Paulo Santiago, OECD - CMI

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Paulo Santiago, OECD - CMI

Building Sustainable Funding Strategies in

Higher Education: Trends, Challenges and

Policy Directions

Paulo Santiago

Senior Analyst, Education and Training Policy Division,

OECD

Higher Education in the Mediterranean and beyond: how to reach financial sustainability while providing

high quality standards?

Seminar promoted by AFD/World Bank/CMI Program

Marseille, France, 24-25 January 2011


Outline of Presentation

Part 1: Trends in funding tertiary education

Part 2: Main challenges in funding tertiary education

Part 3: Policy directions


Part 1: Trends in funding

tertiary education


Change in expenditure per student on tertiary education institutions between 1995 and 2007,

public and private sources

Index of change (2007, with 1995 = 100)

200

180

160

140

120

100

80

60

Total expenditure per student on TEIs did not deteriorate in most

countries…

Source: OECD Education at a Glance, 2010.


Index of change (2007, with 1995 = 100)

210

190

170

150

130

110

90

70

50

… but the decline in public expenditure per student on TEIs is more

common across countries…

Change in expenditure per student on tertiary education institutions between 1995 and 2007,

public sources only

Source: OECD Education at a Glance, 2010.


200

180

160

140

120

100

Change in public expenditure per student on tertiary education as a percentage of GDP per

capita between 2000 and 2006

80

60

Index of change (2006, with 2000 = 100)

Lebanon Tunisia Morocco United Arab

Emirates

Source: UNESCO Education database.

… and a reality in some MENA countries

United

Kingdom

France Spain Portugal United

States of

America

Note: The “2000” reference year is 1999 for the United States; the “2006” reference year is

2003 for the United Arab Emirates.


%

90

80

70

60

50

40

30

20

10

0

Chile

The proportion of private expenditure on TEIs has grown in most

countries…

Korea

United States

Relative proportion of private expenditure on TEIs between 2000 and 2007

2000 2007

Japan

United Kingdom

Source: OECD Education at a Glance, 2010.

Australia

Israel

Canada

Russian …

New Zealand

Italy

Portugal

Mexico

Poland

Netherlands

Slovak Republic

Estonia

Slovenia

Spain

Czech Republic

France

Germany

Austria

Ireland

Sweden

Belgium

Iceland

Finland

Denmark

Norway


Annual public expenditure per student on tertiary education institutions relative to that on pretertiary

institutions

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Mexico

The tertiary education share of the public education budget has

decreased vis-à-vis that of schooling

Slovak Republic

Sweden

Germany

Source: OECD Education at a Glance, 2009.

Finland

Canada

Denmark

Czech Republic

Netherlands

Belgium

United Kingdom

Ireland

Austria

1995 2006

France

Spain

Hungary

New Zealand

Australia

Israel

Portugal

Poland

United States

Iceland

Slovenia

Italy

Estonia

Chile

Japan

Korea


… which is also the case in some MENA countries when we compare expenditure per

student between tertiary and secondary education

Public expenditure per student on tertiary education relative to that on secondary education

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

United Arab

Emirates

Source: UNESCO Education database.

2000 2005

Tunisia Morocco United States

of America

France United

Kingdom

Portugal Spain

Note: The “2000” reference year is 1999 for the United States; the “2005” reference year is

2003 for the United Arab Emirates.


Allocation of public subsidies for instruction

increasingly characterised by…

- Performance-based funding:

o Allocation on the basis of results (part of formula-funding)

• Degrees awarded; graduates; credits accumulated; average study duration; student

satisfaction; labour market outcomes; equity premia

o Establishing performance contracts between government and institutions

- Greater targeting of resources

o Allocation of public funding on a targeted basis – i.e. money for a particular

purpose (e.g. modernise infrastructure; foster partnerships with the private

sector, improving teaching quality)

- Competitive procedures

o Competitive funds to stimulate e.g. greater innovation, higher quality, and

improved management of institutions


Allocation of public subsidies for research

increasingly characterised by…

- Three main allocation mechanisms:

o Research core funding (block grant)

o Research centre funding

o Project-based funding

- Increasingly prevalent competitive project-based funding

- Performance-based funding (part of formula funding)

o Attached to research degrees awarded, number of publications, number of

patents and licenses issued, number of spinoffs, research contracts with

companies and external research income

o Association with research assessment exercises


In most countries the external sources of funding

other than tuition fees remain modest

- Philanthropy

- Research projects funded by private entities

- Commercialisation of research

- Services such as industrial training or consulting to businesses or public authorities

- Private uses of facilities

In many countries, governments are attempting to develop the entrepreneurial spirit of

institutions. A range of aspects:

- An institutional legal status that enables institutions to behave entrepreneurially

- Budget flexibility

- Swift decision-making on commercial possibilities

- A market-oriented culture and personnel

- A strong competitive urge

- Robust intellectual property strategies


60

50

40

30

20

10

0

%

Chile

A greater proportion of public expenditure in TE goes to student

financial aid in most countries…

Public subsidies for financial aid to students as a percentage of total public expenditure on

tertiary education in1998 and 2007

Norway

1998 2007

New Zealand

Australia

United Kingdom

Denmark

Netherlands

Japan

Sweden

Slovenia

Iceland

Germany

United States

Italy

Slovak Republic

Austria

Canada

Finland

Hungary

Belgium

Ireland

Portugal

Israel

Korea

Brazil

Spain

France

Mexico

Estonia

Czech Republic

Switzerland

Poland

Source: OECD Education at a Glance, 2001 and 2010.


1.0

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

Source: OECD Education at a Glance, 2001 and 2010.

… but increasingly to loan-based aid

Proportion of loan-based aid among public subsidies for financial aid to students in tertiary

education, 1998 and 2007

1998 2007


Countries are developing student support systems

- Three types of publicly-funded grant schemes, which vary greatly in scope and scale:

o Basic universal grants

o Means-tested grants

o Merit-based grants

- A range of possibilities for loan schemes:

o Loan scheme based on a public loan fund

o Loans provided by commercial banks with public subsidy or guarantee

- Loan systems with income-contingent repayments are particularly appealing but some

prerequisites are needed for their successful implementation


Country approaches to funding tertiary education

EXTENT of COST-SHARING

Important and uniform

across students

Non-uniform across

students

Minor and uniform

across students

Source: OECD (2008), Tertiary Education for the Knowledge Society.

BASIS for STUDENT SUPPORT

Universal support systems Family-based funding

Australia, Chile, the

Netherlands, New Zealand,

the United Kingdom

Finland, Iceland, Norway,

Sweden

China, Japan, Korea

Croatia, Estonia, Poland,

Russian Federation

Belgium, the Czech

Republic, France, Greece,

Mexico, Portugal, Spain,

Switzerland


Expansion of TE system and funding

New tertiary female graduates as a share of the 20-29 female population and relative proportion of private

expenditure on tertiary education institutions, 2004

%

Female tertiary graduation ratios (proxy for ‘size’ of

TE system)

12

10

8

6

4

2

0

GRC

DNK

FIN

AUT

ISL

BEL

TUR

SWE

DEU

CZE

HUN

Source: OECD (2008), Tertiary Education for the Knowledge Society.

IRL

SLK

NLD

ESP

ITA

UKM

MEX

NZL

0 10 20 30 40 50 60 70 80 90

Relative proportion of private expenditure on tertiary education institutions

AUS

JAP

USA

KOR

%


Part 2: Challenges in funding

tertiary education


Ensuring the long-term financial sustainability of

tertiary education

Secure sufficient funding levels to enable TEIs to meet the growing expectations of society

and respond to the growing demand by students, in a context of tight budgets

– Expansion of tertiary education systems has led to critical budgetary pressures which are not

easily resolved in light of competing priorities for the use of public funds

– Need to rethink the appropriate balance between public and private contributions

Devising a funding strategy consistent with the goals of

the tertiary education system

Countries are seeking to design funding approaches consistent with the policy goals

sought for their tertiary education systems. This includes the introduction of elements

of funding more directed towards performance and results.


Develop steering instruments to establish a balance between

institutional autonomy and public accountability

(Funding) instruments for steering that achieve accountability and link institutional

performance to national purposes while also permitting a wide scope for institutional

autonomy

Devising cost-sharing arrangements which do not harm equity of

access

A key policy concern is to devise cost-sharing arrangements which do not harm participation

by the most disadvantaged groups, in particular through the development of student financial

aid systems.

Using public funds efficiently

Some countries are concerned with inefficiencies in their systems, including:

o high student drop-out rates

o excessive time for completion

o programme duplication

o programme under-enrolment

o insufficient use of cross-institution collaboration


Part 4: Policy directions


Strategic Approach

Policy directions

Develop a funding strategy that facilitates the contribution of the tertiary education system

to society and the economy:

– Making funding approach consistent with the goals of the tertiary education

system

Goals might include expansion, excellence, relevance, equity, social

mobility, institutional capacity.

– Ensure that the funding approach embraces a number of desirable features:

• Transparent, flexible, predictable, fair;

• Ensures public accountability;

• Permits freedom to innovate;

• Sensitive to institutional autonomy; demand-driven;

• Recognises the missions and profiles of individual institutions;

• In some circumstances, is open to private institutions.

– Articulate a long-term strategy


The principle of cost-sharing

Use cost-sharing between the State and students as the principle to shape the funding of

tertiary education:

– Provide public subsidies for tertiary education, regardless of sector of provision

– Charge tuition fees to students, especially if limited public funding either:

• rations the number of students;

Policy directions

• jeopardizes levels of spending per student; or

• restricts financial support for disadvantaged groups.

– Countries with little tradition of fees should launch a public debate on the consequences of an

heavy reliance on public money for funding tertiary education

– Consider tuition fee stabilisation policies to ensure cost containment and moderation

– Allow institutions to differentiate tuition fees across courses


Basis to allocate public subsidies

Publicly subsidise tertiary programmes in relation to the benefits they bring to society

Implications:

the public funding of educational activities which generate educational externalities

(benefits to others not appropriated by the individual receiving the education) to the benefit

of society as a whole, irrespective of the nature of the provider

levels of public funding which reflect the magnitude of educational externalities relative

to private benefits

Difficulty: assess educational externalities

Possibilities:

Policy directions

differentiate by type of programme (shortage areas, if it responds to labour market needs,

foster innovation or serve communities’ aspirations)

approval of new programmes to be preceded by an assessment of relevance

interconnectedness with quality assurance


Institutional Funding

Policy directions

Institutional funding for instruction should be formula-driven, relate to both input and

output indicators and include strategically targeted components:

– Block grants should rely on transparent formulas based on a balanced array of input and

output indicators

– Performance-based funding mechanisms should be carefully implemented

– A possible model is a contractual relationship between institutions and the State

– Institutional funding to include targeted development programmes

– Institutional funding to be adjusted to the particular mission of the institution

– Institutions to be autonomous in the use of their block grants

– Funding to offer some stability for long-term development

– Sources of institutional funding to be diversified

– Complementary streams for the funding of capital infrastructure


Institutional cost effectiveness

Improving cost-effectiveness – possible responses:

– More funding on the basis of graduation rates

– Reduction of public subsidies for students who remain too long in the system

– Conversion of loans into grants if students graduate within nominal time

– The elimination of low enrolment and/or duplicated programmes with possible

redeployment of academics across education programmes

– Rationalizing faculty to respond to student contractions

– Increasing use of shared facilities

Policy directions

– Increasing student mobility between institutions


Student Support

Back the overall funding approach with a comprehensive student support system:

– Aim for a universal student support system with two major components:

• A loan system with income-contingent repayments;

• A means-tested grants scheme.

Policy directions

– Grants scheme to be based on assessed need

– Loans system to be universal with income-contingent repayments and meanstested

subsidies

– Student aid entitlements to cover living costs

– Students who attend private institutions should benefit, under the same

conditions, from the student support system

– Creation of an agency to manage the student support system


Context

- Expansion of/demand for TE

- Limits to public budget

- Competing priorities for public budget

- “Technology” / Unit costs in TE

Private sector

Constraints

-Difficulties in determining ‘need’

- Ability to collect loan repayments

- Private capital markets

- Income distribution of population

Allocation of Public Subsidies

to Institutions

- Block grants / funding formula

- Targeted funds

- Line-item budget

Governing Tertiary Education

Decisions

-Tuition fees

-Institutional financial aid

- Investments funds /

borrowing

- Size

- Efficiency

Funding Tertiary Education

Taxpayers

State

Institutions

Student Financial

Aid System

- Loan schemes

- Grant schemes

Institutional efficiency

- Time-to-degree

- Completion rates

- Student-staff ratios

- Programme duplication

/ underenrolment

Tertiary Education Outcomes

- Quality

- Innovation

- Equity

- System responsiveness

Goals of tertiary education

- Access to and equity in TE

- Quality of provision

- Relevance of programmes

- Internal efficiency of system

Students and

families

Labour

Market for

academics

Quality

Assurance

R&D and

innovation

“Third mission”

activities

Framework to analyse the

funding of instruction in tertiary

education


Thank you for your attention

Final Report

Tertiary Education for the Knowledge Society

(PDF available from www.oecd.org/edu/tertiary/review/synthesisreport)

For further information and other documentation:

www.oecd.org/edu/tertiary/review

paulo.santiago@oecd.org

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