Financing Child Care in the United States - Ewing Marion Kauffman ...

LOOKING TO THE FUTURE
HIGHER EDUCATION STRATEGIES
The problem of finance in early childhood is both a question of resources (increased investments)
and a question of distribution (a better framework to organize and deliver the resources). As
an approach to the problem of early childhood finance, the higher education model has several
features that hold promise. For example, higher education and early childhood education support
similar values: family choice, equity, access and quality. Higher education, like early education,
encompasses a full range of providers, public and private, for–profit and not–for–profit, religious
and secular. Higher education is supported by a variety of public and private funding sources,
including tuition paid by families. Higher education is familiar, easy to understand and well
accepted by the public.
Most importantly, the higher education system offers potential solutions to the major problems
faced by the early care and education system, particularly with regard to need analysis, combining
direct and portable aid, full–cost pricing and funding standards.
NEED ANALYSIS
Higher education uses a uniform methodology for
determining family ability to pay, rather than an arbitrary
formula (e.g., 10 percent of income) or a scale designed
to stretch limited funds over a large pool of families.
In higher education, the need analysis yields an expected
family contribution (EFC). Scholarships, grants and/or
loans from sources other than the family are used to
make up the difference between the EFC and the full
price of education. This approach to determining the
need for aid could be a helpful model for early care
and education.
GENERAL AND INDIVIDUAL AID IS COMBINED
Higher education is supported by multiple public and
private financial sources, in forms that are both direct to
institutions and in portable aid for consumers. General
aid, such as government appropriations, grants, contracts
and revenue from endowments, is received directly by
institutions of higher education (or generated by them in
the case of endowments) and reduces the price of tuition
for all or some students. Additionally, many students and
their families received portable, individual aid in the form
of scholarships, grants and loans to use at the institution
of their choice. Early care and education programs rely
almost entirely on fees paid by parents and on portable,
individual aid and rarely receive any direct, institutional
support. Higher education offers a useful framework for
understanding how general (direct) and individual
(portable) aid can be combined.
FULL COST PRICING
Higher education institutions set tuition prices based on
the full cost of a quality education, less any direct support
to the institution. Early childhood and out–of–school–time
programs set prices based on perceptions of the average
family’s ability to pay. As a result, quality is severely
limited by keeping wages low. Public subsidy systems
then use these low prices to set reimbursement rates. If,
instead, prices were set to include adequate compensation
to retain skilled staff and to cover the costs of the
other essential elements of a quality program, the true
cost of quality would be known. Understanding the true
cost is a necessary first step in generating adequate
financial support and is another area in which higher
education might offer important lessons.
FUNDING STANDARDS
Only accredited institutions of higher education can
access federal funds; institutions can be accredited by
one of several bodies, all of which must meet the same
federal guidelines, thus assuring consistency.
Institutions of higher education have multiple sources of
revenue and do not depend primarily on tuition. On
average, tuition payments represent only 30 percent of
their operating expenses. However, in early education,
most programs rely heavily on parents’ fees; on average,
tuition payments represent 70–80 percent of total
operating revenues. By the same token, while colleges
and universities devote significant resources to infrastructure
needs such as faculty development and
buildings, early childhood programs rarely include the
cost of facilities (including repair, maintenance and
depreciation) in their budgets.
Essentially, the higher education model applied to early
care and education offers an innovative framework for
structuring finances. It includes some useful features
such as more rational methods of determining family
contribution to the cost of care, and it offers the concepts
of direct (institutional) and portable (individual) aid. To
succeed as a practical alternative to the current system
of financing early care and education, new sources of
funding and larger overall investments will be required to
fill in the gaps that remain.
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