The number of university students is continuing to rise across Europe despite the fact that the economic downturn has led to cuts in public funding in many countries. As a result, higher education systems need to face up to the challenge of creating sustainable funding models to secure the future of university education.
A new report from the EUA, “Financially Sustainable Universities II: European Universities Diversifying Income Sources” published this week, (22 February) looks at the barriers that prevent universities from looking for alternative funding sources. The report is the outcome of a two-year EC-supported project and its findings are based on an online survey completed by more than 150 universities across 27 countries, by site visits and by workshops involving a wide range of institutions.
Universities need both sufficient resources and a long-term planning horizon to invest in their future academic and research activities, and thus to continue fulfilling their role in society, says the report. The EUA believes that future financial sustainability depends on reliable, sufficient public funding, and on the autonomy and support necessary to explore successfully complementary funding options.
The report gives a detailed description of how European universities are currently financed, and looks into the sector’s expectations for future evolutions. It also analyses the many different barriers currently preventing universities from pursuing additional income streams and the possible drivers for stimulating income diversification.
Importantly, the study reveals that additional funding sources cannot replace sufficient public funding. It concludes with a series of recommendations for creating more sustainable funding models for the future.
Some of the main conclusions and recommendations from the report:
Status of income distribution in European universities
• Public funding is the most important source of income for European universities, accounting for 73 per cent of budgets on average. However, universities are already diversifying their income structure significantly. The majority of the universities in the study receive at least 10 per cent of their income from additional sources (excluding tuition fees).
• The most relevant additional sources include business contracts, philanthropic funding, service-related income, and international public funding. Student financial contributions/tuition fees vary widely in Europe, but on average they contribute 9 per cent to university income. In some countries fees represent a significant source of income.
Universities’ future expectations on sources of funding
• Concerns regarding public funding for teaching: 53 per cent of those surveyed expect this to fall, while only 30 per cent believe it will remain stable.
• Uncertainties regarding public funding for research: 41 per cent believe it will remain stable while nearly one third expect state funding for research to fall.
• Nearly half expect additional sources of funding (non-public funding) to increase.
The role of public authorities and barriers to fostering income diversification
• Regulatory barriers: 61 per cent of those surveyed cited regulatory barriers (such as lack of autonomy) as preventing them from exploiting potential for income diversification. Universities’ ability to generate additional income relates to the degree of autonomy granted by the public authorities. Universities that can enter into partnerships with private partners, or have the ability to create for-profit entities, or that can borrow/raise money on the financial markets, will be more successful in pursuing additional funding.
• Funding modalities and excessive administrative burden. Universities report excessive complexity of rules and reporting obligations, which leads to high costs of compliance. In particular European funding schemes are considered by 75 per cent of surveyed universities as more complex than national funding schemes.
• The threat posed by co-funding mechanisms: 86 per cent of universities reported that co-funding applied to some at least part of their programmes financed by public funders. Universities must divert resources from core budgets to supplement this funding, which does not cover the full costs of an activity. This high percentage also shows that this risk to the financial sustainability of Europe’s higher education system is underestimated by funders and public authorities and needs to be tackled urgently.
• Setting the right incentives. The study shows a lack of support from public authorities in terms of setting incentives for universities (such as tax incentives, matched funding schemes, improved intellectual property regulations, autonomy etc).
• Support for leadership and professional staff development is one of the key success factors to build up the capacities and expertise required to develop additional funding streams (enhanced research administration, fundraising and communication, etc).
Universities as an active player in income diversification
• Universities are actively diversifying income streams (also as a way of spreading risk and gaining flexibility in the context of the economic crisis). The majority of universities now generate more than 10 per cent of income from additional funding streams (excluding tuition fees).
• Universities generally perceive commercialisation of research (through spin-offs) as an additional income stream (70 per cent). Reaching out to new student groups is also considered as a potential source of income (66 per cent).
Internal barriers within universities
• University leaders highlighted that internal barriers within institutions were as problematic as external constraints in the development of income diversification. The most frequently cited barriers were: lack of information/awareness among academics (80 per cent), the concern that academics may be diverted from their core mission (73%), lack of suitable internal structure (68 per cent), negative attitudes towards income diversification (67 per cent) and lack of managerial expertise (67 per cent).
• Lack of dedicated structures for fundraising: 31 per cent of respondents said their institution had no dedicated structure for fundraising, with a further 38 per cent having five or less dedicated staff.
Project recommendations
Governments and public authorities should:
• Invest in higher education and leadership training: providing sufficient and reliable public funding (aiming at achieving the 3 per cent GDP target of investment in Higher Education). Invest in leadership development training for higher education leaders and managers.
• Introduce the right framework conditions: by increasing institutional autonomy in particular in financial aspects, human resource management and capacity to design governance structures; and by establishing funding incentives to engage in partnerships and foster donations from the private sector, such as matched funding schemes.
• Simplify and streamline rules across the different funding entities and reduce the administrative burden for universities.
University leaders should:
• Integrate income diversification into institutional strategy; apply a proactive approach that engages the academic community.
• Invest in the development of human capital to improve income diversification.
• Incentivise faculties and staff to take an active part in income diversification.
• Develop professional stakeholder management.
Receive our news bulletin each Tuesday & Thursday and news about bridging Europe’s east-west innovation gap twice a month in The Widening. 
