Funding higher education : the contribution of economic thinking to debate and policy development

Abstract

A major challenge faced by governments everywhere is the reform of finance of higher education (HE) in response to pressures of rising private demand for HE and heavily constrained public budgets. Recent experience in industrialized, transition and developing economies shows a world-wide trend towards greater reliance on tuition fees and student loans to finance the expansion of HE. This paper examines the influence of economic thinking in the last 20 years on debate and policy on HE finance in selected Organization for Economic Cooperation and Development (OECD) countries (including Australia, Sweden, the U.K. and U.S.), transition economies (Hungary) and developing countries (Ethiopia and South Africa). The influence of three economic concepts is discussed in detail: (i) education as a social and private investment (including estimates of rates of return), (ii) cost sharing, and (iii) income-contingent student loans. Economic reasoning, using these three concepts, has had a significant impact on debate and policy on HE finance, but other influences, including politics, administrative and legal issues have also been important in determining outcomes. The paper concludes that economic thinking has made a significant contribution to the formulation and implementation of policy on HE finance, but the influence of politics, administrative, legal, and social policy issues should not be underestimated.

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