of for-profit corporate managers.

The quality of the education offered may or may not be reflected in the mission statement that opens its tax return (the Form 990) filed with the Internal Revenue Service for 2014:

TO PROVIDE AN ADVANCE EDUCATION AND A HIGH TECHNOLOGY LEARNING ENVILROMENT THAT MOTIVATS STUDENTS TO PURSUE ...

Later in the form, it expands on these thoughts:

... NPU SEEKS TO PREPARE ITS STUDENTS TO BEGIN AND ENHANCE THEIR PROFESSIONAL CAREERS IN COMPUTERS, ENGINEERING, AND BUSINESS THROUGH STUDY IN BOTH UNDERGADUATE AND GARADUATE CURRICULA.

Quite an accomplishment for a university to misspell both "undergraduate" and "graduate". Not to put too fine a point on it, NPU also misspelled its own name, with "Polythechnic", "Polythcnic", and "Polytechic" all making appearances in the tax return, along with "domitory", "knowledlgle", and "tution".

Most of the educational institutions licensed by DHS to teach foreign students struggle financially but either use better English, or know how to use spellcheck, or both. The full form 990, a public document because of NPU's non-profit status, can be seen here.

As noted in an earlier blogpost, NPU and a somewhat similar and smaller entity, Silicon Valley University, have attracted negative attention in the Indian press because a number of students seeking to fly from India to attend these places were not allowed to board flights to San Francisco because Air India had heard that the universities were under investigation. Other would-be students, who had reached San Francisco, were excluded and sent back to India.

The two universities deny that they are on any kind of "blacklist" and, in fact, are still (as of December 28) on the DHS listing of some 10,000 educational institutions allowed to issue the I-20 document that leads to the F-1 foreign student visa. DHS has not clarified what – if anything – is happening.

The universities explained to the Indian press that some of the returned students did not argue assertively enough that they were, in fact, coming to the U.S. to study. Whatever the reason, it is good to know that DHS appears to be paying attention to the situation.

What the 990 tells us. The 990 forms – essentially income tax reports for non-profits – in this case warrant some attention. They show how minimal the DHS scrutiny can be – and usually is – for educational institutions at the bottom of the range. Bear in mind that the following information is about an institution that was fully licensed to teach foreign students, by DHS, and has been for decades.

The remarkable profits of NPU, or more precisely the excess of revenue over expenses, are not new to the institution. In 2013, according to the 990, the excess was $5,345,699 on a total volume of $12,747,972; in 2014 it grew to an excess of $29,148,422, on a gross of $40,109,184.

NPU reported zero investment income in 2014 on page 1 of the 990 (and $60,226 in the prior year) so its financial situation is not based on a big endowment. Though an IRS-approved 501(c)(3) charity, it also reported no gifts and no government grants during 2014. Almost its entire income is derived from tuition, which one reporter placed at $20,000 per year per student.

How does an institution report zero investment income in 2014 when it had a more than $5 million surplus the prior year? Bad investments? Perhaps, but how did the sum get to be exactly 0 with all those millions sloshing around? The 990 is full of little mysteries, as well as the larger one of why a $40 million-a-year business would not hire a more literate, and perhaps more numerate, firm to handle its fiscal reporting.

Some of the other oddities of NPU's 990 include:

  • what does this item mean: "contracted referral fees ... $1,014,959"? Were these payments made to recruiters in India?
  • in terms of diversity, one notes (in Part VII of the document) nine "officers and key employees," including seven with Chinese and two with Anglo names; the seven Chinese have salaries ranging from a low of $54,350 (part time) for the only officer with an academic title "Dean of Academi" to $299,792 for the President, George Hsieh; his son, Peter Hsieh, the Executive Vice President, was paid $257,292.
  • still on the diversity matter, the two Anglos (a Board Member and a Secretary) on the list of nine were the only ones paid nothing. No Indian names appear with or without salary.
  • What did they do with their nearly $30,000,000 in profits? The school plunked virtually all of it into an account with a solid, mainline financial firm, Vanguard Investments.

The answer to the "exactly zero" question above is that on pages 1 and 9, the form 990 reported zero "investment income" but in Schedule O it reported a net loss from investments of $407,519. More specifically, this is what is reported under the heading "Total Revenue Investment" (spelling error in original):

Interest income $26,387
Dividend income $291,821
Realized capital gain/loss $768,189
Unrealized capiatal gain/loss -$629,881
Tuition fee refund -$887,324
Sale of assets $23,289
Total -$407,519

I would hazard a guess that neither tuition refunds nor sales of assets belong in a tally of income from investments, but errors like this are typical in this 990. Once a correction has been made for these two items, the real net investment income is a positive $456,515. This is not impressive given the $40 million or so it has invested. NPU is, in short, much better at collecting tuition than it is at managing its money.

It is interesting to note, and to the credit of the institution, that it refunded close to $900,000 in tuition fees. At a guess of $20,000 each, that would mean that 45 students got their money back. Did NPU then inform DHS that these students were no longer in status? One wonders.

My estimate of about 2,000 students relates to another puzzling item in the 990, a statement on page 10 that the university paid $1,855,242 in insurance costs. That probably relates to the once-over-lightly medical insurance that all foreign students must buy – the website says that this is $315 per semester, with three semesters per year, or $945 for the whole year.

This is just barely a medical insurance system, which is understandable at these rates. The website says that co-payments for medical appointments comes to $40 each, and the "prescription is subject to a $30 copay for generic drugs, $60 copay on preferred brand drugs, and $100 on any non-preferred brand drugs." NPU may mean that for generic drugs, for instance, there is a copay of up to $30, but it does not say so.

It would be interesting to find out if the insurance firms that offer these programs are among those lobbying for more foreign students. That would be a rational move on their part.

"A massive academic rip-off." That's a quotation from the venerable Times of India, whose reporter visited the campus and talked to many students, a conclusion that our examination of the 990 tends to confirm.

Almost as telling as the percentage of profits to gross revenue – about three dollars out of four – is the data on the college payroll; this covers the well-paid managers, all the faculty, all the clerical staff, and the janitors. It includes wages, payroll taxes and fringe benefits.

While page 1 of the incompetently-written 990 shows that salaries, other compensation, and employee benefits dropped from $4,369,170 in 2013 to a low of $1,543,398 in 2014 (about 4 percent of the gross revenue), a more careful examination of the form shows that $5,908,698 was spent on salaries and benefits. That still amounts to only 14.7 percent of the gross revenue.

By way of comparison, nearby Santa Clara University, a private Jesuit institution, was spending 45.2 percent of its gross on salaries, which is not an unusual ratio.

Perhaps the normally sleepy Student Exchange Visitor Program, the part of DHS that regulates the F-1 issuing institutions, has, or will, be reading these 990s. One hopes so.