Funding in higher education

Reflections onthe new Slovene HE funding

mechanism+

the Dutch HE funding system

HansHans VossensteynVossensteyn

Discussion seminar at the Slovene Ministry of Education hellipDiscussion seminar at the Slovene Ministry of Education hellip

LjubljanaLjubljana 6 D 6 D e e c c e e m m b b e e r r 2 2 0 0 1 1 1 1

InstitutionsInstitutions

TaxpayersTaxpayers

Framework to analyse the funding of higher education

Student Financial Aid System

- Loan schemes- Grant schemes

Allocation of Public Subsidies to Institutions

-Block grants funding formula-Targeted funds- Line-item budget

StateState

Private sectorPrivate sector

Students and families

Students and families

Funding Tertiary Education

Governing Tertiary Education

Decisions-Tuition fees-Institutional financial aid- Investments funds borrowing

Institutional efficiency- Time-to-degree- Completion rates- Student-staff ratios- Programme duplication underenrolment

Context- Expansion ofdemand for TE- Limits to public budget- Competing priorities for public budget- ldquoTechnologyrdquo Unit costs in TE

Goals of tertiary education- Access to and equity in TE

- Quality of provision- Relevance of programmes

- Internal efficiency of system

Constraints-Difficulties in determining lsquoneedrsquo- Ability to collect loan repayments- Private capital markets- Income distribution of population

QualityAssurance

RampD andinnovation

ldquoThird missionrdquoactivities

LabourMarket foracademics

Tertiary Education Outcomes- Size- Efficiency

- Equity- System responsiveness

- Quality- Innovation

Context EU Modernization Context EU Modernization Agenda on fundingAgenda on funding

1 States should ensure a sufficient level of funding for HE (reduce funding gap with US amp 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 outcome-based funding

Context EU Modernization Context EU Modernization Agenda on fundingAgenda on funding

1 States should ensure a sufficient level of funding for HE (reduce funding gap with US amp 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 outcome-based funding

7 principles of economics7 principles of economics

1 People face trade-offs

2 The cost of something is what you give up to get it

3 Rational people think at the margin

4 People respond to incentives

5 Trade can make everyone better off

6 Markets are usually a good way to organise economic activity (lsquoinvisible handrsquo)

7 Governments can sometimes improve market outcomes

More market forces in More market forces in public sector (eg HE)public sector (eg HE)

Introduce connection between budget and performance

Introduce some degree of competition (freedom to choose)

The evolving role of the The evolving role of the statestate New modes of New modes of

coordination coordination

FFrom central planning to decentralised decision-making and facilitating self regulation and autonomy

Self regulation and autonomy

lsquoDonrsquot overdo itrsquo

Funding models for Funding models for HEHE

traditional state funding problemstraditional state funding problems

features problems

line-item budgetinginput control

inflexibility no linksbetween goals amp money

annual budgetbdquodecember feverldquo no

reserve planning

annual budgetinstability no reliable

calculation base

features problems

incrementalbudgeting

no incentives no per-formance orientation

central state allocationdecisions ex ante

low informationinflexibility

bottom-up aggregationof financial plans

no priorities

traditional state funding problemstraditional state funding problems

features problems

few financial sourceshigh risk high dependence

steering through regulation

uniform solutionsuniversity tactics

similar observations in different countries differenttiming and degree of change

traditional state funding problemstraditional state funding problems

criteria for good funding criteria for good funding modelsmodels

incentivesincentivescompetition demand-steeringcompetition demand-steering

goal and performance orientationgoal and performance orientation

promotion of profiles innovationpromotion of profiles innovation

stabilitystabilitycost orientationcost orientation

transparencytransparency

limited reactions long-term orientationlimited reactions long-term orientation

autonomy flexibility

autonomy flexibility

flexible internal decisions on expendituresflexible internal decisions on expenditures

university creates own internal mechanismsuniversity creates own internal mechanisms

discretionary state steering focused discretionary state steering focused

legitimizationlegitimizationtransparencytransparency

accountabilityaccountability

criteria for good funding criteria for good funding modelsmodels

hellip hellip and hellipand hellip

bull funding without strategy lacks orientation

bull strategy without funding (incentives) is useless

goals strategies are a necessary precondition for new funding systems

(and for performance orientation in HE)

general developments general developments bdquo3-pillars-modelldquo of state bdquo3-pillars-modelldquo of state

financefinance

basic task-oriented fundingbasic task-oriented funding

performance ndashoriented fundingperformance ndashoriented funding

innovation ndashoriented fundinginnovation ndashoriented funding

+ +

cost orientation ability to fulfill tasks

steering objectives influence behavior incentives for performance

finance innovation in advance control result of innovation

ratio-naleratio-nale

stability

incentives

legitimacylegitimacy

pillarspillars

different pillars to reconcile different goals

Options for the public Options for the public fundingfunding

of HE institutionsof HE institutions

bull Direct funding of HE institutionsndash Incremental (previous year + Δ )ndash Funding formulaendash Funding through projectsndash Funding through contracts

bull Funding through students (vouchers)ndash Hardly in use across the world

ContractsMission-based(negotiations with indiv HEI)

Project funding(competing proposals)

Public budget

DiscretionaryIncremental(previous yearrsquos budget)

Detailedagreements

Frameworkagreements

Cost based indicator driven

Performance oriented indicator driven

Formula funding

How to make funds available to How to make funds available to HEIsHEIs

Every country has its own MIX of funding components

SSpecific targeted funding - incentive funds for quality access and innovations (eg accreditation hellip)

MMove from negotiated line-item funding toformula funding - transparent rational simplified flexible - mainly enrolment driven but also outputs

MMove to lump sum budgeting - more responsibility accountability - efficiency

Almost everywhere lump Almost everywhere lump sum institutional sum institutional

strategystrategy

VVouchers learning entitlements - flexibility but administrative problems and do students want it

Allocation mechanismsAllocation mechanismsa balancing acta 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 lsquorichrsquo and lsquopoorrsquo universities departments)

Advantages of Advantages of decentralization autonomydecentralization autonomy

Increased responsibility (vision profiling strategy)

Increases speed of decision-making

Accountability and the transparency it generates

Incentive for cost-effective use of resources

Empowers institutions (close to clients)

Motivates amp encourages innovation

Disadvantages of Disadvantages of decentralization autonomydecentralization autonomy

Shifting costs to other units (free riders)

Increased administrative burden of accountability

Lack of co-ordination (lsquonation of shopkeepersrsquo)

Can one handle responsibility

instrumental optionsinstrumental options

bull the instruments make the difference

bull rationale behind differences

priorities for objectives (eg incentives vsstability)

cultural differences (eg market simulationsvs negotiation)

bull major instruments for allocation formula ndash application ndash contract ndash lump-sum

bull Formula ensures transparency fairness accountability stabilitybull Funding rates usually in relation to costs in any

subjectHEI (ie method of delivery of subjects classroom-based vs laboratory-based) and degree levelbull Formula is not prescriptive (does not drive budgets at departmental level)bull Formula add-ons (premiums) to reflect additional costs special circumstances due to (eg)

Formula FundingFormula Funding

bull Student diversitybull Location age of HE providerbull Sustaining important subjectsbull High-cost facilities

Interesting example Interesting example funding of teachingfunding of teaching

NetherlandsNetherlands

Netherlands Netherlands performancesperformances

SSince 1983 substantial freedom of spending

TTeaching funds substantially based on performances - 50 for graduates (bachelormaster) - 13 for new entrants - 37 fixed amount

TTo increase the completion rate

NNow discussion about learning entitlements - empower students - flexibility (but do students want that limited budget)

RRisk creative book keeping

BaMa Model compartment(2008)

tariff base(in Euro)

share in lump sum (in )

teaching component

new entrants 2600 low 3900 high

13

diplomas 11500 BA-low 17300 BA-high (excl medicine) 20800 BA medicine 5800 MA-low 8700 MA-high (excl medicine) 31200 MA medicine

50

basic allocation Historical 37

total for teaching component 100

research component

basic allocation BaMa diplomas 2700 (BA-low)) 4000 (BA high) 8000 (BA-medical) 5400 (MA-low) 8000 (MA-high) 16000 (MA-medical)

15

PhDs PhD low 41700PhD high 83400

12

designer certificates 69500

research schools Historical 3

top research schools strategic choices 3

strategic considerations Historical 67

total for research component 100

National funding model (BaMa)

Education- part bull 85 Euro per student credit (ECTS) bull 2790 Euro per first year student in engineeringbull 1390 Euro per 1st yr student in social sciences

Research partbull 30 Euro per Bachelor-ECTS in social sciencesbull 40 Euro per Bachelor-ECTS in engineeringbull 80 Euro per Master-ECTS in social sciences bull 110 Euro per Master-ECTS in engineeringbull 44500 Euro for a researcher on Research council grant in engineering bull 31800 Euro for a researcher on Research council grant in social sciencesbull 22300 Euro for researcher on (some) industry sponsored contract (engineering)

15900 Euro for researcher on (some) industry sponsored contract (social sc)bull 75000 Euro for a PhD (all disciplines)bull 62500 Euro for a designer certificate

Funding rates in Twente Funding rates in Twente allocation model (formula allocation model (formula

part)part)

Education- part bull 85 Euro per student credit (ECTS) bull 2790 Euro per first year student in engineeringbull 1390 Euro per 1st yr student in social sciences

Research partbull 30 Euro per Bachelor-ECTS in social sciencesbull 40 Euro per Bachelor-ECTS in engineeringbull 80 Euro per Master-ECTS in social sciences bull 110 Euro per Master-ECTS in engineeringbull 44500 Euro for a researcher on Research council grant in engineering bull 31800 Euro for a researcher on Research council grant in social sciencesbull 22300 Euro for researcher on (some) industry sponsored contract (engineering)

15900 Euro for researcher on (some) industry sponsored contract (social sc)bull 75000 Euro for a PhD (all disciplines)bull 62500 Euro for a designer certificate

Funding rates in Twente Funding rates in Twente allocation model (formula allocation model (formula

part)part)

University of Twente allocation modelUniversity of Twente allocation model

To be replaced by contract

TU Delft allocation modelTU Delft allocation model

Interesting example Interesting example funding of teachingfunding of teaching

SloveniaSlovenia

To be replaced by contract

TU Delft allocation modelTU Delft allocation model

Interesting example Interesting example funding of teachingfunding of teaching

SloveniaSlovenia

Interesting example Interesting example funding of teachingfunding of teaching

SloveniaSlovenia

2004 lump sum

OLS NLS2004

80 20

60 402010

no studentsno graduates

study fieldfactor

Introduction

HHow much flexibility in 2011 and onwards The Decree is very historically oriented few incentives Problem if student number is decreasing

fixed part (k+1)

=TSF (k)

+GDP

variable partplusmn 3 Variable part indicators

- efficiency (graduation rate) - plusmn1 - promotion of students from Year 1 to 2 - plusmn1 - international cooperation - plusmn1

Factor = fu+ fpr + fm

variable part of TSF-Zk = fixed part of TSF-Zk times Factor

RRemark 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

primary financing pillar (TSF) development financing pillar (RSF)

fixed part (k+1)

=TSF (k)

+GDP

Variable part

3public tenders

varietyinternationalisation

quality social dimension

HHow 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 (JJ) 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- jjvossensteynutwentenl

inet wwwutwentenlcheps