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HE Challenges: How some colleges are filling the revenue gap

In the third blog in our series on higher education challenges (rising costs, declining completion rates), exploring how innovative colleges and universities are addressing them, we’ll look at funding.

To clarify: I’m not referring to private colleges, which are necessarily defined as “for profit”, or indeed the growing class of online for-profit educational resources. I’ll look specifically at the non-profit college sector that must increasingly seek out non‐governmental sources of revenue either to replace lost or inadequate funding or to acquire support for new research initiatives, programs, equipment, buildings, staff, and student assistance.

Why the need for extra funds in the first place?

This situation is naturally a function of increasingly high tuition input costs, as well as the ballooning student admissions demand. There are a number of factors that influence this, and are worth briefly exploring, before we look at changing business models.

What has placed universities under such enormous pressure?

  • The growth of democracy across the globe has seen the previously elitist institution of higher education necessarily thrown open in a more egalitarian fashion.
  • Additionally, increasing market pressures have ensured that families deem a university or college degree a basic requirement to the advancement of their children. According to a recent report by the Department of Labor, over half (66.7%) of all of 2017’s high school cohort are currently enrolled in colleges or universities.
  • Higher education curricula have all but exploded, and universities today are expected to provide a ream of diverse (and expensive to run) courses.
  • Relentless publishing, in aid of building the university’s academic profile, puts enormous strain on college library and publication resources.
  • Scientific discovery costs. Research-led universities are required to constantly upgrade facilities and equipment to expand this inquiry.
  • Discovery of this nature also demands the very best of talent, available globally. Supply and demand therefore creates a small and expensive academic talent pool.
  • Where previously colleges could rely on substantial government support, public budgets are stretched by increasing demand for better and more healthcare, amenities, infrastructure, transport, social security and policing.

As a counterpoint to this list of seemingly valid inputs into ever-rising tuition costs, The Republic magazine maintains a different standpoint. Here the author describes a self-serving cabal of higher education institutions who are disinclined to leverage economies of scale, have few “shareholders” to whom they are beholden in terms of financial efficiencies, and who have discovered certain low-cost, high-volume courses (Economics, Calculus and Psychology for example) that are for all intent and purposes commodified to offset other high-price tag university activities (e.g. high profile sports teams, pristine college grounds and government lobby groups) that do nothing more than raise the college’s profile.

For them the holy grail of college business models is a small cohort of wealthy students, prepared to pay the high price, without requiring the university to provide education at scale. Add to that the fact that higher education outputs are not in fact measurable, and “consumers” are more or less trained to accept that the most expensive universities are the best.

How HE institutions are filling the revenue gap

For these, and a number of other more nuanced reasons, higher education institutions are being compelled to consider a variety of alternative sources of funding. This gap can and is being addressed through various useful interventions, the most common being charitable giving through the many foundations with which the US (in particular) is well-endowed.

Donations and foundations

There is a long history, particularly in the US, of philanthropy directed at higher education. Last year US universities and colleges raised $43.6 billion from philanthropic sources, up 6.3 per cent from the previous year and the highest fundraising total recorded since the survey started in 1957. Foundations account for the majority of donations, at just over 30%, or $13.13m. Corporate funding comes in at $4.64m for last year.

It is undoubtedly true that much philanthropic and corporate (private) funding is inherently “good”, borne of a desire to bolster university budgets, and committed to the academic freedom required for universities to truly thrive. Some cases have emerged where universities find themselves beholden to funders, and to perhaps alter a course of study, or change a policy in line with the funder’s own ideals and ambitions. I’d like however to dwell on the more prosperous, generous and valuable partnerships that universities have managed to forge, and how they can become blueprints for other colleges to follow in diversifying their revenue streams.

Innovative philanthropy

From a grant design perspective, it must be said that currently (this was not always the case) philanthropists and their foundation boards don’t currently have a high appetite for innovative funding models, preferring to make safe bets, on established programs.

However as society’s problems become more intractable, that pendulum is again starting to swing. A number of funders have begun exploring how to deliberately reintroduce risk-taking into their processes and portfolios in search of breakthrough change.

One example is the Lemelson Foundation National Collegiate Inventors and Innovators Alliance (NCIIA), a grant program that actively rewards inventive thinking at college level, assuming much of the cost associated with invention. With a membership of nearly 200 higher education institutions, the NCIIA invites schools to apply for the funding required to create classes and labs specific to applied invention.

Student-faculty teams apply for staged incubation grants, which help them design, refine, and implement their projects, alongside financial support and specialized training. The program also provides connections and training for outreach to follow-on investors.

Since its inception in 1995, NCIIA has funded 341 experimental collegiate courses and 465 exploratory teams, which have created 180 new corporations and raised $365 million in follow-on funding.

College readiness

So, taking one step back, many studies have acknowledged the extraordinary waste of resources, that an under-prepared freshman can be. This makes college readiness programs at high school level an increasingly important function of graduating high school students.

Many foundations with education-oriented goals have begun to acknowledge this “gap” in preparedness, and are designing grants specifically for schools to deploy into college preparedness programs.

A Washington-based education foundation, College Spark, engaged in a 9-year college preparedness project with an investment of $10m. Partnering with “in-school” college preparedness intervention, Avid, the program moved the dial significantly on college acceptance and persistence among targeted high school graduates.

The online advantage

We have discussed before the critical need for universities to adapt to the online learning disruption. While they still benefit from the caché that so many people still buy into — that the campus experience, specifically at highly selective schools, cannot be replicated — the fact remains that it is the “campus experience” that comes with the highest price tag.

There are a host of universities that are explicitly using online learning as a way to diversify and increase revenue streams, while at the same time maximizing their spend-to-profit ratios.

  • The Vermont Law School is giving students the option pitching incoming students the opportunity to complete a full year of its three-year law degree online.
  • Champlain College now offers half-price tuition rate for its online programs.
  • Community colleges were supported by NCAT (National Center for Academic Transformation) to redesign remedial math courses, which not only resulted in improved outcomes, but significant cost savings also.

Universities get business savvy

State and federal investments are not going to build back in any significant way, and the university has pretty much peaked out in terms of revenue from tuition and fees. — San Diego University’s provost, Nancy A. Marlin

A couple of great examples of novel revenue generation by established universities include:

  • Selling advertising in campus venues, marketing logo wear, approving affinity credit cards and license plates, and sponsoring travel programs.
  • Fill dorm rooms in the summer through camps and conventions
  • Selling faculty consultation services
  • Selling research services
  • The University of Oregon profits from an online bookstore
  • Boston University successfully licenses learning content, which has generated $1.2 million a year
  • Richard Stockton College of New Jersey owns a $20 million golf resort near campus, which they run both as a business, but also as an extension of their hotel school training.
  • UW-Oshkosh put an anaerobic dry fermentation biodigester, the first of its kind in the western hemisphere, on campus. The digester now generates energy from plant and food waste, that is sold back to the grid or used to sell carbon credits.

These two resources are a good starting point for other ideas as well.

All in all

College revenue and revenue diversification is most certainly a necessity. Government funding and philanthropy is necessarily finite, not to mention applied with a certain degree of bias. The changing economic climate means non-profit colleges need to take a more hard-line business approach, while balancing that with absolute academic and research freedom, alongside their responsibility to graduate students able to make significant societal contributions.

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