Butler University and Education & Workforce Development and Travel

College program target of New York investigation

August 27, 2007

An obscure not-for-profit has become a financial powerhouse since it was founded here 19 years ago. But now it's in the crosshairs of a New York state investigation into whether it and others that organize study abroad programs for college students offered universities perks to become their preferred providers.

The Institute for Study Abroad at Butler University appears to have leveraged its considerable revenue--$48.9 million in 2006--to grow and maintain its presence at more than 400 U.S. universities.

An IFSA executive said the not-for-profit pays $500 per student to schools that promise to use IFSA's programs exclusively in an area, according to an Aug. 13 report by The New York Times about the little-known study-abroad industry.

Such perks can "tamp down the competition" among providers and drive up costs for students who want to learn abroad, said Benjamin Lawsky, a deputy attorney for New York Attorney General Andrew M. Cuomo, who is leading the investigation of the industry.

"The focus for us is, is there a real financial relationship between the provider and the school, which impacts how schools act?" Lawsky told IBJ.

Even if there aren't exclusive agreements, "a school can offer 10 different [study abroad] programs, but only promote one because they get the benefits ... so it's de facto exclusivity," Lawsky said.

The New York investigation, which could hurt IFSA's ability to conduct business in that state, also comes at an inopportune time for Nancy Belck, who took over as the group's CEO Aug. 1.

Last year, Belck resigned as chancellor of the University of Nebraska at Omaha amid a scandal over the use of funds from athletics boosters. Belck had been lauded for her efforts to grow the university during her nine years as chancellor.

Belck declined to answer specific questions, saying the institute's policy is not to comment on pending legal matters.

But, Belck added: "IFSA-Butler has always held that academic considerations must be paramount in the programs offered, and this is mirrored in our range of offerings at first-rate universities around the world."

The institute sends 3,200 students a year to study at 19 universities in 14 countries.

IFSA may be obscure, but its revenue of $48.9 million puts it in the ranks of the city's larger and better-known not-for-profits.

It took in more than the $37 million United Way of Central Indiana generated last year. It also surpassed such well-known institutions as Goodwill Industries of Central Indiana, at $40.5 million, and the $38 million in revenue reported by the Indianapolis Museum of Art.

Though it's a not-for-profit, IFSA operates very much like a for-profit business as it doesn't rely on charitable contributions for its income. According to its IRS Form 990 for the year ended May 31, 2006, IFSA generated all but $510,907 of its revenue from program service revenue and application fees; the remainder was interest income.

IFSA is large even by for-profit standards. If it were a public company, IFSA would rank among the 25 largest in the Indianapolis area in terms of revenue. It had 54 employees as of mid-2006, records show.

Monies from studies

As is typical in the industry, IFSA arranges overseas-study opportunities for students. It also handles much of the nuts-and-bolts logistics, such as housing, travel, meals and orientation classes.

In 2006, IFSA served 3,348 U.S. students, according to its Form 990.

More than 210,000 American students study abroad each year. IFSA provides study opportunities in 14 countries, including Australia, England and Spain.

IFSA is housed at Butler but isn't part of the university. However, Butler is among the U.S. universities it works with.

"Butler University does receive a $500 program grant for every student that goes on an Institute program. This discount allows us to make a broader range of affordable study-abroad programs available to our students," said Courtney Tuell, a Butler spokeswoman.

Tuell said all students who study abroad in semester-long programs in the United Kingdom and Ireland do so through the Institute.

But Tuell said Butler students could select from 20 study-abroad organizations or those at other universities. Butler offers its own faculty-led program in Spain each fall, in cooperation with a Spanish university, "as well as numerous faculty-led programs during the summer."

Just how lucrative these overseas study organizations are is difficult to assess, given their not-for-profit structures. The closest equivalent to profit at IFSA is "fund balances," which at May 31, 2006, was $7.9 million.

The highest-compensated officer is board member and founder David Gray, who in 2006 earned $459,675. Gray also founded Center for Education Abroad at Arcadia University, an institution in suburban Philadelphia, in 1965. That center also received a subpoena from New York's attorney general.

Gray previously taught political science at his alma matter--the University of Pennsylvania--and at Drew University, in Madison, N.J., according to The Study Abroad Foundation, an entity related to IFSA that arranges overseas study for students from Japan and Korea.

Gray also earned $82,000 from serving on the IFSA Foundation, a related entity that has granted more than $3.3 million to 60 colleges since 2004.

Recipients of that money, such as the University of Illinois and Pennsylvania State University, typically use the money for scholarships for students to study overseas. One award, to the University of Minnesota, was to help students with disabilities study abroad.

Collectively, IFSA's seven key officers received $1.2 million in compensation in 2006. That's about $100,000 more than the total grants awarded by the foundation last year.

Anticompetitive industry?

The bigger issue of public interest is whether such organizations are restricting competition--and in doing so raising costs for students to study overseas.

In the Times story this month, while acknowledging a $500-per-student credit to colleges to secure exclusive agreements, IFSA Vice President Amy Bartnick-Blume said it's up to the colleges whether to pass on the money to students.

Other study-abroad organizations that provided per-student discounts said the policies aren't as nefarious as Cuomo's office makes them sound.

The Center for Education Abroad at Arcadia University, in Glenside, Pa., said it offers $300 to $800 per-student discounts to colleges for overseas study programs that can cost $12,000 a semester.

But that is mostly to help colleges cover expenses they incur when transferring students' financial aid when they go overseas, said the center.

Other study-abroad organizations take a different approach.

The Chicago-based Institute for the International Education of Students said it has policies prohibiting cash incentives for exclusive access. It does pay schools to cover the cost of program review trips made by academic advisers, who conduct what essentially are quality-control visits.

Another group said to forbid cash incentives is the Portland, Maine-based Council on International Educational Exchange.

But so rattled is the study-abroad industry following the New York subpoenas that CIEE's president and CEO, Steven Trooboff, won't even confirm that, saying the organization plans to issue a statement within the next week.

"There's simply too much hearsay and not enough fact out there," Trooboff said.

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