The university has faced scrutiny for refusing to provide details about how much the former Alaska governor would be paid -- and with whose money -- for her June keynote speech marking the university's 50th anniversary.
Some critics expressed concern money would be taken away from students to foot the bill.
But Matt Swanson, president of the CSU Stanislaus Foundation Board of Directors, said in a statement Tuesday no tax dollars or tuition or fees paid by students would go toward the speaking fee.
The foundation is raising money outside its normal accounts to attract Palin, whose appearance will bring in money to the foundation and, ultimately, students, Swanson said.
"We needed someone who had the celebrity and the appeal, and the controversy to some degree can be helpful for us because there's a lot of interested parties on both sides," he said.
He would not reveal how much Palin is being paid. She had received $100,000 for her address at the Tea Party convention in Nashville.
The CSU speech is expected to raise nearly $200,000, the San Francisco Chronicle reported.
The selection of Palin has drawn opposition, as students threaten to protest and one professor started a Facebook group called "Sarah Palin, Terrible Choice for 50th Anniversary of CSU Stanislaus."
"It just seems like an odd choice for a university," Lillian Taiz, president of the California Faculty Association, told the Chronicle. "If you want a moneymaker, why not Paris Hilton? She has about as much academic value and would probably bring even more money, if that's the goal."
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