Financing of Higher Education Term Paper

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Financing of Higher Education

The common position taken by many countries has been that the government should pay or shoulder the costs of higher education because they view higher education as traditionally a public service (Vossensteyn 2004). In time, higher education evolved into a shared responsibility between students and society as more and more have come to realize that public funds are limited. As such, higher education must compete with other equally important public services. The demand for it also continues to grow and require more resources to maintain quality. One argument is that, since students greatly benefit from higher education, they and their families should shoulder part of the education costs. Students, therefore, should make better-informed choices. Opponents, however, believe that this will prevent deserving but economically disadvantaged from entering higher education. Still others believe that the social benefits of higher education justify subsidies from the government or public sector (Vossensteyn).

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Financial support for colleges and universities come from state and local governments, student tuition, federal grants and loans, and private gifts and endowments (Wellman 2005). Main support has traditionally come from state and local funds for institutional operating and capital expenses and, at times, also as financial help to students at independent institutions. The National Center for Education 2000 to 2001 statistics showed that dependence on state and local funds went from 31% in 2000 of the budgets of public research universities to 64% of the budgets of public community colleges. Aside from these state and local funds, the other major source of financing in public institutions has been tuition, supplemented by endowments. Federal funds, private gifts and income from auxiliary businesses have been confined to particular activities and to general purposes. In the last 20 years, income from state and local funding sources has been decreasing, leading to tuition increases to make up for the decline in state and local funding. Studies have shown that the single major cause of tuition increase in public institutions has been the need to compensate for decreased state revenues (Wellman).

Term Paper on Financing of Higher Education Assignment

Higher education for the individual has always been a way to enhance social esteem, land better-paying jobs, expand one's opportunities and stimulate one's intellect (Johnstore 2000). Society considers it the key to technology, productivity and inputs to global competitiveness and economic growth. It is always desirable and preferred in that it furthermore shapes and preserves values and culture. It also serves as a major means to social justice, equal opportunity and democracy. For all its significance, higher education throughout the world has been hindered by high costs, which are still fast rising. Governments have been reducing allocations for universities and other institutions of learning. These cutbacks have led to reduced staff, deterioration of plant and equipment, reduced salaries and reduced capacity to expand and meet student demand. Cost adjustments have been passed on to students and their parents and raised debt levels and access. These rising costs are accompanied by charges of inefficiency and lack of cost-benefit accountability. The conclusion among academicians has been that a financial crisis in education in most countries has occurred, especially in developing countries (Johnstone).

The situation has been afflicting virtually all nations in the last few years (Johnstone 1992). It involves three main issues. The first asks how much the nation's resources should be devoted to higher education. The second asks whether higher education should cost per student, per-degree granted, per-unit of learning or other reasonable unit of higher education. This second issue has to do with efficiency and productivity of institutions as against total national resources. The third issue asks how the costs of higher education will be split among the taxpayer, parents, students, businesses and donors or philanthropists. These three issues interact, in the opinion of experts. Higher education has become a strictly private expenditure, sustained mainly by tuition, to a point when it is seen by many as very expensive. But others interpret this concern as arising only because of the degree to which its costs are assumed by the taxpayer. Moreover, it becomes an issue only when the distribution of benefits itself becomes an issue. According to an expert, the larger the number of those who benefit from higher education, the greater the degree of deprivation of those who do not have it (Johnstone). In the U.S., the drop in the public share of higher education and the interest in funding, based on institutional performance in the past two decades has been noticeable (Dougherty 2004). These major occurrences have impelled higher education institutions to behave in a certain way and to increase their tuitions, aggressively seek out private funds, and cut costs by outsourcing services. These funding changes and the shifts and behavior by these institutions have had many effects on the social role of higher education, particularly in providing equality of opportunity. Many, if not most, observers would see higher education in the U.S. primarily in terms of its universities, which are only a minority of institutions. There is also the tendency to focus on public institutions and eliminate the large private sector (Dougherty).

The most significant changes in the system for financing higher education in the U.S. have been viewed as the decline in the public share, changes in the amount and form of student aid, increasing emphasis on community colleges in the case of disadvantaged students, and the appearance of performance (Dougherty 2004). Other negative consequences and developments have been the lowering of academic standards in some colleges in the attempt to improve performance levels; additional expenses for systems, which were not usually paid for; and the difficulty confronted by community colleges in meeting performance accountability demands and standards. The decrease in government funding has been the most important and striking of these changes. The government's share of public higher education went down from 63% in the 1980-81 period to 51% in the 2000-2001 period, mostly accounted for by state funding. Factors to the decline have been attributed to the dropping of flat state revenues and the increase demands for spending on items and areas other than higher education. This decline has, however, not led to a corresponding decrease in higher education revenues or expenditure because higher education institutions compensated for it by seeking out new sources of revenues and by cutting costs in new ways. Their compensatory moves have included raising tuitions, attracting better-paying students, attracting more students by introducing new programs and through more aggressive marketing programs, and by conducting more aggressive fundraising activities. Their cost-cutting activities and strategies have included outsourcing services to external providers, hiring more part-time instructors, and retrenchment of some faculty positions or even entire programs. The counteracting moves have secured needed revenues and cut costs, but they also had negative consequences on equality of opportunity, drawn from an analysis of the benefits and costs of tuition hike, private fund raising and outsourcing. Moreover, the increasing emphasis of the U.S. student aid system on loans over grants has been associated with the growing inequality of access to higher education in the country. The growing emphasis on community colleges may have increased access for the less advantaged students, but it appears to have reduced the volume of graduates. The increasing use of performance accountability, though bringing in less advantaged students, may also be restricting their access, just so there would be more graduates by the end of the term or course. On the whole, higher education in the U.S. has been undergoing changes in the last 20 years with many consequences, some of them unfortunate, especially in the area of affording equality of opportunity. Other countries desiring to learn from the U.S. experience on these trends in financing higher education should carefully consider the different consequences of U.S. practices before they decide to accept or reject those practices (Dougherty).

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How to Cite "Financing of Higher Education" Term Paper in a Bibliography:

APA Style

Financing of Higher Education.  (2007, January 24).  Retrieved May 26, 2020, from

MLA Format

"Financing of Higher Education."  24 January 2007.  Web.  26 May 2020. <>.

Chicago Style

"Financing of Higher Education."  January 24, 2007.  Accessed May 26, 2020.