Higher Education Finance

by

Ben Jongbloed

• LAST REVIEWED: 24 November 2020
• LAST MODIFIED: 24 November 2020
• DOI: 10.1093/obo/9780199756810-0260

Introduction

The financing of higher (or tertiary) education deals with issues of resourcing (i.e., funding) higher education institutions, their students, and their (academic and nonacademic) staff. The study of higher education finance covers the sources of funding for higher education (including the balance between public and private funds) as well as the uses of those funds (for education, research, student support, infrastructure, staffing, campus development, etc.). The management of funds is essentially a study of choice—about using scarce resources to achieve often-conflicting goals—which implies that it also extends to issues of priority setting, effectiveness, and efficiency. In many ways, these are questions of a political-economic nature. With higher education being such a large part of the public sector, the study of higher education finance, on the one hand, may be seen as part of public finance, while on the other hand, as a subfield of the economics of education. In times of shrinking public budgets, there is increasing scrutiny on how public resources for higher education are allocated and used. At the national (country, state) level, reforms in educational financing are frequently debated in policy circles, with the goal of identifying the funding mechanism that produces the best outcomes in terms of guaranteeing access for students, high-quality education, and high-quality research, as well as connecting this education and research to the needs of society. At the level of the higher education institution (i.e., university, college, or specialized institution), debates will often focus on the internal budgeting system and how the institution can make sure it runs its operations in a financially sound way in the short term, with sufficient incentives for efficiency and revenue generation, as well as incentives for innovation on the mid- to long term. All of this illustrates the many trade-offs and dilemmas that appear in the study of higher education finance. It also shows that the topic of higher education finance touches on many other research fields in higher education, including, for example, governance, privatization, and student financial aid. And given the political-economic nature of these issues, many conceptual approaches used for the study of higher education finance are imported from economics, political science, public administration, public policy, or organizational studies. Because the field of higher education finance is constantly evolving, the topics that are at the forefront of scholarly research are to be found primarily in academic journals. The themes covered in the study of higher education finance deal with some of the above-mentioned major trade-offs and dilemmas. After first presenting some of the general-overview works in higher education finance, this article will cover some of these themes touching on the most-important policy debates in higher education finance.

General Overviews and Historical Studies

Higher education finance is part of the wider area of public finance and public-sector studies. Its study is therefore often included in textbooks dealing with public-sector economics or education economics. A textbook that introduces the topic of higher education finance is Barr 2012, a handbook that pays considerable attention to education—and, as part of that, higher (i.e., tertiary) education and its financing. Textbooks on higher education finance do not really exist. However, there are textbooks on the economics of (higher) education, such as Leslie and Brinkman 1988; Cohn and Geske 1990; Breneman, et al. 1993; or Johnes 1993, that cover some aspects of higher education finance, next to topics such as the economic and noneconomic benefits of higher education, the cost of higher education provision, efficiency in higher education, demand and supply of graduates, the economic impact of higher education, and organizational behavior in higher education. Theoretical approaches are equally diverse and range from human capital theory and labor economics to industrial economics. Most of these overview works on higher education finance are edited volumes, and many of them are written for North American graduate students that are preparing for postgraduate degree or a professional career in higher education (or both). These overviews often bring together contributions by different authors that rely on US case studies and materials. Overview works that go beyond the North American world, such as Altbach and Johnstone 1993 or OECD 2020, are less in number and often focus on a limited number of countries and issues.

• Altbach, Philip G., and D. Bruce Johnstone. 1993. The funding of higher education: International perspectives. New York: Garland.

  This book contains case studies of higher education systems from across the world, and the ways in which these systems are funded.

• Barr, Nicholas. 2012. Economics of the welfare state. 5th ed. Oxford: Oxford Univ. Press.

  Next to health and housing, education is an essential part of the welfare state. As part of other services provided by the welfare state, this textbook firmly places higher education finance in economic theory as well as political theory and discusses arguments for state intervention.

• Breneman, David W., Larry L. Leslie, and Richard E. Anderson, eds. 1993. The ASHE reader on finance in higher education. Needham Heights, MA: Ginn.

  This reader on the finance in higher education primarily examines the American university system and its federal, state, and institutional policies and practices.

• Cohn, Elchanan, and Terry G. Geske. 1990. The economics of education. 3d ed. New York: Pergamon.

  This is a historically useful textbook treatment of the economic principles and practices undergirding higher education financing in the United States.

• Johnes, Geraint. 1993. The economics of education. New York: Palgrave Macmillan.

  A collection of chapters rooted in the theory of human capital and touching on a diverse range of issues, including the cost of provision, privatization, and student finance.

• Leslie, Larry L., and Paul T. Brinkman. 1988. The economic value of higher education. New York: Macmillan.

  Critical review of concepts, methods, and literature in the economics of higher education. Reviews the economic impact of higher education on students, communities, and the wider economy and includes an assessment of higher education financing policy.

• McPherson, Michael S., Morton Owen Schapiro, and Gordon C. Winston. 1993. Paying the piper: Productivity, incentives, and financing in US higher education. Ann Arbor: Univ. of Michigan Press.

  Edited volume that is very much oriented on the economics of American higher education. Includes chapters by some of the leading American scholars on issues such as institutional finance and student finance.

• OECD. 2020. Resourcing Higher Education: Challenges, Choices and Consequences. Paris: Organisation for Economic Co-operation and Development.

  A very comprehensive publication that identifies the policy choices that have been made in OECD member and partner countries to address the main questions and challenges relating to three areas of resourcing higher education: (1) Resource generation; (2) Resource allocation; (3) Resource use. It presents research-based evidence about the effects of these policy choices and discusses the implications for the policies governments use to co-ordinate and shape higher education systems.

• Paulsen, Michael B., and John C. Smart. 2001. The finance of higher education: Theory, research, policy, and practice. New York: Agathon Press.

  A highly useful collection of contributions that provide a range of economic perspectives, theories, and models that may serve as foundations for the study of higher education finance.

• Weidman, John C., John L. Yeager, Laurie Cohen, et al., eds. 2015. Economics and finance of higher education. Association for the Study of Higher Education Reader Series. Boston: Pearson Learning Solutions.

  A collection of almost sixty previously published, historical, and more-current readings that provide a thorough overview of all aspects of higher education finance. The readings are organized into eight sections.