income diversification

Today, higher education institutions are being encouraged and challenged to think creatively about expanding and developing new revenue streams to support their short- and long-term goals. Moody’s Investors Services has described in its published reports how every traditional income stream for colleges and universities faces some form of pressure.

Unfortunately, the pressure on all revenue streams and sources is the result of macro-level economic, technological, and public opinion changes, and these changes are largely outside the control of institutions.

Moody’s analysts have warned that revenue streams will never flow as strongly as before 2008. It has been said that the turnaround will require a fundamental change in the way colleges and universities operate; one that will require more strategic thinking.

In its studies, Moody’s notes that colleges and universities will need to rely on strategic leaders who are willing to address these challenges by making better use of technology to reduce costs, create efficiencies in their operations, demonstrate value, reach new markets, and prioritize their programs. However, in doing so, many of these efforts may create disputes with faculty members or other institutional components unless they can win the collective buy-in that has been the staple of higher education governance. But with goal setting and evolution being part of the process, hopefully there will be a more general understanding on all sides.

The major income constraints can be attributed to larger changes in the economic landscape, including lower family income, changes and fluctuations in the economic and federal government landscape, declines in the number of high school graduates, the emergence of new technologies, and a growing interest in getting the most out of a college education, particularly as it relates to employment after graduation. A stable fiscal outlook and outlook would require improved pricing power, a sustained and truly measured decline in the unemployment rate, improvements in the housing market, and several years of steady stock market returns.

The traditional higher education model has been disrupted by the ability of massive open online courses, particularly by the legitimization of online education and other technological innovations. In many ways, this has signaled a fundamental shift in strategy by industry leaders to embrace these technological changes that threaten to destabilize the business model of residential colleges and universities in the long term.

There are other related challenges facing higher education: the rising profile of student debt, which has surpassed $1 trillion dollars nationally, default rates, and pressure on politicians and accrediting agencies to guarantee the value of degrees. Additionally, alarm bells continue to sound about a possible student loan bubble and the declining affordability of higher education.

One way for colleges and universities to get students, and their parents, to pay higher tuition is by demonstrating that the outcomes, including their campus experience, graduate employment, graduate school enrollment, and long-term success and happiness, are well worth future tuition and job compensation. Students and their parents want to know, “What do I get for my investment?” As a result, recruiters have a harder job of “selling” a traditional education with the cost of education continually rising.

But the education on campus and the experience of living and learning are the “door openers.” As I like to say, “We are a product of our environment.” Making the right friends, building relationships with influential teachers, administrators, parents and relatives of friends, and frat brothers or sorority sisters all add to the student environment equation. In hindsight, students may forget or never use half of what they learn, but the connections and friends they make and the experiences they have while in college are priceless.

More than 1/3 of the nation’s colleges and universities are experiencing some type of financial crisis. Many have gone from operating on full operating budgets to a comfortable black to a dour red. And cash reserves have fallen, as have endowments.

Undoubtedly, the university must find new sources of income. Attracting more international and out-of-state students is an additional source of income for these institutions.

We must never lose sight of the fact of the importance of investing in higher education. Educating young people is of paramount importance. Another alternative to consider is devising ways to maximize time and money, such as integrating class projects and research that may result in a publication.

Allowing and/or expanding commercialism on campus can provide additional sources of revenue. Examples could include allowing corporate naming rights to sports venues or increasing advertising signage within arenas and stadiums. This may seem drastic and some may even say, “You have to pick your poison” by getting creative to increase your income streams.

Trying to reduce the university’s “discount rate,” the percentage of the total tuition bill for the entire student body that the university forgoes to award financial aid to its students, is one possibility. But that can be risky business. Any move to lower the discount rate potentially upsets an extremely delicate balance. Seeking to attract families who are able and willing to pay full or near-full tuition, while making the school accessible to less affluent students and hitting the right spot, awarding merit aid to attract high-potential students who could then benefit the school and the broader community, may be one way to work on striking a better balance among the many factors that fuel enrollment. Additionally, it may also be helpful to intensify fundraising efforts to offset any potential discount rate increases.

Another factor to consider is the amount of construction the institution may have on campus, especially during campus tours, to determine the effect that may have had on any dips in the recruiting process. While construction on campus is a sign of growth and improvement, in the short term it is not always the most attractive thing for students to see and hear on campus, or experience during a campus tour with their parents.

Higher education institutions must also anticipate any upcoming demographic changes. They may have to deal with an economic and social environment in which more families negotiate the best deals between different schools. If this is the case, institutions should first consider making their best offers in advance and try to avoid lengthy negotiations.

Students are creating more options for themselves and have more access to more options. The internet makes it easier for students to research and apply to more schools.

Some of the private institutions have bucked the trend of increasing tuition, and some have even reduced tuition costs in an effort to attract more students. Other schools have taken less conventional steps, such as freezing tuition, offering three-year degree programs, or giving students four-year graduation guarantees. They are doing this with the goal of increasing enrollment levels that will more than make up for the reductions that are being made, thereby providing more overall revenue without sacrificing a student’s education.

But also since the economic downturn, private colleges and universities across the country have redoubled their efforts to reduce their operating costs, improve their efficiency, and improve their affordability to stay affordable for families of all backgrounds. You can’t lose sight of that. Making it work has to be done at both ends; reduce costs and increase revenue.

Other strategies that could be considered to increase enrollment and revenue streams at higher education institutions could include the following:

• Search segmentation to target high-profile students with different messages;
• Increase scholarship levels (while maintaining net income needs);
• Target students from other states or students outside of traditional markets;
• Target high school honors programs;
• Hold a scholarship recognition day;
• Emphasize off-campus opportunities, such as internships and study abroad;
• Promote graduate school locations and results; and
• Develop high-profile academic majors, pre-professional programs, or new majors and programs to support enrollment growth.

Additional considerations to increase revenue streams may include:

• Review existing individual educational programs and the income provided by each and the coverage of direct costs and determine what changes should be made, if any;
• Acceleration of 4-year degree programs to 3- to 3.5-year programs to save on tuition and use as a marketing tool for recruiting, but do so without affecting the student’s education;
• Provide an automatic 2-year graduate scholarship at the university for students who enroll in a 4-year undergraduate program and meet and maintain a defined GPA level and other predefined university standards and objectives. Use as a marketing and recruitment tool;
• Having a full-time grant applicant/application assistant for the university seeking state and federal funding, as well as working with faculty and staff to develop research projects to fund and use as educational programs for students;
• Establish joint and cooperative programs with other universities in the US and abroad for recruitment;
• Consider a general reassessment of the recruitment process to identify and “pursue” potential students, thereby broadening horizons and scope;
• Get more exposure at the “national and multi-state” level;
• Determine whether to add or remove programs, improve and/or expand new programs;
• Develop tools to “present a plan” and a “comprehensively designed package” to finance and pay the cost of education;
• Reach out to alumni and friends to learn about improved ways to provide contributions to the university through annuities, insurance, and other charitable giving techniques and products; and
• Develop relationships with corporate sponsors for grants and contributions and placements for graduating students.

Conclusion

For the above suggestions regarding potential considerations for new revenue sources to support the institution’s short- and long-term goals, it will be important to develop predictive financial modeling tools to test proposed changes and outcomes in enrollment levels and projected effects on revenue streams and the overall bottom line.

In doing all of this, we must never lose sight of the fact that education prepares graduates to lead lives of achievement, contribution, and meaning. And, as I like to say, “Students will become a Product of their Environment.”