Financing Education in Developing Countries

finance pro induction in Developing cypherriesHow should develop countries pay university statement? Explain your solving with cross reference to demonstr adapted country experiences of holding University commandment.Word Count 40231. Introduction grooming, its nature, purpose, its provision, and well-nigh importantly, its livelihood, atomic descend 18 major topics of cultural and ideological debates which cover a central point of concern even today. Till the 1980s, the well-disposed democratic consensus, in England and new-fangled Zealand for example, considered study to be a existence nice, and therefore an indispensable service, yieldd by the state, to all citizens equally, with turn up direct charge. The young Zealand consider writers, for example, argue that fosterage doesnt belong to the securities industryplace. It should be considered a Natural theater and a popular good which needs state intervention (The New Zealand Treasury, 1987). However, New- Right arguments of the 1980s challenged this school of thought, asserting culture is a commodity which should be left to the market forces with minimum state intervention (Grace, 1994). Barr (1993), for example, asserts upbringing is non a habitual good since it does not exhibit the three reflections of mankind goods non-rivalness, non-excludability and non-rejection (Barr, 1993). This lead to the dilemma of financing high(prenominal)(prenominal)(prenominal)(prenominal) rearing How should countries finance high precept?This essay begins with a theoretic frame become, looking at the human beingse capital theory to understand why cultivation is important followed by a brief discussion on the key issues concerning financing high knowledge to understand why represent sharing has become a popular phenomenon over the years. Major alternate(a)s to state financing atomic number 18 discussed using examples from different countries followed by a conclusion and a brief polic y recommendation.2. Theoretical Framework2.1 Human Capital Theory learning is considered to be, both, a consumer and capital good (Okemakinde, 2008), because not completely does it offer utility to a consumer, but in manage manner acts as input towards the production of other goods and service. It is, therefore, also considered to be highly telling and even necessary, to bring about an profit in the production capacity of a country. (Okemakinde, 2008)With the outgrowth in economical development and structural change the requirement for skilled workers is increasing across all economies, resulting in an increasing demand for employees with high education ( surgical incision of raising and Training, 2015).Authors including Okemakinde (2008 ) and Psacharopoulos (1986) consider formal education to be an investment in human capital (table 1). The human capital theory, hence, incites investment in education both in ontogenesis and developed countries (I. Fgerlind, 2002). strai n 1 Returns to investment in education by country type and take (Psacharopoulos, 1986) pedagogics and development policies take a leak largely been base on the theoretical framework of the Human Capital Theory, which stresses on the high returns of education, in harm of productivity and efficiency of workers, and eventually economic development (Ozturk, 2001).2.2 State backup and the need for alternativesCountries with socio-political ideologies consider education to be a public good and, consequently, should be free or considerably subsidised. This ideology claims the society to be the major beneficiary of higher education and asserts substantial revenuees can be raise, progressive in nature, if there is political entrust and proper leadership. such(prenominal) taxes will cover be of education, allowing bookmans, especially among the poor, to stimulate equal door to education (Johnstone, 2003).Previously, higher education in most developing countries was predominantly financed and appropriated by the government (Psacharopoulos, 1986), such as majority of Sub-Saharan Africa (Teferra, 2013) (McGavin, 1991), India (Tilak, 1995) and chinaw atomic number 18 (Cheng, 1995). However, Psacharopoulos (1986) argues such a system lacks sustainability, efficiency and quality. In fact, till the sextupletties most universities in the UK were funded by the state. As seen in figure 2, the lurch past from public funding has summation the partnership rate in higher education in the UK (Haynes, 2003).Figure 2 Index of student numbers and public funding for higher education, 1980/1-1999/2000 (Haynes, 2003)A dominant musical composition of higher education by pith ofout the world in the 1990s has been monetary distress (Johnstone, 1998). The upsurge in the demand for financing higher education (Johnstone, 2003), coupled with constrained public budgets, has been a major challenge set about by governments in both, developing as well as developed countries (Woodhall 2007, Akpochafo 2009). However, as the number of students enrolled in higher education annexd, the subsidies introduced when enrollments were low turn out to be unsustainable (Woodhall, 2007).According to Woodhall (2007), with the expansion of higher education systems and the difficulty addressing the cost of higher education by public expenditure, the last twenty years pitch seen major changes in how higher education has been financed worldwide. These include an universe of discipline gifts in countries where higher education was free, a substantial increase in breeding fees and a shift towards student loans (Woodhall, 2007).Therefore, parallel systems of monetary assistance and cost sharing have been introduced so that students and p arents arent slanted by the cost of university education and equality and entreeibility isnt compromised (Johnstone, 1998).3. Alternative Methods of Financing higher(prenominal) fosterage3.1 Tuition fees, selective scholarships and grantsMost developed countries shifted cost of education from tax manufactureers to students, in the form of information fees, decades ago. Tuition and fees in public and reclusive universities have established in the US for a long succession (Johnstone, 1998).The genteelness fees for UK full-time under graduates at a university in the UK were pay from public funds until 1998, when tuition fee was introduced (Barr, 1998). This trend is now being followed by developing countries as well (Johnstone 1998, Salmi 1998, Hans de Wit 2005). chilli pepper, Colombia, Costa Rica, Ecuador, and Jamaica have higher levels of student financing, similar to those seen in Ireland, the Republic of Korea, and Spain. (Hans de Wit, 2005)Figure 3 cost recovery at public universities in Latin America and the Caribbean (Hans de Wit, 2005)In countries desire as Bolivia, Guatemala and Thailand, cost recovery is low, or nonexistent like Brazil and Argentina, as seen in figure 3. It is important to note the drop-out pass judgment in these countries. According to Hans De Wit (2005), the annual number of graduates in capital of South Carolina has risen over time as opposed to Argentina, where education is publicly funded and drop-out rate is higher (figure 4).Figure 4 annual number of students admitted to and have universities in Argentina and Columbia, 1982-2001 (Hans de Wit, 2005)Johnstone (1998) notes higher education in Hungary faced enigmas like inefficiency, inequality and lack of responsiveness to the market saving. The public sector was financing higher education, spending 86% per capita GDP on higher education in 1993 alone. This, compared to 45% in OECD countries and 30% in Ger some, is a considerably high meat. As a result, the need for a shift in cost burden was felt. In 1995 full-time students paid a monthly tuition fee of HUF 2000 in public universities, while part-time students paid up to HUF 8000 per month. In order to view equality in access, tuition fee was fully or partially waived, based on academic merit or monetary need, for one-fifth of the students (Johnstone, 1998).Figure 5 higher(prenominal) education in Hungary, 1990/91 versus 2006/07 (Marcucci, 2008)The state jump out per student was 40 % lower in 1998 than it had been in 1990. Reforms in 2005 recommend state funding for at least 35% of graduate students and 10% for doctoral students and in 2007 the Ministry of fosterage allotted 60% of its scholarship funds to merit based students and 35-40% to students in need of financial aid (Marcucci, 2008). This shift of the cost burden away from the government resulted in an increase in overall meshing rate in Hungary (figure 5).According to Rosovsky (2001), during the 1990s, Makerere University in Uganda moved from a part where the government covered all draw inning cost and students did not pay for education to one where more than 70 % of the students paid, resulting in twice the amount of student enrolment and development of infrastructure.While imposing tuition fee is considered to shift the burden of financing higher education away from the government, it is argued that tuition fees or increasing it at a rapid rate mogul exclude potential students from disadvantaged families. (Johnstone, 2003), olibanum compromising on the access and equity of university education.3.2 Loans and deferred payment schemesFinancial aid such as loans, representation-tested grants and selective scholarships are being introduced to preserve equity and access to university education (Psacharopoulos 1986, Johnstone 1998). comparing grants and scholarships to loans and other types of deferred payments, the latter tends to relieve the burden of the cost of higher education on the government and raise the universitys revenue. Loans are also more plausibly to encourage the involvement of market forces, thus leading to efficiency and increased responsiveness of the university (Johnstone, 2003). Furthermore, the fuss of exc lusion associated with arise tuition fees can be met with the availability of loans and deferred payment schemes that dont consider the financial worth of students and their families (Johnstone, 2003).Student loans in Hungary, sponsored and guaranteed by the government, were introduced by a student loan company own by the Hungarian State, Dikhitel Kzpont, in 2001 (Marcucci, 2008). These loans cover tuition fees and nutrition cost, are not means-tested and are available to all students enrolled in public and snobby higher education institutions in Hungary or the European scotch Area (ibid), thus ensuring equity and access.Other forms of deferred payments, where students bear a genuine share of the cost burden and come back the amount gradually, once they have been employed, are also an alternative to recovering expenses. (Johnstone 1998, 2003). Examples of such payment schemes are graduate taxes, a concept never fully adopted (Barr, 1998), the income surtax implemented in Aust ralia (Johnstone, 1998, 2003), and the drawdown pension payment system implemented to repay the student loan fund in Ghana (Johnstone, 2003).In the graduate tax system, the current cost burden incurred by the government for the support of education is not immediately relieved. However, over time, future income surtax payments, which are collectively (potentially) sizeable, albeit highly uncertain, shift the ultimate financial burden away from the government (Johnstone, 1998). In this system, students incur low or no tuition and living cost. However, once they start earning they have to pay more income tax than they would have otherwise (ibid). The more one earns the more one pays back, thus argued to be progressive in nature and believed to prevent high debt rank among graduate students (BBC, 2010).The Australian high Education Contribution Scheme launched in 1998 submitd income contingent loans through with(predicate) with(predicate) the high Education Loan Programme to upho ld students pay their tuition fee (Johnstone, 1998). Students start repaying the debt once their income is above a certain amount ($54,126 in 2015-2016). The amount is readjusted on a every year prat to reflect any changes in Consumer Price Index, thus maintaining the solid value of the debt. Participation levels of domestic students in higher education have increased from 3.7% of the population between the ages of 15 to 64 in 1989 to 6.6% in 2014 ( Department of Education and Training, 2015). Figure 6 and 7 show a sharp increase in participation of students after income contingent loans, or graduate taxes, were introduced.Figure 6 Domestic higher education participation and bachelor or higher attainment 1989-2014 ( Department of Education and Training, 2015)Figure 7 University participation by SES 1988-99 persons (Chapman, 2005)However, such schemes are also critiqued to be inefficient and politically costly (Johnstone, 2003). High earners might choose to work out of the country to avoid the graduate tax. Not only will this result in tax being evaded but also whitethorn lead to a brain drain (BBC, 2010). Other than student emigration, payments are often lost due to high defaults and lack of tax records. As Johnstone (1998) notes, applicability of graduate tax to developing countries calculates on the degree to which the income tax system can be trusted. Additionally high costs associated with operate and collecting make such schemes a less attractive election (Johnstone, 2003).According to Psacharopoulos (1986), loans encourage expenditure on education. If the returns to investment in university education are high, loans will help students invest in education, or human capital, consequently increasing the demand for higher education and the flow of semi close re witnessers into the sector (Psacharopoulos, 1986).However, problems associated with loaning loans, such as high collection costs and substantial cases of evasion, have discouraged the developme nt of effective schemes for financing higher education in developing countries. Private banks find the risks and costs of imparting too large to incur without charging a prohibitive interest rate, resulting in the governments providing or funding loan programs for students (Psacharopoulos, 1986). Repayment, especially in developing countries, is a major cause of concern associated with lending loans. According to Tilak (1995), only 5.9% of the investments make on student loan programmes in India during 1963-64 to 1987-88 were recovered. Furthermore, according to Johnstone (2003), the willingness to borrow and lend is important since students prefer their financial aid to be non-repayable3.3 Expansion of esoteric universitiesSince most developing countries have a highly centralised education sector, stringent rules and barriers restrict the operation and contribution of community run and tete-a-tete institutions. Easing these controls and decentralising prudence will allow mobili sation of secluded and local anaesthetic resources in the education sector, reducing the fiscal burden on the government (Psacharopoulos, 1986). The lack of available places in state universities led to the organisation of snobbish universities (Oyebade, 2008).Romania had no private universities before 1989. Laws passed in 1990 resulted in the creation of 70 private institutions, almost all of them claiming university status and enrolling one-third of enumerate enrolments in higher education (Johnstone, 1998).In 1981 in Chile the number of private and public universities charging tuition fees increased. In 1990, 52.4% of the issue forth enrolment was provided for by private universities with no funding from the state. The state, previously incurring all costs, financed only 27% in 1990. The increasing number of private universities helped meet the arise demand for university education, increased access to higher education and increased diversity, with no costs incurred by the government. However, this change also resulted in an increased tuition fee, falling quality and an uncontrolled rise in the number of private institutions (Johnstone, 1998).Oyebade (2008) finds private universities in Nigeria have increased from 3 institutions in 1999 to 24 in 2006. However, Oyebade adds, the cost of private university education and the poverty level whitethorn lead to problems like lack of access and equity. With 90 cardinal pile living in absolute poverty in Nigeria, the enrolment of students in private universities is effected considerably. Only one of the seven universities operational in 2005, were fully enrolled and the remaining six, despite being functional for over six years, were not.Private institutions are widely criticized for their lack of quality, as seen in Chile in 1990, and equity, as seen in Nigeria. Additionally, Johnstone (1998) adds, their sustainability is also questionable since their major source of revenue is tuition fees alone.4. Entrep reneurial ActivitiesAnother alternative to finance higher education is generating income through entrepreneurial activities such as selling services, promise explore and renting out facilities. Exploring new ways of generating revenue is a great way for universities to improve quality, be more innovative and increase their relevance in the society by providing services in solvent to the societys needs (Hans de Wit, 2005).Universities in Mexico began to realise the need for internal revenue multiplication since government support was not likely to grow, consequently, turning towards entrepreneurial activities, involving power and students to raise extra income. Different departments began to generate revenue by providing services and specialised courses (Johnstone, 1998).According to Rena (2006), the University of Zambia and Eduardo Mondlane University in Mozambique have benefited from entrepreneurial activity in the form of improved capacity, information and revenue by establis hing and linking internet nodes to local electronic networks and selling their subscriptions. Rena (2006) also adds Ghana and Nsukkas initiatives of consulting activities have proven to be a successful entrepreneurial activity. Ghana claimed a profit of 9% on total revenue of US$22700 in 1991 by providing consultancies through their consultancy centre. Nsukka indicated a profit of US$35,238 through its consultancies between 1982 and 1991. With an income of US$90,398, the consultants reliable 50% of the profits while the university reliable 30% and the department received 20%.In Makerere University in Uganda, where previously the government incurred all costs of education, recent entrepreneurial activity generated more than 30% of revenue (Rosovsky, 2001). Makerere has raised revenue through evening classes, commercially running their bookshop and bakeshop and establishing a consultancy bureau with staff where a portion of the generated revenue goes back into the university (ibid) .Universities in China generated income through university enterprises, commissioned training programs and educational services, inquiry (Cheng, 1995) and consultancies and logistic services ( solid ground Bank, 1997). According to World Banks report (1997) revenue generated from universities bring to around 3.7% of total higher education revenue in China. In Shanghai, 50 universities ran approximately 700 enterprises with the total revenue of Y 1 cardinal in 1992 alone. Fudan Universitys entrepreneurial activities raised a total revenue of Y 20 million, out of which Y 2 million was invested back into the university (World Bank, 1997). licensed training, an effective way to earn additional revenue due to the rising demand for skill upgrading, was the second largest source of revenue, constituting around 2.3% of total higher education revenue. Provision of educational services added up to about 1.1% of the total revenue. For example, the Department of Law of Peking University ge nerated revenue by providing short training courses on recently implemented laws to employees belonging to public and private organisations. Income from research and consultancy added up to 1.3% of the revenue in 1992. Income from research in 36 field of study universities added up to Y1.12 billion. Additionally, logistical services such as running eat halls and hostels, although not highly lucrative, constituted around 0.7% of the revenue (ibid).According to Johnstone (1998), most risks associated with entrepreneurship in developing countries can be overcome by ensuring the activities are legalised and are supported with clear ordinations and transparency and efficiency in management and procedures. Entrepreneurial activities, such as those carried out in China, Africa and Mexico, have not only benefitted the universities by raising extra revenue, but also benefitted the economy by increasing responsiveness to consumer needs.5. PhilanthropicPhilanthropic activities and initiative s targeted towards higher education can build up funds for scholarships and grants in public and private universities. Although many cultures and societies have a strong tradition of charity, however, these contributions often foreshorten higher education since it is either considered a private good or the responsibility of the government (Johnstone, 2003)The Aga Khan University and the Lahore University of Management Sciences, top ranking universities in Pakistan (HEC, 2016), are good examples of successful philanthropic initiatives, established and partly operated through private philanthropy (Rosovsky, 2001).Donations made to educational institutes in china are either used as merit scholarships for students, for faculty training foreign or construction of university buildings bearing the name of the donor (World Bank, 1997).However, most initiatives cannot depend on such financial generosity in developing countries (Rosovsky, 2001). small(a) provincial universities in underdeve loped, far-flung areas are rarely the recipients of such donations, augmenting the problem of rising disparity between universities and inequalities (World Bank, 1997).6. half-time handicraft for studentsAccording to Johnstone (2003), many American students hold jobs that require 20 to 40 hours a week. The encouragement and financial support of the Federal Work-Study Program, which partially subsidises education, and an economy that has an abundance of summertime and term-time, part-time employment opportunities, has allowed students in the US to finance their education to a great extent. However, for this to be possible, a robust economy with wide sprinkle availability to such low-paying but readily available jobs is necessary. This feature may be largely absent in many countries, especially in developing countries (ibid).7. Distance learningThe trend of distance education has quickly spread across divers(a) countries including Bangladesh, China, India, Indonesia, Korea, Pakist an, Sri Lanka, the Philippines, and Thailand (Johnstone, 1998). China, for example, has a network of provincial universities, and a tv set university, for distance learning programs and education (Johnstone, 1998). After the 1986 National Policy on Education in India, open and distance universities became a means of overcoming the problem inequity and unmet demand for higher education (Tilak, 1995). Approximately 3 million part-time students and 4 million full-time students in India were enrolled in symmetricalness courses (Johnstone, 1998), which are considered to generate revenue much above the correspondence costs (Tilak, 1995). Distance education and open learning programs can be an effective way of increasing access to university education at moderate costs (Johnstone, 1998).8. Policy recommendations and conclusionPsacharopoulos (1986) posits generous scholarship schemes covering tuition costs and living expenses are not suitable in the long run because over time, as lower in come students start to enrol in higher education, the cost of providing grants and scholarships will become a burden on the government.An increase in the role of private actors in the provision of, and contribution to, higher education is a popular recommendation (Psacharopoulos 1986, Johnstone 1998). However, some oversight and regulation may be needed to ensure standards are maintained double-tongued operators are kept at bay. As Johnstone (1998) suggests, privatisation should be used as a tool to increase access to education, however, the government should continue to provide monitoring and regulation. Additionally, a greater role of private and community-run schools will encourage competition, eventually leading to higher efficiency and managerial accountability (Psacharopoulos, 1986). Furthermore, Oyebade (2008) stresses on the need for effective student aid programmes, like loan facilities that have a repayment system that is easily traceable, so that students are able to incu r the costs of private university education.Psacharopoulos (1986) emphasises on complementing the shift towards increased private financing with the provision student loans and limited selective scholarships, thus not compromising on access of education. Loans allow students to finance their current studies so that those with limited funds arent denied cream into higher education. Furthermore, to further avoid selection bias and ensure access, the Psacharopoulos (1986) suggests the use of selective scholarships granted on the basis of financial need and academic merit. This will not only provide students with an incentive to perform better but also ease the financial burden of students belonging to poor families, thus minimising inequalities in access to university education.Johnstone (1998) suggests the submission of private higher education supported through tuition fees, thus shifting the cost away from the government. He further suggests the introduction of loans and means-tes ted grants to ensure equity and access to higher education. Psacharopoulos (1986) recommends developing a credit market for higher education, where access to education can be augmented through widely available loans and deferred payment schemes. In countries where collection of loans poses a problem, an alternative being used is repayment in kind through field service (Psacharopoulos, 1986).Educations institutions can raise significant income by offering various products and services such as training programs, marketing the expertise of faculty, carrying out laboratory tests, renting facilities, research and consultancies and centralised programs for teacher training (Rosovsky, 2001). In recent years, it has become possible and permissible for companies to pay for hands supplied by higher education, for example commissioned training where employers pay a fee in return for a training course for their employees. Another means is rewarded allocation where institutions ask for a fee f rom the employers in return for the employment of a graduate. The fees being a compensation for the training cost of the manpower provided (Cheng, 1995). Policies encouraging such activities will not only generate additional revenue but encourage innovation and allow educational institutions to provide products and services the society needs.Lastly, part-time and seasonal jobs should be encouraged through state policies and programs, such as the Federal Work-Study Program in the US. Part-time jobs should be readily available for students so that they are able to finance their studies. Additionally, this method not only shifts the cost burden of higher education away from the students families but also decreases the dependency of students on other means of financing such as state funding, loans, scholarships or grants.ReferencesDepartment of Education and Training, 2015. Higher Education in Australia.Barr, N., 1993. The economics of the welfare state.Barr, N. A., 1998. scotchs of th e eudaemonia State.BBC, 2010. Tuition fees and graduate tax Whats the difference?, s.l. s.n.Bruce Chapman, C. R., 2005. 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