Revenue Generation

Higher education centres are exploring sources other than tuition fees to fund operations. Is it a beginning well made?

By admin

Added 25th October 2010


In July 2008, when Dr Anil Sahasrabudhe,the director of College of Engineering(COEP), Pune, made an appeal to COEPs alumni for financial help at a San Jose meeting, Dr Thomas Kailath, a professor emeritus at Stanford and a COEP alumnus, challenged his fellow alumni that he would give $100,000if they matched his gift. The response was quick. Those gatheredthere committed $108,000 on the spot.

Since then, COEP has raised Rs 50 million from alumni donations. The collegealso earns from government and industry-sponsored projects and consultancy,and rents out its grounds and buildings during the holiday lull period. COEP also conducts evening courses in trades such as plumbing, to bring in the extra revenue. Its next plan is to construct an innovation institute with aid worth Rs 10 million donated by two of its alumni and a friend. For now theplan is that the institute will incubate companies and will own upto 10 percent stake in them. All this, we hope, will create a perennial source of income if one of these companies becomes successful, explains Sahasrabudhe.

International Institute of Information Technology (IIIT), Hyderabad, is already incubating six companies and has a 15 to 20 percent stake in each. Though the transfer of technology at Rs 5 million a year is yet to bring in the big bucks, the deemed university earns one-third of its revenues (over Rs 70 million) from sponsored research projects under the aegis of Intel, Google, Hewlett Packard, Nokia and Amazon. It also has a chair sponsoredby Microsoft.

Revenue Challenges

It is not just technology institutes that are tapping innovative models of revenue generation. The Indian School of Business (ISB), Hyderabad, operates on a donor-driven model. All its eight Centres of Excellence (CoEs) are run on revenues generated from corporate donations or endowments.

While a small band of players are taking baby steps to broaden revenue streams, for a majority of higher education institutes (HEIs), student fees constitute more than 80 percent of their income. Poor utilisation of alternate sources of revenue is one of the key challenges affecting financing, notes the Ernst&Young-FICCI Higher Education Survey, 2009. According to the survey, 60 percent of the HEIs did not generate any endowments, while research and consultancy accounted for less than 20 percent of the total fund flow of majority of HEIs (75 percent), with 16 percent deriving nil.

Add to that the fact that nearly half the Indian private players are not eligible for any government funding. Thanks to abysmally low penetration (2 percent) of scholarships, education loans coverage and fee regulation by central and state governments, there is little scope to increase fees further.

It doesnt take a genius to figure how urgent the need is for Indian private HEIs to quickly find and exploit alternate revenue sourcesespecially if we have to achieve the government target of a gross enrollment ratio (GER) of 30 percent by 2020. Indian colleges and universities are not alone. Economic slowdown and shrinking budgets are forcing HEIs across the world to cut costs, keep tuition fees down, and increase revenues from every possible source.

Increasing Foreign Flavour

The private sectors business model requires raising tuition 2 to 3 percent faster than inflation every year. And they have done so for the past decades. This is clearly unsustainable in the long run, says Lloyd Armstrong, the provost emeritus of University of Southern California (USC).

The USC understood this early on. Thus, it made aggressive global reach its strategic priority in the nineties. It opened offices in Tokyo, Shanghai, Hong Kong, Mexico City and Taipei to market the university and recruit talented foreign students. Today, it has the largest number of international students among all the US universities.

Officials from top universities in the US and UK are increasingly making personal visits to Indiathe recent one made by the Oxford Vice Chancellor Andrew Hamilton is one such example. The visits are made to increase visibility; apart from setting up local offices here.

Singapore and Britain are also making it easy for students to stay back and work in their countries after graduation. Historically, foreign students at the undergraduate level have not been eligible for financial aid, and thus pay full tuition. This means that a foreign student produces more revenue than an average domestic student, who will have his tuition discounted by anywhere from 20 percent to 40 percent, depending on the institution. More recently, because of the increasing desire to have excellent international students in the student body, many institutions have begun to offer financial aid to selected international students as well, said Armstrong.

Save a few like Pune University, which has 14,000 foreign students from 100-plus countries, Indian HEIs are yet to exploit this revenue stream. In 2008, India attracted 18,594 foreign students compared to the 62,3805 that came to the US.

Strategic Investments

Universities abroad have a longer history of diversifying their revenue sources and establishing strategies to reduce dependence on tuition fees. For premier institutions in the US and UK, the tuition fee is less than 20 percent of the operating revenuesfor Yale, its a mere 9 percent. While endowments are the biggest source of income for Ivy Leagues, for all the leading UK universities maximum revenue comes from research and government grants.

Fifty-five US universities have a billion-plus endowment fund. It is only natural that the HEIs in that country have developed mature investment strategies. While Harvard and Stanford have asset management companies to manage their endowments, the annual reports of Yales chief investment officer David Swenson have become a must-read for professional investors.

These three mainly invest their money in hedge funds, hard assets (such as real estate) and private equity and stocks, while the majority of Tier-2 HEIs also have finance professionals to handle endowments, park their funds into fixed income securities and stocks. The idea is to maximise returns to support the university, build world-class facilities, recruit the best faculty, conduct path-breaking research and admit the brightest students thereby building a reputation.

Spreading Gift Culture

Dr Rita Bornstein, the President Emerita and Cornell Professor of Philanthropy and Leadership, Rollins College, says, A strong reputation is vital for an institution to attract philanthropic support. Everyone wants to be part of a winning team. She doesnt say it, but the $10-million chair she holds, a first for a US college presidency, was endowed more for her leadership and reputation as a fund-raising specialist.

Not only did Rollins ranks climb significantly during her tenure (1990-2004) as the president, but its endowments also quintupled in the period.

People like assisting various successful institutions, with excellent leadership, because they want to be confident that their gifts will be well-spent. Venture Capitalist Srini Raju, who gifted Rs 350 million to ISB for a CoE in IT and networked economy, says, I wanted to give money to a knowledge-oriented organisation. My passion matched with that of ISBs commitment to excellence.

More and more HEIs in developed countries are also seeking services of professional advancement consultancies to learn the most effective strategies to raise funds. Susan Washburn, Principal of Washburn & McGoldrick Inc, which advises 140 clients across the US, UK, Europe, Canada and Australia, says, The challenge for educational institutes is that they must demonstrate relevance and urgency. They must show that they meet needs, and not just have needs.

With a sharp fall in endowment values from $36.9 billion in FY 2008 to $26 billion in FY 2009 for Harvardand shrinking government budgets, the pressure to increase revenues from other sources is building-up. Cambridge recently opened its hallowed portals to tourists. It is going to let out its rooms for 41 to 100 a day.

In contrast, Indian HEIs have had little scope of building endowments. Higher education in India was traditionally public-funded and therefore university administrators did not develop a culture of cultivating private sources. Administrators have been too lethargic to seek out endowments. Most have never even created a repository database of their alumni, says Arun Nigavekar, a former chairman of the UGC.

While the space is dominated by the private sector now, nearly half of the 20,000 colleges in India have come up only in the past decade. Except Indian Institutes of Management and Indian Institutes of Technology, which have been pro-actively raising alumni endowments since the nineties, even reputable private universities are seeing alumni gifts trickling in only now.

We are only 26 years old. It is only in the past five years that our alumni have entered their forties and are growing into senior positions. Now, they are thinking of giving back to the university, explains Sekar Viswanathan, pro chancellor of VIT. A point to remember here is that the wealthiest of US universities are also its oldestPrinceton was established in 1746 and Harvard in 1636.

Making Research Pay

Some Indian HEIs like the IIIT Hyderabad, VIT and Symbiosis, are taking pro-active initiatives to garner better revenues from research. While IIIT Hyderabad created a synergistic relationship between basic and applied research departments that led to more industry projects, Symbiosis is now setting up an Institute of Research and Innovation to centralise its research activities and get better industry sponsorships.

While all top-notch universities in the US and UK attract huge corporate and government sponsorships, they dont depend entirely on them.

Massachusetts Institute of Technology (MIT), for instance, showed a 26 percent jump in research revenue from non-federal sources, with the greatest increases coming from non-profit foundations like the Bill & Melinda Gates Foundation and other foreign governments.

Also, what is taken is paid back in dividends! Google founders Sergey Brin and Larry Page were mentored by their computer science professor, the Late Rajiv Motwani and they recently gifted Stanford $ 2.5 million for a chair in his memory.

To extract more from its research, Oxford has taken strategic stake in many companies whose main line of activity is commercialisation of IP. Likewise, Cambridge also has a wholly-owned company to fund technology transfers. Both earn significant amounts from university-owned companies.

Rules and Stops

Dr Vinod Bhat, pro vice chancellor and director of planning, Manipal University, believes, Such things are not possible for Indian HEIs because the law of the land does not allow it. Current regulations mandate that HEIs can set up not-for-profit organisations (NPOs) either in the form of a trust or a society, or a Section 25 company. However, a Section 25 company is not recognised by the UGC and it cannot distribute profits. A Central law dictates that surpluses and profits earned by an NPO have to be ploughed back into the institute. And to be eligible for income tax exemption given to NPOs, state and central laws limit the type of investments HEIs can make. For instance, the NPOs cannot invest in the shares of private limited companies. While structures and regulations are limiting, alternate sources of revenue are still available to private HEIs.

Some of the options would include offering campus jobs and coordinating with embassies for scholarships to attract more international students. Leasing out space to established food and beverage outlets is another way The London School of Economics made 24.42 million pounds through catering and also has a wholly-owned subsidiary to develop its potential of consultancy and executive or distance education.

The education reforms currently underway are expected to create a more enabling atmosphere for generating legitimate alternate revenues.

Meanwhile, HEIs need to create strategies and performance benchmarks to maximise revenues from all legitimate sources. What they do now will have a bearing on the future of higher education in India.

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