Academic journal article Economics, Management and Financial Markets

Comparative Study regarding Higher Education Financing Systems

Academic journal article Economics, Management and Financial Markets

Comparative Study regarding Higher Education Financing Systems

Article excerpt


Widening participation and improving the quality of higher education are the global challenges which are facing the national higher education systems. To enable this to be achieved is required that higher education institutions to function in a competitive and efficient environment characterized by extensive processes of teaching, research and innovation. However, creating such conditions is "expensive" for any state, regardless of the level of economic development, being obvious that for national budgets is impossible to sustain a mass university education while ensuring social equity. With some local variations, the overall trend in Europe is that of the progressive increase in the number of students and, simultaneously, in the number of accredited institutions in order to provide tertiary education. Faced with such a situation, governments must find solutions for the efficiency of funding in terms of the capability to meet certain policy goals in a cost-effective way.

The approach from the perspective of the efficiency of the systems of higher education financing supposed to tackle issues such as: financing sources, ways to allocate the restricted financial resources, legal and financial mechanism to access funds, issues of competitiveness regarding educational services available on the market. This paper, analyzes the European financing systems of higher education, providing an insight into the trends they follow, in order to put the Romanian system of financing the higher education in the European context and to highlight the directions of action in light of modernization.

2.Characteristics of the Financing Systems of Higher Education

Approach of the financing of higher education involves analyzing two defining aspects:

a. Level of diversification of funding sources, in other words how many parts pay for educational services;

b. The financing mechanisms or in which way public resources are allocated for higher education.

As regarding funding sources, a sustainable funding strategy requires a diversification of sources, which means involving of all stake holders into financial sustaining of the higher education. Generally speaking, it is about attracting private financial resources along with the public ones.

This combination of public and private funds is fully justified by the results of several studies which reveal that investment in education generates also monetary and non-monetary benefits, both at the societal level and at the individual level (European Commission, 2011). Moreover, if the social returns to education are harder to prove, the private returns, in most cases, are easy to be noticed. Investments in education are associated with some social benefits, such as: raise of productivity, long-term prosperity, crimereduction, better health, improving the rate of creating new knowledge etc. On the individual level, tertiary education is generally associated with employability and higher earnings (Boarini and Strauss, 2007).

Specifically, private internal rate of return of higher education exceeds social internal rate of return of higher education (in 2010, OECD estimated an average social return of 7.9% and an average private return of 12.3%; in 2010, CHEPS, estimated an average social return of 7.9% and an average private return of 10.2%). Therefore, the financial support of higher education from private funds is not only necessary, as a consequence of the massification of higher education, but also justified from an economic perspective. Ways to attract private sources in support of higher education are usually the following: student loans, income-contingent loans (loans with repayment calculated as a per cent of the subsequent earnings of the borrower).

Together with the funding sources, the financing mechanisms influence the effectiveness of the financing system of higher education. For example, developing financial schemes that relate funding to the performance and allocate resources based on competition between universities will generate more performance within the educational system than financial mechanisms which rely on inputs used or on the historical trends. …

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