Many public research universities have responded to decreased state funding
by increasing tuition. While this solves short-term crises, increasing
tuition above ordinary inflation and growth of family incomes is not a sustainable
model for public institutions dedicated to serving their states, regions, and nation.
Public research universities are working hard to keep tuition increases in check
by finding creative ways to reduce expenses and increase revenues in other areas.
Cost Savings and Efficiencies
rapid decreases in state funding, public research universities have aggressively
explored new ways to generate revenue and cut costs. Over the past several years,
these institutions have cut faculty positions, eliminated or streamlined course
offerings, closed satellite campuses, shut computer labs, and reduced library services,
among other cuts. Many institutions attempted to protect university performance
by deferring maintenance work and minimizing administration costs.22
Public research universities have also launched aggressive cost savings plans that
include reducing administrative layers, creating joint appointments that share faculty
between departments, instituting shared services centers, creating purchasing consortia,
and embarking on systems-wide collaborations. For example, the University System
of Maryland launched an Effectiveness and Efficiency (E&E) Initiative that yielded
$356 million in savings during its first ten years.23 The University of California, Berkeley
launched the Operational Excellence Program three years ago and—through procurement-related
savings, standardized IT offerings and campus-wide software licenses, and streamlined
organizational structure—has achieved more than $63 million in cumulative
savings to date.24
Miami University launched the MU–Lean project in 2009, which has since identified
over $25 million in savings and new revenues. Other institutions have taken to outsourcing
some operations, including management of parking lots, residence halls, and other
Beyond cutting costs, universities are also diversifying their investment portfolio
strategies and developing better systems to manage the funds they have. Many institutions
are creating comprehensive and detailed financial models that project financial
results in the short, medium, and long term in order to execute strategic multiyear
planning. Modeling future revenue streams enables universities to establish targets
and realistic goals. Even in an environment in which states commit only to a single-year
funding cycle, the existence of such modeling can help legislators and governors
propose aspirational funding goals.
Universities are also establishing performance metrics with the goal of increasing
institutional accountability, while also reflecting institutional variation. For
example, public research universities with high graduation rates are reaching out
to previously underserved populations. For institutions that have a higher access
model (for example, if the state mandates that students from many different qualification
levels be admitted) increasing completion rates may be a high priority. Here, one
size does not fit all, and universities should avoid introducing counterproductive
incentives for funding.
State University (GSU) provides a dramatic example of organizational efficiency:
by creating and implementing a new academic tracking program to improve student
outcomes, GSU’s six-year graduation rate has increased from 32 percent in
2003 to 51 percent in 2014 (with no disparities along racial or ethnic lines).25 During
the same period, GSU has made a concerted effort to increase enrollment for traditionally
underserved students. Remarkably, the share of its students who are eligible for
federal Pell Grants nearly doubled, from 31 percent in 2003 to 58 percent in 2013.
In this instance, investing in learning analytics and new technologies to improve
student learning outcomes paid off with enormous dividends without appreciably increasing
the budget. This model is being replicated at other institutions.26
Institution-Based Financial Aid
In light of decreasing state investment and increasing tuition, many public research
universities have significantly increased their financial aid budgets to maintain
access to students from all income levels. As a result, at some public research
universities, financial aid is now the largest expenditure after instruction. Financial
aid that comes directly from the institution—as opposed to the state, federal
government, or a private entity—is often funded by a combination of tuition,
fees, endowment funds, and the operating budget.
aid can be used to achieve many different institutional goals, such as meeting student
financial need, attracting more high-ability students, and enrolling a more diverse
student body. It should be noted that while a number of students receive financial
aid, many do not. Full-paying students are critical to the bottom line, and allow
institutions to enroll students from all socioeconomic backgrounds.
In 2012, the majority (70 percent) of first-time, full-time, in-state students at
public research universities received a grant or scholarship, with an average award
Grant aid from all colleges and universities in the form of discounts to their students
grew $23 billion between AY2003 and AY2013, with the most rapid growth in the second
half of the decade.29
Between 2009 and 2011 alone, the percentage of tuition and fee ”sticker price“
that is covered by the average institutional grant per FTE student at public colleges
and universities increased by about 10 percent.30 At public colleges and universities, the
percentage of institutional grant aid meeting undergraduate financial need increased
from 29 percent in AY2000 to an estimated 48 percent in AY2013.31 The majority of grants
are need-based, with a smaller percentage going to merit and athletic grants and
Public research universities are striving to offset decreases in state funding and
to diversify their revenue streams by increasing their fundraising operations. While
a number of public institutions have anticipated the eventual decline in public
support and established robust development strategies, many are just now making
investments in the infrastructure required and beginning educational campaigns with
their alumni about the criticality of donor support. Illustrative of the rapidly
changing environment in public university fundraising, of the seventy-
seven institutions that responded to a Lincoln Project survey, 90 percent have recently
completed or are in early stages of launching a capital campaign. However, it must
be reiterated that most giving is highly restricted—one institution we surveyed
estimated that as much as 98 percent of giving is restricted. Endowments are not
checking accounts that can be spent at will; rather, donors give to support specific
initiatives, and universities have both a legal and ethical obligation to use these
gifts to support the activities for which they were given.
Changing Sources of Students
In response to rapid and dramatic decreases in state funding, many public research
universities—if permitted by state regulation or law—have increased
the number of out-of-state or international students to their campuses. Out-of-state
and international students play a vital role in creating a more diverse and vibrant
student body than would be attained by admitting only in-state students. Beyond
bringing tremendous value both in and out of the classroom, these students strengthen
the financial base of the university, since these students often pay higher tuition
rates. At most public research universities, the out-of-state and international
tuition and fee prices are two to five times higher than those for in-state students,
and are not offset by state or federal financial aid.
This strategy, while widely employed, represents a ”bridge-funding“
option more than a long-term solution to revenue stream diversification for research
universities. Over time, there may be limited opportunities for state universities
to continually increase the numbers of out-of-state students. International students,
while now flocking to the United States to study at its unparalleled higher education
institutions, may become increasingly attracted to universities in their own countries,
whose quality is rapidly improving. Additionally, a reliance on external sources
of full-paying students can lead to problematic disparities in the socioeconomic
profiles of in-state versus out-of-state and international students. Each institution
needs to find its own balance of students, while ensuring that enrollment of out-of-state
and international students does not come at the expense of fully qualified in-state
With the advent of improved learning software, some public research universities
are expanding the number of students they serve with online-degree and educational-certificate
programs. These initiatives range in their goals, structures, and outcomes. For
example, the University of North Carolina now offers an online MBA program (UNC@MBA)
that enrolls more than six hundred students from more than thirty countries, with
a minimal price differential from on-campus instruction, while Georgia Tech has
partnered with Udacity and AT&T to offer an online master’s degree in
computer science at a fraction of the cost of the on-campus experience. For some
institutions, online education has allowed them to enhance their revenue streams
in certain niche areas, though it has not been a panacea.
Alliances with Business and Industry Partners
Universities are becoming more entrepreneurial in nature, opening their doors to
collaborations with businesses large and small. As a result of these adaptations,
universities are making it easier for students and faculty to start new businesses
by improving intellectual-property and technology-transfer policies. Some institutions
are building business-accelerator units or new research parks either on or in close
proximity to the physical campus. Such parks encourage partnerships with local businesses
and corporations and provide great opportunities for internships, joint research,
and employment for graduates. North Carolina State University’s Centennial
Campus—comprising one thousand acres adjacent to the main campus—has
employed these strategies, encouraging university researchers to collaborate with
corporate, governmental, and institutional partners on topics of mutual interest.
These business partnerships often generate funds that flow back to the university,
as well as increase opportunities for students and faculty to apply research in
22 Delta Cost Project,
Trends in College Spending 1999–2009, 20.
23 University System
of Maryland, “Effectiveness and Efficiency Initiative,” http://www.usmd.edu/usm/workgroups/EEWorkGroup/eeproject/
(accessed December 7, 2015).
24 University of California,
Berkeley, “Operational Excellence,” http://oe.berkeley.edu/ (accessed December 7, 2015).
25 Education Advisory
Board, “Improving Student Outcomes with Data-Driven Advising and Intervention”
(Washington, D.C.: Education Advisory Board, 2014), https://www.eab.com/../../media/EAB/Technology/Student-Success-Collaborative/GSU-Case-Study/GSU-Case-Study-Feb-2015.
26 See the Innovation
27 North Carolina State
University Centennial Campus,
https://centennial.ncsu.edu/ (accessed December 22, 2015).
28 National Center
for Education Statistics, IPEDS.
29 The College Board,
Trends in Student Aid 2014 (New York: The College Board, 2013), 15.
30 Don Hossler and
Derek Price, “Setting Institutional Student-Aid Policies: New Metrics for
Governing Boards,” Trusteeship, Journal of the Association of Governing Boards
of Universities and Colleges 22 (2) (2014), http://agb.org/trusteeship/2014/3/setting-institutional-student-aid-policies-new-metrics-governing-boards.
31 The College Board,
Trends in Student Aid, 2014, 39.