a review of innovative allocation mechanisms Jamil Salmi and Art Hauptman international forum on tertiary education financing Barcelona, 30 Nov-2 Dec 2005

the future of tertiary education financing?

key financing questions resource mobilization resource mobilization –how much money for tertiary education? resource utilization resource utilization –are available resources used efficiently and effectively? buffer body or not? buffer body or not? –is it more desirable to rely on an intermediary body?

outline of the presentation typology of allocation mechanisms typology of allocation mechanisms which mechanism is more effective? which mechanism is more effective? preliminary lessons from international experiences preliminary lessons from international experiences

outline of the presentation typology of allocation mechanisms typology of allocation mechanisms

allocation mechanisms from direct funding to indirect funding & from untied funding to performance-based funding

direct funding to institutions: traditional approaches n set guidelines n negotiated budgets  line-item allocation  block grant  categorical / earmarked funds

direct funding: innovative approaches  formula funding  input-based  output-based  benchmarking  charge back  competitive funding  performance contracts

formula funding  formula linking amount of financing and some measures of inputs and/or outputs  number of teaching staff  number of students  number of graduates  unit costs per level of studies / discipline (actual, average, normative costs)

competitive funds n set objectives n competition on the basis of projects n transparent rules & criteria n peer review and selection n independent monitoring committee

performance contracts n institutional agreement to achieve certain objectives n additional funding based on meeting agreed objectives n examples: France, Denmark, Austria, Finland, Colorado & Virginia in US

indirect funding of institutions / direct funding of students  grants and scholarships  student loans  vouchers  tax credits

Colorado funding model Old Model Indirect Gov’t Funding via Stipends New Model Tuition Direct Government Funding Tuition & Stipends

Colorado experience voucher for an undergraduate education at eligible universities; no cash actually touches students ’ hands. voucher for an undergraduate education at eligible universities; no cash actually touches students ’ hands. $2,400 per year at public institutions $2,400 per year at public institutions $1,200 per year for low-income students attending private institutions $1,200 per year for low-income students attending private institutions degree-seeking, non-degree, and teacher licensure undergraduate students eligible degree-seeking, non-degree, and teacher licensure undergraduate students eligible age, income and financial aid eligibility are irrelevant to qualify age, income and financial aid eligibility are irrelevant to qualify

outline of the presentation typology of allocation mechanisms typology of allocation mechanisms which mechanism is more effective? which mechanism is more effective?

policy objectives pursued improving access and equity improving access and equity improving external efficiency improving external efficiency improving internal efficiency and sustainability improving internal efficiency and sustainability

improving access and equity traditional age students traditional age students –increased cost sharing with more student grants, scholarships and/or loans to offset adverse effects of higher fees –income contingent student loan repayments –input-based formula disadvantaged students disadvantaged students –expanded need-based grants and scholarships –pay institutions premiums for enrolling and graduating disadvantaged students (contracts) lifelong learning opportunities lifelong learning opportunities –grants and scholarships –student loans –tax benefits for workers enrolled in tertiary programs –lifelong learning vouchers –savings accounts

improving external efficiency improving quality improving quality –competitive funds –merit-based scholarships increasing relevance increasing relevance –formula with differential weights for high priority fields –competitive funds –grants and scholarships in priority fields –student loans in priority fields –loan forgiveness for students in public service jobs

improving internal efficiency and sustainability cost containment cost containment –funding formula based on normative costs improving throughput improving throughput –output-based formula –pay for results –performance contracts

outline of the presentation typology of allocation mechanisms typology of allocation mechanisms which mechanism is more effective which mechanism is more effective preliminary lessons from international experience preliminary lessons from international experience

themes combination of instruments combination of instruments adaptation to country circumstances adaptation to country circumstances clear definition of policy objectives sought clear definition of policy objectives sought link to quality assurance link to quality assurance political economy dimensions political economy dimensions unanticipated consequences unanticipated consequences

principles of an appropriate allocation instrument linked to performance / policy objectives linked to performance / policy objectives transparent transparent flexibility flexibility compatibility compatibility

which allocation instrument is better? local circumstances local circumstances reform for what? reform for what? time dimension time dimension

link to quality assurance pro: powerful incentive pro: powerful incentive con: punitive, rewards stronger con: punitive, rewards stronger link at the margin? link at the margin?

political economy dimensions controversial topics controversial topics –tuition fees instead of “free” education –targeted scholarships instead of universal –student loans instead of scholarships –private institutions alongside public institutions dealing with the politics dealing with the politics not an excuse to avoid reforms not an excuse to avoid reforms