Funding of higher education

A study team commissioned by the UKOU looked at in 2010 at a range of international funding models in order to get a picture of where the current HEFCE model lay in the ‘funding universe’ and what influences – be they from Bologna, EU, OECD, Commonwealth, GATT or whatever – might come to bear on the model – noting in particular that the current model is regularly exposed for consultation (HEFCE 2005, 2006, 2007, 2009) and is currently undergoing a more fundamental review of its ‘key principles and features’ (HEFCE 2010).

A recent completed HEFCE consultation (issued July 2009) sought views on ‘proposals to withdraw from 2010-11, possibly phased over a number of years, the following three targeted allocations from recurrent teaching funding: old and historic buildings, accelerated and intensive provision of postgraduate taught subjects in price band D, and foundation degrees.’

There was one more proposal recently out for consultation (issued November 2009) on ‘plans to review over the next two years the way we fund learning and teaching, with a view to implementing possible changes to our funding policy and method from 2012-13 at the earliest.’ This also reported HEFCE’s ‘decisions to make no changes for 2010-11 to the subject price group weightings nor to the fee assumption in the teaching funding method.’

Thus it is clear that HEFCE remains active in ensuring that its funding model remains ‘fit for purpose’ – but if there is any international analysis embedded in the consultation process it seems on the surface that it must come from those who reply to the consultations, not from within HEFCE. And it is fair comment to say that the fundamentals of the HEFCE funding method have changed rather little in the last ten years while some other countries have had a rapid evolution – still ongoing, for example, in Sweden.

While it would be easy to dismiss such moves as ‘catching up’ with the UK, it is wiser to consult various papers from analysts who compare funding models, especially those which attempt to move beyond the typical orientation to ‘input’ funding to a greater emphasis on ‘outputs’ and ‘outcomes’. (There is also a similar but maybe slower trend towards this in quality and benchmarking.)

In this context we should also mention the Independent Review of Higher Education Funding and Student Finance (2009) which notes: ‘The review is tasked with making recommendations to Government on the future of fees policy and financial support for full and part-time undergraduate and postgraduate students.’

A useful starting point would seem to be the paper from the former DfES (2004) on ‘Higher Education Funding – International Comparisons’. However, this focusses primarily on broad issues of the balance between student grants and payments to institutions and secondarily on subject-dependent tariffs – and hardly at all on the minutiae of funding regimes and their interpretation by funders and HEIs.

More useful perhaps – and somewhat more recent – is the paper for the New Zealand Parliament (2006) on ‘Higher Education Funding – Overseas Models’. This has an informative overview (our italics):

There are a diverse range of funding arrangements for higher education throughout the world. The arrangements generally reflect governments’ and societies’ objectives for higher education and are the means through which they attempt to achieve them. The resulting systems often represent a compromise between competing pressures. Many countries have moved away from direct control relationships with universities to those based on autonomy of institution, with funding tied to quality, efficiency, and often, incentives towards government priorities for development. Student choice is sometimes used as a measure of quality and funding is awarded accordingly, while in other countries funding is contingent on intrinsic quality measures such as the number of successful completions or the numbers of credits achieved.

It also issued a caveat that

In large, federalised countries, funding is often provided by local, state and central governments and there may be a multiplicity of arrangements within the country.

This came into prominence when we started studying US states models of funding HE. Finally, mention should also be made of a particularly promising-looking overview of the area by Alphonse Semugaza (2006) of Rwanda – but when we contacted the author we found that due to personal circumstances he had been unable to continue the work.

These comparative papers are only a subset of what is available, and in particular there are many older papers (1990s-era) on the subject. However, even these few led us in the direction of looking for models which some experts might regard as more ‘advanced’ than the HEFCE model, moving further in the direction of funding based on output measures than is (yet) the case in England.

The World Bank has produced some recent reports, in particular that by Nicholas Barr (2006) on ‘Financing Higher Education: Lessons from Developed Economies, Options for Developing Economies’. Though this focusses largely on loans, there is some material on funding institutions. The summary is worth quoting, as it is surprisingly topical: However, international competitive pressures exert downward pressure on fiscal capacity, and fiscal pressures are compounded by competing demands connected with population ageing and medical advances. In the face of these pressures, policy makers face a tradeoff between the size of the higher education system, its quality, its capacity to widen access, and its fiscal cost.

The paper goes on to consider ‘mechanisms through which to allocate resources to educational institutions (for example, how competitive a regime) and to students (loans or grants, needs-based or merit-based transfers).’ It concludes with another topical message that ‘policy makers should consider higher education policies not in isolation, but from a life-cycle perspective that includes earlier education.’ A similar type of analysis at this meta-level is the paper on ‘Funding Higher Education: The Contribution of Economic Thinking to Debate and Policy Development’ by Maureen Woodhall (2007).

Much of this work is at too general a level – or too focussed on student funding issues – to be useful for fine-tuning institutional funding formulas. So we turned our attention to some of the recently developed funding models for specific countries that appeared to focus more on outputs than inputs, and retention in particular. As with all work on comparative education, we were faced with the ‘problem of relevance’ – out of all the 248 countries in the world which are relevant to the issues of funding higher education in England.

In such contexts it is usual to look at OECD, EU and Commonwealth countries, especially those in contestation with the UK for students (EU and non-EU).

Thus five countries with ‘promising-looking’ funding schemes (or at least analytic work) were looked at in more detail: Australia, New Zealand, Denmark, Sweden and the United States. The paper finishes with some remarks from a 2007 study in Germany.

The full paper gives the details.

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