Funding in higher education
Reflections on:
the new Slovene HE funding mechanism
+
the Dutch HE funding system
Hans Vossensteyn
Discussion seminar at the Slovene Ministry of Education …
Ljubljana
6 D·e·c·e·m·b·e·r
2·0·1·1
Governing Tertiary Education
Context
- Expansion of/demand for TE
- Limits to public budget
- Competing priorities for public budget
- “Technology” / Unit costs in TE
Funding Tertiary Education
Taxpayers
Goals of tertiary education
- Access to and equity in TE
- Quality of provision
- Relevance of programmes
- Internal efficiency of system
Quality
Assurance
State
Student Financial
Aid System
Allocation of Public Subsidies
to Institutions
- Loan schemes
- Grant schemes
- Block grants / funding formula
- Targeted funds
- Line-item budget
Students and
families
R&D and
innovation
Private sector
Institutions
Decisions
Institutional efficiency
-Tuition fees
-Institutional financial aid
- Investments funds /
borrowing
- Time-to-degree
- Completion rates
- Student-staff ratios
- Programme duplication
/ underenrolment
Constraints
-Difficulties in determining ‘need’
- Ability to collect loan repayments
- Private capital markets
- Income distribution of population
“Third mission”
activities
Labour
Market for
academics
Tertiary Education Outcomes
- Size
- Quality
- Efficiency - Innovation
- Equity
- System responsiveness
Framework to analyse the
funding of higher education
Context: EU Modernization
Agenda on funding
1. States should ensure a sufficient level of
funding for HE (reduce funding gap with
US & Japan)
2. States should examine their mix of
student fees and support schemes in the
light of their actual efficiency and equity
3. Financial autonomy: Universities should
be responsible and accountable for their
resources
4. University funding should be focused on
relevant outputs rather than on inputs
5. States should strike the right balance
between core, competitive and outcomebased funding
7 principles of economics
1.
2.
3.
4.
5.
6.
7.
People face trade-offs
The cost of something is what you give up to get it
Rational people think at the margin
People respond to incentives
Trade can make everyone better off
Markets are usually a good way to organise
economic activity (‘invisible hand’)
Governments can sometimes improve market
outcomes
More market forces in public
sector (e.g. HE)
Introduce connection between budget and
performance
Introduce some degree of competition
(freedom to choose)
The evolving role of the state:
New modes of coordination
From central planning to decentralised decision-making
and facilitating self regulation and autonomy
Self regulation and autonomy:
‘Don’t overdo it’ !!
Funding models for HE
traditional state funding: problems
features
problems
line-item budgeting,
input control
inflexibility, no links
between goals & money
annual budget
„december fever“, no
reserve planning
annual budget
instability, no reliable
calculation base
traditional state funding: problems
features
problems
incremental
budgeting
no incentives, no performance orientation
central state allocation
decisions, ex ante
low information,
inflexibility
bottom-up aggregation
of financial plans
no priorities
traditional state funding: problems
features
problems
steering through
regulation
uniform solutions,
university tactics
few financial sources
high risk, high
dependence
similar observations in different countries, different
timing and degree of change
criteria for good funding models
incentives
competition, demand-steering
goal and performance orientation
promotion of profiles, innovation
stability
cost orientation
transparency
limited reactions, long-term orientation
criteria for good funding models
autonomy,
flexibility
flexible internal decisions on expenditures
university creates own internal mechanisms
discretionary state steering focused
legitimization
transparency
accountability
… and …
goals / strategies are a necessary
precondition for new funding systems
(and for performance orientation in HE) !
• funding without strategy lacks orientation
• strategy without funding (incentives) is useless
general developments:
„3-pillars-model“ of state finance
stability
rationale
 cost orientation
 ability to fulfill tasks
 steering objectives
 influence behavior
 incentives for
performance
 finance innovation in
advance
 control result of
innovation
incentives
pillars
basic, task+ performance – + innovation –
oriented funding
oriented funding
oriented funding
legitimacy
legitimacy
different pillars to reconcile different goals
Options for the public funding
of HE institutions
• Direct funding of HE institutions
–
–
–
–
Incremental (previous year + Δ )
Funding formulae
Funding through projects
Funding through contracts
• Funding through students (vouchers)
– Hardly in use across the world
How to make funds available to HEIs?
Public budget
Discretionary
Incremental
(previous year’s
budget)
Detailed
agreements
Contracts
Mission-based
(negotiations
with indiv HEI)
Framework
agreements
Every country has its own MIX of
funding components
Project
funding
(competing
proposals)
Cost based
indicator
driven
Formula
funding
Performance
oriented
indicator
driven
Almost everywhere lump
sum: institutional strategy
Move to lump sum budgeting :
- more responsibility / accountability
- efficiency
Move from negotiated line-item funding to
formula funding
- transparent / rational / simplified / flexible
- mainly enrolment driven, but also outputs
Specific targeted funding
- incentive funds for quality, access and innovations (e.g. accreditation, …)
Vouchers / learning entitlements
- flexibility, but administrative problems and do students want it?
Allocation mechanisms:
a balancing act
The big question is:
A proper balance between centralisation and
decentralisation: autonomy / responsibility
(degree of autonomy; balancing academic values
with market forces; maintaining equity between
‘rich’ and ‘poor’ universities / departments)
Advantages of decentralization /
autonomy
Increased responsibility (vision / profiling / strategy?)
Incentive for cost-effective use of resources
Increases speed of decision-making
Accountability and the transparency it generates
Empowers institutions (close to clients)
Motivates & encourages innovation
Disadvantages of decentralization /
autonomy
Lack of co-ordination (‘nation of shopkeepers’)
Shifting costs to other units (free riders)
Can one handle responsibility?
Increased administrative burden of accountability
instrumental options
• the instruments make the difference
• rationale behind differences:
priorities for objectives (e.g. incentives vs.stability)
cultural differences (e.g. market simulations
vs. negotiation)
• major instruments for allocation:
formula – application – contract – lump-sum
Formula Funding
• Formula ensures transparency; fairness;
accountability; stability
• Funding rates usually in relation to costs in any
subject/HEI (i.e. method of delivery of
subjects: classroom-based vs laboratorybased) and degree level
• Formula is not prescriptive (does not drive
budgets at departmental level)
• Formula add-ons (premiums) to reflect
additional costs, special circumstances, due to
(e.g.):
• Student diversity
• Location / age of HE provider
• Sustaining important subjects
• High-cost facilities
Interesting example
funding of teaching
Netherlands
Netherlands: performances
Since 1983 substantial freedom of spending
Teaching funds substantially based on performances:
- 50% for graduates (bachelor/master)
- 13% for new entrants
- 37% fixed amount
To increase the completion rate
Risk:
creative book keeping
Now discussion about learning entitlements:
- empower students
- flexibility (but do students want that? limited budget)
National funding model (BaMa)
BaMa Model compartment
(2008)
tariff / base
(in Euro)
share in lump sum
(in %)
new entrants
2,600 low
3,900 high
13%
diplomas
11,500 BA-low
17,300 BA-high (excl. medicine)
20,800 BA medicine
5,800 MA-low
8,700 MA-high (excl. medicine)
31,200 MA medicine
50%
basic allocation
Historical
37%
teaching component:
total for teaching component
100%
research component:
basic allocation
Ba/Ma diplomas
2,700 (BA-low))
4,000 (BA high)
8,000 (BA-medical)
5,400 (MA-low)
8,000 (MA-high)
16,000 (MA-medical)
15%
PhDs
PhD low: 41,700
PhD high: 83,400
12%
designer certificates
69,500
research schools
Historical
3%
top research schools
strategic choices
3%
strategic considerations
Historical
total for research component
67%
100%
Funding rates in Twente
allocation model (formula part)
Education- part :
• 85 Euro per student credit (ECTS);
• 2790 Euro per first year student in engineering;
• 1390 Euro per 1st yr student in social sciences
Research part:
• 30 Euro per Bachelor-ECTS in social sciences;
• 40 Euro per Bachelor-ECTS in engineering;
• 80 Euro per Master-ECTS in social sciences;
• 110 Euro per Master-ECTS in engineering
• 44.500 Euro for a researcher on Research council grant in engineering;
• 31.800 Euro for a researcher on Research council grant in social sciences
• 22.300 Euro for researcher on (some) industry sponsored contract (engineering);
15.900 Euro for researcher on (some) industry sponsored contract (social sc.)
• 75.000 Euro for a PhD (all disciplines)
• 62.500 Euro for a designer certificate
University of Twente allocation model
TU Delft allocation model
To be
replaced
by contract
Interesting example
funding of teaching
Slovenia
Introduction
2004  lump sum
OLS
2004
80
:
20
60
:
2010
40
NLS
no. students
no. graduates
study field
factor
How much flexibility in 2011 and onwards?
The Decree is very historically oriented, few incentives
Problem if student number is decreasing
variable part
± 3%
fixed part
(k+1)
=
TSF (k)
+
GDP
Variable part indicators:
- efficiency (graduation rate) - ±1%
- promotion of students from Year 1 to 2 - ±1%
- international cooperation - ±1%
variable part of TSF-Zk = fixed part of TSF-Zk × Factor
Factor = fu+ fpr + fm
Remark: variable part very limited and how likely it is that one
institution would be good or bad at all 3 indicators? Likely they
will balance out?
Budgetary financing of 1st and 2nd cycle:
Variable part
 3%
public tenders:
variety,
internationalisation
quality
social dimension
fixed part
(k+1)
=
TSF (k)
+
GDP
primary financing pillar (TSF)
development financing pillar (RSF)
How big is the RSF pillar?
Big enough to stimulate all 4 priority areas?
New or old money? If new, sustainable?
THANK YOU FOR YOUR ATTENTION !
Contact information:
Prof. dr. Hans (J.J.) Vossensteyn
University of Twente
Center for Higher Education Policy Studies (CHEPS)
PO Box 217
7500 AE ENSCHEDE
The Netherlands
tel:
+31 - (0)53 489 3809
e-:
j.j.vossensteyn@utwente.nl
inet:
www.utwente.nl/cheps