By Daniel Sánchez Serra
Analyst, Directorate for Education and Skills
There are countless reasons why people pursue higher education after compulsory schooling. Higher education increases both skills and employment prospects, and reduces the risk of long-term unemployment. Education also contributes to society by opening opportunities for social and economic development, particularly in a world where technology and digitalisation champion innovation. Strong economic growth, in turn, can reduce socio-economic differences and fosters prosperity. But expanding access to higher education necessarily translates into higher costs for countries. Who pays the bill?
The latest Education Indicators in Focus brief analyses how public and private spending have progressed in recent years. Results show that although tertiary educational institutions across OECD countries are mainly funded from public sources, the reliance on private funds (students, their families and private entities) has been growing. Between 2010 and 2016, private expenditure on tertiary educational institutions increased by an average annual rate of 3% across OECD countries, compared to a yearly average growth rate of 1% in public expenditure over the same period. As a result, on average across OECD countries in 2016, 32% of all spending on tertiary educational institutions came from private sources.
However, as the chart below shows, there were large variations across countries in the change in public and private expenditure devoted to tertiary educational institutions between 2010 and 2016. In some countries, such as Ireland and Spain, reductions in public expenditure were partially offset by increases in private expenditure. But in Estonia, Latvia and Poland, public expenditure on tertiary institutions increased, while private investment declined.
Figure 1. Average annual growth rate of public and private expenditure
on tertiary educational institutions (2010-16)
Note: Above the yellow line, average growth rates of private expenditure are greater than those of private expenditure.
In this chart, public and private expenditure are considered from the final sources of funds.
Source: OECD (2019[2]), Education at a Glance 2019: OECD Indicators, https://doi.org/10.1787/19991487, Table C3.3.
These changes reflect policy reforms in funding tertiary education, but also systemic and demographic evolution. For example, public expenditure on tertiary institutions in Chile increased by an average of about 11% per year between 2010 and 2016 – almost four times more than the increase in private expenditure. This increase was mostly the result of the country’s Programa Gratuidad, which provided free tuition to Chile’s disadvantaged students. In other countries, such as Lithuania, Portugal, the Russian Federation and Slovenia, a declining student population led to reductions in investment, both public and private.
The funding of tertiary education is central to the notion of access and participation. Proponents of free education argue that tuition fees risk deterring adults from the opportunity to develop their skills. But evidence shows that higher private investment in tertiary education is not correlated with lower participation rates. For instance, the tertiary enrolment rates of 20-24 year-olds in Norway and Chile are similar despite dramatically different funding models. Tuition is mostly free in Norway, where private funds account for 6% of total expenditure. In contrast, in Chile, private sources of funding account for 64% of total expenditure on tertiary institutions.
To increase access to tertiary education, countries with a strong reliance on private funding tend to turn to financial support mechanisms, such as grants or loans, to mitigate the private cost of tertiary education or at least defer payment until a time when students are financially able to reimburse their loans. In Chile, for example, the share of students benefiting from loans, grants/scholarships or a combination of both increased from 17% in 2007 to 58% in 2017, enabling more students to access higher education than in the past decade.
As the demand for higher education continues to grow, many countries will need to rethink their funding model. This will mean juggling tightening budgets with the need for equal access. Current average trends across OECD countries suggest a stronger reliance on private funds as more countries move towards a cost-sharing system with students. When combined with strong financial support mechanisms, this model may very well strike the right balance to achieve both financial sustainability and more equitable access.
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