I just can't see him going the college route at this point, he's only 50, pretty young by coaching standards. Normally its guys who can't find jobs as NHL coaches who "settle" for NCAA jobs (ala Andy Murray). I doubt a poor performance in Sochi would tarnish his brand much, his past achievements will still would outweigh any poor result imo.
His first home is western Canada. His kids are out of high school now so there's nothing really keeping him in Michigan if he's not working for the Red Wings. Calgary, Edmonton, and Vancouver seem like they could be strong possibilities should the Wings decide to move on. That said, I don't think they will. I anticipate Babcock being around for several more years.
He also already owns a big million dollar house he built that is actually closer to Ann Arbor than it is JLA. It is just a rumor that doesn't seem to die and U of M is the kind of brand and has the kind of money to maybe make this play if he was interested. He would reel off National Championships there, trust me as a Spartan fan not something I am overjoyed at the prospect of. Heck the OHL and WHL should be scared to death, not as easy to poach talent from a commitment to Mike Babcock. It is the salary that is hard to believe, but he could keep his home and have total power at that level.
I could see him back out west, like I said I think it comes down to what he wants at this stage in his life. If it is just to coach and maybe add a little bit more power and not a ton he probably re-inks in Detroit. Only he truly knows, but I do find it interesting that the U of M rumors have remained out there, he has never panned them and that might just be understanding the element of a huge chunk of his fan-base and his respect for Red, but it could be actual significant interest. Maybe if they hit 1.5 or higher even at the pay reduction he would be interested in such an opportunity. It's hard to imagine the kind of powerhouse he could create out there.
If he makes the commitment quick enough his kid could change his commitment and play for his dad, his daughter could get an even further reduced rate on a quality education in state and they could all stay in the same area. I don't know what he is thinking, but he does talk about U of M with some pretty big admiration whenever it is brought up. It might seem crazy on the surface, but he has accomplished everything save the Jack Adams (seriously how the **** has that happened, it is hysterical weird) so maybe this is something he would consider. Much less work too, with the restricted hours the fact his name will recruit top talent by itself and he can do whatever he pleases without being bothered all that much. If they can get all that in the ballpark of what he wants with a salary he is willing to take and he would be the highest paid coach probably by an insane margin in terms of college hockey even with the paycut maybe he does do that and I wouldn't fault him for a second.