Colleges Explore Alternative Revenue Streams

To supplement tuition income, colleges are looking at everything from high-demand graduate courses to real estate deals

By Francesca Di Meglio

This is the third part of a multipart series on the business of college.

At Lasell College in the Boston suburb of Auburndale, there is a retirement community that essentially constitutes a campus within a campus. But the community of 230 who live there and take courses is more than just an experiment in seniors engaging in lifelong learning. For Lasell, the retirees are a source of alternative revenue that will help protect the college's bottom line from fiscal and demographic trends that are making the college business more challenging.

Increasingly, colleges and universities, especially publicly funded state schools and those with small endowments (BusinessWeek.com, 10/22/07), are turning to alternative revenue streams—including grants, private donations, patents, real estate, and money-making graduate courses—to make ends meet. Administrators at these schools say it is the only way they can compete with wealthy private schools, such as Harvard, that have brand names and hefty endowments (BusinessWeek.com, 11/29/2007).

The Revenue Gap

Even though tuition is high across the board, administrators say they spend more to educate undergraduates than they can charge students. "The cost of higher education is increasing so rapidly. There's no end I can see," said Neil Theobald, vice-president and chief financial officer of Indiana University in Bloomington and Indianapolis, where tuition makes up only about a third of the school's revenues and state support is declining.

Additionally, the so-called echo boom generation—children of the baby boomers—is finishing university, and the coming generation is smaller. Therefore, there will be fewer potential college students. "We must protect ourselves for that day when the competition [for tuition dollars] is going to get rougher," said Lasell College President Michael Alexander.

So where's the new money coming from? For many colleges, providing additional forms of education is an obvious way to create a new revenue stream. Many schools are developing graduate program—in areas such as management, health care, and education—because they are in demand and can be profitable. A case in point: New England College in Henniker, N.H., which added a masters in management with a health care specialization and an MFA program in poetry, which combines online work with two 10-day on-campus sessions. "We're not a wealthy institution. We don't have a large endowment," said Michele Perkins, New England College's president. "We are what you'd call tuition dependent." In 2003, the first year that New England College offered a graduate program, it generated $1 million in revenue. In the 2008-2009 academic year, the graduate programs are projected to bring in $5 million.

Real Estate Forays

Some universities are creating revenue streams of an entirely different sort by going beyond education and becoming real estate developers and landlords. Many universities already do this to some extent by owning student dormitories and apartments. But some schools are finding that their property is valuable and in demand for uses beyond student housing and classroom buildings. For example, Emmanuel College, a Catholic liberal arts school in Boston, leased an acre of land in the Fenway neighborhood to pharmaceutical company Merck (MRK), which built a 12-story, 300,000 square-foot private research facility that opened in 2004. The 75-year ground lease for a research facility brought in $50 million, said Jack Maguire, chairman and founder of higher education consultancy Maguire Associates, which is a long-time adviser to Emmanuel College.