Colleges Explore Alternative Revenue Streams

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Similarly, the California State University system is pursuing real estate partnerships, said Richard West, the system's executive vice-chancellor and chief financial officer. One example: It allowed the professional soccer teamLos Angeles Galaxy (BusinessWeek.com, 7/13/07) to build a 27,000-seat stadium at the system's Dominguez Hills campus. The school shares revenues from rent, parking, and the box office. West said alternative revenue sources—which includes extended university courses and degrees, philanthropic gifts, contracts and grants, exclusive provider agreements, and land lease agreements—represents at most 10% of the system's budget. While they help, "they don't make it any easier to lose state funding," he said.

Lasell College, meanwhile, didn't take on a partner to become a senior community developer. Lasell Village, with 188 apartments and 16 buildings, was built and is owned and operated by the college. Residents are required to take 450 credit hours per year, and their tuition is built into rental fees. The school takes in management fees, a lease payment every year, and maintenance fees. Lasell College President Alexander said that $1 million to $2 million goes straight to the bottom line.

Revenues From Royalties

Offering financial support to research, startups, and inventions (BusinessWeek.com, 10/16/07) is another way that educators can create a revenue stream while remaining true to their original goals of education and innovation. CFO Theobald said that while Indiana University supplements its tuition revenue through its hospital, dormitories, and a growing endowment, it's also pinning its hopes on returns from research that can generate valuable patents and royalties. There's precedent for that. In the mid-1950s, Crest toothpaste was patented by three Indiana University researchers. Royalites from Crest paid for a dental research institute on campus.

Not every plan to boost revenues has worked out. For instance, a plan at Indiana to construct and lease an 800-bed dorm with a private partner foundered, Theobald said. And school administrators admit to some worries about blurring the line between being educators and businesspeople as they pursue alternative sources of income. "I don't think it's a cost-free alternative," said Theobald. "We're changing the nature of public education as we do this."

Still, administrators say universities have no choice but to continue to pursue alternative revenue streams. Some say that attracting more international students, especially with the weaker dollar, and providing study abroad opportunities will be other ways to bring in more cash. Meanwhile, the other programs—from real estate to research—will likely continue to expand. "Don't let anyone kid you," said Lasell's Alexander. "You have to be thinking about ways to make money. It costs more than tuition to educate people."

Di Meglio is a reporter for BusinessWeek.com in Fort Lee, N.J.