Slide 1

Andrew S Downes PhD Professor of Economics and Pro Vice Chancellor University Office of Planning and Development University of the West Indies *UWI/IESALC/UNESCO Second Caribbean Conference on Higher Education, Jamaica May 8-9, 2014 FINANCING OF HIGHER EDUCATION: A STAKEHOLDERS PERSPECTIVE *

Slide 2

OUTLINE OF THE PRESENTATION Nature of Higher Education in the Caribbean Cost Drivers of Higher Education Institutions Financing the Higher Education: A Stakeholders Approach Underlying Economic and Social Considerations Concluding Assessment

Slide 3

NATURE OF HIGHER EDUCATION IN THE CARIBBEAN Higher Education : all post-secondary education consisting of a mix of private and public universities; colleges; technical and vocational centres/institutes/polytechnics and professional schools ( accounting, banking, finance etc) which offer certificates, diplomas and degrees. The Caribbean consists of a range of higher/tertiary level educational institutions: Regional University: U of the West Indies National Public Universities: Guyana, Jamaica, Trinidad/Tobago, Belize, Haiti Private Universities (on and on-shore): St Georges, Ross, Northern Caribbean etc Private and Public Colleges/Schools/Polytechnics (internal and external---face to face, online/distance programming)

Slide 4

NATURE OF HIGHER EDUCATION IN THE CARIBBEAN Several factors fuel the Demand for Tertiary Level Education in the Region: Adoption of Universal Free(publicly funded) Secondary level education, which creates a pool of persons for the next stage of education; Adoption of a social demand approach to educational planning with the free provision of education up to tertiary level in some countries; Higher levels of education needed for social mobility and production processes ( middle and higher level skills) Free mobility of labour within the CARICOM (CSME) for certain categories of labour requiring higher levels of education; The widespread use of information and communications technology (ICT) Need to replace those who have migrated to OECD countries ( up to 80% of tertiary educated persons migrate in some countries) Relatively to higher levels of education ( vocational, university etc) Low percentage of labour force with higher education ( less than required for sustainable growth and development)

Slide 5

NATURE OF HIGHER EDUCATION IN THE CARIBBEAN Labour Force with Tertiary Level Education as a percentage of the total labour force ( see Table below) Source: World Bank data CARICOM target of 15% of adult population enrolled in tertiary level education by 2005.

Slide 6

Country Name1993199720012002 Antigua and Barbuda8.2 Bahamas, The11.3214.8219.121.8 Barbados16.14 Belize2.53.09 Dominica7.59 St. Lucia12.649.18 St. Kitts and Nevis18.2 Trinidad and Tobago5.916.5977.5

Slide 7

COST DRIVERS OF HIGHER EDUCATIONAL INSTITUTIONS Higher Educational Institutions are Multi-product ( teaching, research, advisory services)- Multi costs Organisations ( labour, plant and equipment, energy etc) which can be classified as: Non profit organisations ( donative-commercial aspects) Profit oriented organisations Discussion on the costs of higher education has driven the discussion on who pays for such education: Government, Individual and/or Employer/Private Sector ( Stakeholders) Full payment by one party or a cost sharing arrangement between parties

Slide 8

COST DRIVERS OF HIGHER EDUCATIONAL INSTITUTIONS Several explanations of increasing costs of higher educational institutions esp universities: Cost Disease [Baumol and Bowen] Theory: limited opportunity to substitute high cost academic staff in the teaching function in traditional institutions ( relatively fixed student staff ratios) so with increasing productivity and salaries/benefits in the wider economy, staff in HE benefit without a commensurate increase in productivity. Input Price Theory: the increases in the prices of inputs employees, equipment, energy, supplies etc ---in the wider economy spill-over into the HE sector by way of a pass- through effect. Basis for incremental budgeting based in inflation rates

Slide 9

COST DRIVERS OF HIGHER EDUCATIONAL INSTITUTIONS Competitive Product Theory: HE institutions compete to attract students by providing a good student experience amenities, services, facilities etc. They also change the mix of programs which can increase costs ( from humanities to STEM areas which are more expensive) in order to stay at the cutting edge of skills/ knowledge and meet employer needs. In this case, the inputs (students) are also the consumers in the educational process. Example -use of an Amenities Fee at Cave Hill to cover some costs. Management Utility Maximization Theory: HE managers/administrations seek to enhance the reputation/prestige/quality of HE institutions by offering higher compensation, better working conditions, smaller classes, more research,cutting edge technology etc which increase the cost of higher education

Slide 10

COST DRIVERS OF HIGHER EDUCATIONAL INSTITUTIONS Government Regulation Theory: HE institutions need to conform to the laws and regulations of a country or region OHS, access to the disabled, non-smoking areas, health facilities etc Revenue Theory [Bowens Laws of HE Costs]: as non-profit organisations, HE institutions costs expand to absorb whatever revenue becomes available. This view reflects 4 laws: Dominant goal is excellence, influence and prestige, not profits In quest for excellence, there is no limit to dollars spent The organisation raises all the money it can The organisation spends almost all that it can raise

Slide 11

COST DRIVERS OF HIGHER EDUCATIONAL INSTITUTIONS The different theories of higher education costs result in differential benefits to and sacrifices from stakeholders [Benefit and Sacrifice Principles] Higher Education brings both social and private benefits hence stakeholders have to make differential contributions to meeting the costs of higher education. Main financing stakeholders: Government ( on behalf of all persons/taxpayers in the country) Students at all levels ( who are the direct beneficiaries ) Alumni/Friends of HE institutions Private Sector Employers Higher education institutions

Slide 12

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH The financing of HE can be examined from the perspective of the different stakeholders given before. HIGHER EDUCATIONAL INSTITUTION: HE managers/administrators need to manage their finances to meet the costs of their operations The University of the West Indies (UWI) is a regional non profit HE institution with financial contributions from 16 countries The UWI uses the concept of FULL ECONOMIC COSTS defined as all costs which will be incurred in operating and maintaining the University inclusive of depreciation, cost of pension, supplementation and cost of debt service. Such costs include recurrent and capital costs needed to meet the teaching needs of students and research/administrative needs

Slide 13

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH How is this full economic costs met? Government contributions( based on the number of students enrolled) Tuition and other student fees ( differential fees) Project Funds ( Research) Commercial Operations Investment Income Other Miscellaneous Income. Innovative Funding Approaches: University Bonds esp to Diaspora ( for large projectsmight need Govt backing) Private Equity/Venture Funds in commercial operations and research Crowd-funding for special projectsusing network of alumni, friends of HE Franchising of programsHE partnering Leveraging educational assets ( grounds, conference facilities, special centres) Outsourcing of selected services vs licensing of services(food,cleaning,etc)

Slide 14

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH Source 2002/3 2006/7 2011/2 Govt Contributions55.952.149.9 Tuition Fees13.614.615 Special Projects5.38.27.6 Other Projects13.81518.2 Commercial Operations5.25.46.2 Other Income6.14.83.2 Total100

Slide 15

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH In the case of the public university of University of Technology ( Jamaica) it has been reported that of a recent budget of J$6.5 billion: Government contribution: 30% Student fees : 50% Investments, Projects, Consultancies etc: 20% In the case of the University of Guyana (2011/12) the distribution of income of G$1.887billion was as follows: Government grant: 47% Tuition Fees: 44% Lab, Exams and other fees: 3% Other Income 6% Note the significance of fees in these national public institutions ( cost sharing approach) In non-university public national colleges and polytechnics, the Governments fund the operations. Only miscellaneous fees charged.

Slide 16

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH In the case of the Open Campus of the UWI online and distance learning, more mature average student (69% between 25-44 years of age): Government contributions: 39% Tuition fees: 53% Other Income 8% Basic Financial Equation: Costs=Government Contribution( Subsidy or Expense/Payment for Services?) + Tuition and Related Fees + Other Income HE institutions need to consider their cash flow in order to meet commitments payment of wages and salaries, supplies, utilities etc. So focus is on getting funds upfront ( compare students who might want to pay after graduationdeferred payment!!!)

Slide 17

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH GOVERNMENT Considerations: allocation of tax revenue funds between; Education and other social and economic functions Pre-school, Primary, Secondary and Tertiary/Higher levels of Education Different levels/types of higher education Options for funding HE: Full funding of selected HE institutions out of tax revenue Partial Funding ( Dollar for Dollar T&T) Scholarships/Bursaries /Grants ( Demand side financing) Graduate /Tertiary Tax- placed on graduates for a number of years after completing education. Challenging to implement. Establishment of a Higher Education Fund general or special HE tax Student Loan Schemewith subsidized interest rates and long repayment periods Tax incentives for HE insurance or savings instruments Adoption of Formula ( enrolment) or Performance Funding ( based on the achievement of targets)

Slide 18

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH In the case of Trinidad and Tobago: Student Cess: Introduced in 1989 for UWI students 10% of the Economic Cost Commercial bank loans guaranteed by the Government Dollar for Dollar (DfD): Introduced in September 2001 for selected HE institutions Goal was to increase HE enrolment and make HE affordable Government paid half of the tuition fees charged by HE institutions ( matching arrangement cost sharing) Student must not failed more than two courses for the year conditional or performance based arrangement

Slide 19

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH Government Assistance for Tuition Expenses (GATE): Introduced in 2004 with Government paying 50% of tuition fees but a means testing facility used. Approved HE institutions Modified in 2006 with government paying 100% of tuition fees Conditional access to GATEresidency for 3 years prior to access; period of national service, grant converted to loan if programme is incomplete, maintenance of a minimum GPA Covers level 2 TVET Supplemented by a HELP programme which covers non tuition expenses In the case of Guyana, the Government contributes to UG by way of subvention and tuition fees ( through a student loan which the Government pays directly to the UG). This is a Supply side financing/Cost Recovery programme introduced in 1994/5.

Slide 20

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH STUDENTS Required to cover tuition and other fees along with living and related expenses Challenge with borrowing for human capital in the financial marketlack of physical collateral Options Available: Family Support ( quiet significant in the Caribbean from surveys) Personal savings/Part-time work/Proceeds of Insurance Policy Income-based or Income contingent Loans (risk sharing or risk pooling) most recommended form of private funding. Recent survey of Barbadian students support low cost loans from banks, credit unions etc: Guaranteed by Government or Individuals Private Equity whereby private investor pays for education and gets returns after graduation ( a form of human capital contract) Graduate Tax/Deferred Payment Scholarships/Bursaries/Grants Education Vouchers (form of grant for educational purposes)

Slide 21

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH In the case of Barbados, there is a Student Revolving Loan Fund established in 1977 within the Ministry of Education: Collateral security( land, cash, property etc) or two sureties for Bds$50,000 or less and for loans over $50,000 ( two sureties for first $50,000 and collateral security for the remainder) Accredited programmesacceptance/enrolmentpart time, full time or distance Loan covers tuition and living and school expenses Loan covered by group life insurance Interest rate is variable1.5 percent above minimum savings rate Payment after completion up to 12 years with a six months grace period ( for part time and distance) Signing of a bond is needed Similar to the student loans obtained from the Student Loans Bureau in Jamaica

Slide 22

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH ALUMNI/FRIENDS OF HEI Philanthropy Payment of Graduate Tax or payment in a tertiary fund Provision of Venture and Equity Capital re commercialisation of research In-kind contributions Provision of scholarships and related initiatives Fund raising events

Slide 23

FINANCING HIGHER EDUCATION: A STAKEHOLDERS APPROACH PRIVATE SECTOR A major recipient of the output of HE institutions Options include: Scholarships/Bursaries for students Venture capital/Equity in commercial operations Purchase of licenses for services to a captured market/ Franchise holders of university products University-Private- ( Government) partnerships/joint ventures Human Capital contracts for selected students Purchase of University Bonds for long term specific products

Slide 24

UNDERLYING ECONOMIC AND SOCIAL CONSIDERATIONS The determination of the form, extent and level of funding should informed by several factors: Affordability esp individuals and Governments facing tight budget constraints Sustainability---- of a commitment of funds Accessto a wide cross-sectional of persons Efficiency and Effectiveness---- in the allocation of funds at different levels of HE and for different programs. Should be informed by a HR plan and a collection plan for loans and taxes Equity and Distributive Justice---ensuring that every qualified person has an equal chance of getting a higher education Return on investment benefits ( social and private ) outweigh the costs Qualitythere is value and relevance in the output of the HE system for the funds expended. Social Welfare Effects maximize welfare gains and minimize welfare losses/deadweight loss ( given costs and benefits of HE)

Slide 25

CONCLUDING ASSESSMENT: Historical direct and indirect reliance on the Government for financing HE in the Caribbean HE brings social and private benefits so a stake holders partnership is needed to finance HE in the regionacademic, technical and vocationalfor human development. Innovative ways must be explored in funding HE via the Triple Helix (Government- University-Private Units: individual and firms) partnership approach Efforts to reduce the costs of HE provision while meeting certain criteria helps to relax the strain on financiers Greater use of ICT to reduce long run costs and widen access ( ODL)next frontier of HE Efforts to improve the productivity of HE resources Establish a reliable and sustainable source of CORE funding along with discretionary funding. Need for an appropriate Business Models for HE institutions in an era of innovative disruption.