Private Higher Education: Funding Issues

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Private Higher Education Funding Issues

• Conference on Private Higher Education18-19
  November 2008Kuala Lumpur, MalaysiaNorman
  LaRocquenlarocque_at_adb.org

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Private Higher Education Context

• Large and growing private higher education (HE)
  in many countries in both developed and
  developing world
• Growth due to many factors, including
• Inability of public sector to meet demand for HE
• Favorable regulatory reform
• Growth in private economy fueling demand for new,
  more job-oriented skills
• Growing diversity of student backgrounds
• Diverse sector for-profit and not-for-profit
  HEIs, stand-alone HEIs and chains, corporate
  universities, franchises/affiliations, online
  universities, public/private hybrids

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Private Higher Education International Context

• Private sector significant in many Asian
  countries (eg. Japan, South Korea, Indonesia,
  Philippines) and Latin America (eg. Colombia,
  Brazil, Chile)
• Smaller, but still significant private sector
  elsewhere (eg. Pakistan, Egypt, Malaysia, India)
• Considerable growth in private HE in many
  countries developing countries and emerging
  markets (eg. Transition Economies, Arab countries)

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Private Sector Share of Higher Education
Enrollments, Various Countries
Source PROPHE
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Funding of Private Education International
Context

• Public funding of private schools is common
  Indonesia, Bangladesh, Chile, Netherlands,
  Philippines, Australia, New Zealand, Pakistan,
  Canada, USA, India, etc
• Many governments do fund private higher education
  institutions (HEIs), but this practice is less
  common than at the school level
• Examples of countries that provide direct
  subsidies to private HEIs include Argentina,
  Chile, India, Indonesia, Belgium, Finland,
  Hungary, Japan, Pakistan, Korea and New Zealand,
  etc
• Where assistance to private HEIs is provided, it
  is generally much lower than for public HEIs

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Percent of Public Expenditure on Direct
Assistance to Private Tertiary Education
Institutions, Various Countries/Years
Source OECD
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Percent of Public Expenditure on Indirect
Assistance to Private Sector, Various Countries
and Years
Source OECD
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Direct and Indirect Assistance to Private Sector,
Various Countries/Years
Source OECD
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Funding of Private Higher Education Types of
Assistance

• Various kinds of assistance to private HE sector
• Assistance can differ significantly depending on
  country and circumstances
• Operating versus capital assistance
• Direct versus indirect assistance
  (institution-based versus student-based
  assistance)
• Student scholarships/grants versus student loans
• Monetary versus in-kind assistance
• Spending versus tax-based assistance
• Capacity-building versus operational assistance

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Public Funding of Private HE Types of Assistance

• Direct Assistance
• Subsidies to HEIs operating grants, payment of
  academic staff salaries
• Tax benefits tax write-offs, tax credits, tax
  holidays, customs/ duties/VAT exemptions
• Competitive research funding
• Capital funding for infrastructure development
• Free land or land at discounted prices
• Soft loans
• Capacity-building/staff training

• Indirect Assistance
• Scholarships for students at private HEIs
• Scholarships for academic staff at private HEIs
• Student loans for tuition fees and living costs
  for students at private HEIs
• Student living allowances for students at private
  HEIs

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Public Funding of Private HE

• Government involvement in education often
  justified on two grounds
• HE generates externalities (benefits that
  extend beyond those accruing to the person
  undertaking the education)
• credit market imperfections (students cannot
  borrow to finance their education)
• Neither of these justifies government provision
  of HE only government funding of HE
• No public policy reason for exclusively public
  provision of HE or for providing public subsidies
  exclusively to public sector HEIs
• Distinction between financing and provision is
  key to moving beyond traditional public
  finance/public delivery model

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Mechanisms for Allocating Funds to Private HEIs
for Teaching and Learning Activities, Various
Countries
Source OECD
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Financing versus Provision
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Case Study Private HE Funding, New Zealand

• Private sector represents about 15 of
  enrollments in private HE in New Zealand bulk
  of provision is at diploma/certificate, not
  degree, level
• Assistance to private HE sector includes
  subsidies, as well as student eligibility for
  loans and allowances
• Policy during 1990s encouraged private sector
  growth tuition subsidies for private sector,
  eligibility for student loans/allowances, quality
  assurance, qualifications framework
• Some policy backsliding post-1999 tuition fee
  caps, per-student funding cuts, restrictions on
  access to student support, but level of
  assistance still high

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Private HE Sector Growth, New Zealand1991-2005
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Case Study HE Reform, Pakistan

• Broad HE reform program since 2002
• Program has included a number of reforms aimed at
  increasing the extent and quality of private HE
• QA system covering both public and private
  institutions
• Scholarships for students and staff in private
  sector
• Incentives for private HEIs free or discounted
  land, establishment and research grants, digital
  library access, foreign faculty
• Information to students rankings, advertising,
  etc
• Inclusion of private sector in national policy
  discussions
• Incentives limited to private HEIs that are
  not-for-profit and meet various infrastructure
  and staffing quality
• Private sector 23 of enrollments in Pakistan

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Case Study Pakistan HE Reforms (Contd)

• Private HEIs are eligible to receive some
  government funding
• up to 50 funding for development projects, 50
  matching grants for digital library, 50 matching
  grants for hiring foreign faculty, 100
  government funding for research support programs
  and training facilities
• Funding is available to private HEIs that meet
  certain criteria
• Not-for-profit, 70 of courses taught by
  full-time faculty, own campus, proper governance
  structure, established accounting/audit
  procedures, needs-blind admission policy, meet
  Cabinet establishment criteria
• Reformed establishment criteria for private HEIs
• Reduced land requirement, relaxed trust fund
  requirement/investment rules
• Indirect assistance also available to private
  HEIs
• PhD scholarship program, undergraduate
  needs-based scholarship program

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Case Study ProUni Program, Brazil

• Brazil HE is dominated by the private sector
• In 2005, Brazil introduced the University for All
  (ProUni) program, aimed at promoting HE access
  for disadvantaged students
• Key features of the ProUni program
• Participation by private universities is
  voluntary
• Participating universities must provide
  scholarships to approximately 10 of paying
  students (set by law)
• Participating universities are exempt from
  federal taxes
• Scholarships must be offered to students who
  attended public schools or private schools with a
  full scholarship
• More than 120,000 scholarships awarded at 1,200
  participating universities in 2005

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Case Study Financial Aid to Private For-profit
HEIs, USA

• In 1996, the definition of HE in the USA was
  changed to include private for-profit HEIs
• Students at private for-profit HEIs became
  eligible for Title IV funding the same
  government-sponsored financial aid available to
  students in public and private non-profit HEIs
• To be eligible for Title IV financial aid,
  private for-profit HEIs had to meet the following
  criteria
• Offer an Associates degree or higher
• Accredited by a body recognized by the U.S.
  Department of Education (DOE)
• Been in business for at least two years
• Sign a working agreement with DOE

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Funding of Private Higher Education

• Funding of private HE sector can lead to
  increased private investment in HE, increased
  access, greater equity and higher quality
  provision in the HE sector
• Range of different forms of assistance possible
  from free land to operational subsidies
• Funding of private HE sector heightens need for
  effective regulatory framework
• Do not regulate tuition fees of private HEIs
• Safeguard HEI operational autonomy
• Well informed student population
• Strong QA framework for private and public HEIs
• Clear, objective and efficient HEI establishment
  criteria/process

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Funding of Private Higher Education (Contd)

• OECD (2008) has argued that governments should
  publicly subsidize tertiary education studies
  offered by private institutions
• Small policy changes can have a big impact on
  growth in the private HE sector. Examples
• FEE-HELP in Australia approved private
  providers grew by 14 in 2007, the first year in
  which private providers were eligible for
  FEE-HELP loan system
• Financial Aid Reform in 1996 enrollments in
  private for-profit HEIs grew by 128 between 1990
  and 2000
• HE reforms in New Zealand enrollments grew by
  around 2.5 times between 1997 and 2003

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Funding of Private Higher Education (Contd)

• But potential downsides to private sector
  assistance excessive regulation of private
  HEIs, quality concerns, fraud/corruption,
  politicization of private HEIs
• Other concerns include risk of policy reversal
  due to
• Change in political/policy environment (eg.
  China, New Zealand)
• Policy contagion abrupt reversal of policy
  for entire sector due to actions of a few private
  providers
• Institutional dependency on government funding
  a further concern
• Risks are heightened by the fact that private
  sector is new in many countries supports need
  for good regulatory framework

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It doesnt matter if a cat is black or white, as
long as it catches mice. - Deng Xiaoping