Innovations in university finance: A growing necessity,and intelligent too!

In increasing numbers, public and particularly private colleges and universities are facing financing crunches associated with declining enrollments, cuts in federal aid programs, reduced grant pools, etc. These financing challenges are evident not only in terms of capital investment needs but also short-term operating demands. However, universities and colleges do have vehicles available to them to deal with both short-term and long-term needs—in the debt markets. Variable rate demand bonds and tax-exempt variable rate demand bonds are currently being marketed for just such purposes. In addition, the future appears bright for a currently unavailable instrument—real rate bonds which could further reduce the financing expenses for schools. The characteristics, advantages, and disadvantages of each are discussed along with some examples of their superiority to alternative financing.