ANALYSIS:Imagination and courage are required to address the persistent problem of higher education funding problem, writes David Duffy
THE FUNDING of higher education will not go away as an issue and it is critical we take a longer-term view of what needs to be done to ensure we can maintain or, more importantly, improve the performance of our students and institutions. If we do not, our ability to be a globally competitive knowledge economy will be seriously at risk.
This article does not advocate a particular approach to funding of higher education, but seeks to demonstrate that a solution to the challenge may be found by adopting more innovative approaches. This should help to ensure that higher education institutions have the financial resources for future investment to enable them provide world-class infrastructure, attract world-class students and faculty, and ensure those who want access get access.
In seeking solutions to the funding issue it is worth looking at some of the imaginative approaches and initiatives that have been adopted by other countries at different levels. The levels described below are: funding the system of education as a whole (building infrastructure and capacity and core funding); funding specific policy objectives of government; and funding of the individual and different approaches to covering the costs of student fees.
In Australia, the Higher Education Endowment Fund was announced in the 2007 Federal Budget. Dividends from the initial AU$5 billion (€3.1 billion) fund (a further AU$1 billion was added later) are to be used to support capital works and research facilities in universities. It is intended to grow this fund to AU$20 billion over time. The reserve will be required to maintain its real value, and only the accumulated returns will be available for distribution to the universities. The purpose of the endowment is not dissimilar to the Strategic Innovation Fund in Ireland; however, the scale is greater and the funding is guaranteed. Universities Australia also proposed the establishment of another fund with the issue of higher education investment bonds secured against major assets in the sector.
In December 2007 in France, President Sarkozy announced that the government would raise €3.5 billion from the sale of a portion of the state's shares in the European Aeronautic Defence and Space company (manufacturer of the Airbus) to assist the reform of French universities which currently have a 41 per cent dropout rate and a poor world ranking. Only four of France's 85 universities are in the Times top 200 universities in the world.
The UK has not been found wanting in looking at other mechanisms to encourage the funding going to higher education. The UK government announced in 2006 that it will provide up to £7.5 million of matched funding to 27 higher education institutions. The scheme was launched to promote voluntary contributions to higher education. In early 2008, The Higher Education Funding Council for England established "an employer engagement fund" with up to £105 million available over the next three years to push forward the government's policy of getting businesses to co-fund students. While these amounts are modest in the context of the £7.5 billion for UK university funding, it demonstrates that there are other ways to raise money.
In 2006, Imperial College London took out a £50 million bond to help meet the cost of future development. It was the first UK university to do so.
The government of China and Hong Kong launched two matching grant schemes in 2006 in which it matched, dollar for dollar, the private gifts that universities managed to win from private sources. Both schemes were rapidly oversubscribed and the government believes that it kick-started a philanthropic culture.
Loan finance is another common form of funding in many countries such as the USA, Norway and Australia. In Australia, for example, the universities set student contributions at varying levels dependant on courses. Students can pay their student contribution up front (and get a discount for doing so) or they can apply to the government to loan them all or part of their contribution. Repayments of the loan amount are only due when student income reaches a specific income threshold. The debt is held over if the graduate is overseas.
In a recent paper, produced by the World Bank, entitled Global Trends in University Governance (March 2008), it was indicated that by giving institutions greater autonomy over their assets they can explore various avenues (other than the state) to fund property construction or acquisition. This would open the way to using a variety of funding sources, as well as funding from the state. This would include: borrowing on a long-term basis from commercial banks; retained surpluses from the annual accounts, as well as the funds arising from depreciation on university assets charged in the accounts; long-term contracts with private sector organisations in which they build, operate and maintain student residences and recover the costs from charging students rent.
It is also worth noting that many Irish higher education institutions have land banks that they can realise as alternative streams of income.
If we are to become a knowledge economy, we must view education as a long-term strategic investment and not a short-term drain on public finances. Research in the USA indicates that the economic benefits of this investment include increased tax revenues, reduced reliance on public assistance programmes, lower unemployment rates and increased voting, volunteering and other civic activities. The census bureau in the USA estimates that the average lifetime earnings were 75 per cent higher for those with a bachelor's degree ($2.1 million) than for those with only a high school diploma ($1.2 million). I have no reason to doubt that the same returns would not be realised in Ireland.
In his seminal work The Competitive Advantage of Nations, Michael Porter identified knowledge resources as a key factor in determining a nation's ability to compete. The resources, according to Porter, reside in, among others, universities and government research institutes.
The Government has demonstrated in the past that it has the courage to make bold and
imaginative decisions. The establishment of Science Foundation Ireland to provide the structure and funding to enable world-class research to support Ireland's ambition to be a knowledge economy was one of these.
Another one was the establishment of the National Pension Reserve Fund which sets aside 1 per cent of GNP to provide a fund to meet the costs of social welfare and public service pensions from 2025 onwards. Both of these initiatives required great foresight, courage and political will.
That same foresight, courage and political will is now required to put higher education on a sound financial footing. This should ensure that we have the resources to provide a world-class education for those who seek it, and help us to "up our game" in the competitive world of the higher education market.
David Duffy is executive chairman of Prospectus Strategy Consultants