Presentation of Art Hauptman

Funding Mechanisms to Ensure
Stability, Innovation and
Sustainability in Higher Education
Arthur M. Hauptman
IUA Symposium-21st Century Universities
Dublin, Ireland
29 September 2014
Four Considerations in Developing
HE Funding Strategies Worldwide
• A country’s economic strength and demographic profile
should be critical factors in determining the type of HE
system as well as how that system is financed.
• Funding sustainability is a critical policy goal but should
not be the sole policy objective. Funding stability and
promoting innovation are other critical goals. Each
should be applied to research as well as instruction.
• It is difficult to have an effective higher education
financing system without first having a governance
structure that properly sorts out the roles and
responsibilities of key stakeholders.
• Efforts to expand access to HE inevitably will have effects
on the quality of the enterprise; these possible effects
should be factored into the policy-making process.
Structure of this presentation
• First, the presentation considers the importance of
economic strength and demographic profile in
determining the design of a country’s higher education
system and its financing strategy
• Second, the presentation considers how to achieve
stability, innovation, and sustainability in the funding of
both instruction and research
– Particular emphasis here on sustainability strategies
• This presentation does not address the question of how to
ensure an effective governance structure or the extent to
which a tradeoff exists between access and quality
– These two issues will be the primary topics of the IA-HERO
discussion scheduled for December this year
I. Economic Strength and Demographic Profile as Key
Factors in Developing HE Funding Strategies
• Economic strength and demographic profile should be important factors both in
designing the HE system as well as developing strategies to fund it.
This is often not the case as countries fail to consider these factors in deciding the
structure and financing of the HE system.
• Economic and demographic factors to consider in deciding on the structure and
financing of the HE system include:
Does the country have a strong economic base?
Is the economy closed or open?
Is there significant inward and outward migration?
Do university graduates stay in country r move away?
Are the number of young people increasing, stable, or declining?
• Economic and demographic factors affect a number of critical decisions such as:
How big is the HE system and whether massification is feasible
What kind of expansion makes the most sense
What is appropriate balance between higher education and further education
How to maintain or improve the quality of the system, particularly in the context of
expanded access
– What type of research strategy should be adopted
• These issues are addressed in the following chart with regard to instruction
– Research issues not addressed in the chart
Possible Effects of a Country’s Economic Strength
and Demographic Profile on Access and Quality
Demographic Profile
-Massification challenging due
to growing demand
-Quality of instruction difficult
to maintain as numbers grow
-Massification possible with
stable demand without
threatening quality but still very
-Massification and maintaining
high quality are more feasible
when numbers of students are
-Massification very difficult to
achieve with growing demand
and limited financial resources
- Maintaining quality also a
great challenge
-Massification and high quality
instruction difficult to achieve
-But increasing HE participation
and maintaining quality should
be feasible
-Massification is a reasonable
strategy for these countries
-High quality instruction may
be less feasible due to limited
future growth in resources
-Massification not feasible
-Achieving high quality in
instruction also difficult due to
limited resources
-Massification highly unlikely
-Increasing HE participation and
having high quality instruction
are feasible but challenging
-Massification may be feasible
with low numbers of students
but may not be advisable given
competing demands for funds
II. Stability, Innovation and Sustainability:
The Importance of Achieving Multiple Goals
• International experience confirms that sustainability
must be a key goal in how HE systems are funded
– Sustainability defined as providing adequate resources
per student and funding research adequately to assure
good quality in both teaching and research
• But sustainability should not be the only policy goal.
Other important objectives include ensuring stability
and encouraging innovation and risk-taking
– Stability defined as having a funding process where all
stakeholders can predictably plan for the future
– Encouraging innovation requires a funding process that
does not punish participants for taking risks or
experimenting with alternative approaches
What Policies are Most Likely to Produce the
Desired Results?
• A key issue for policymakers and other
stakeholders to consider is which set of
policies are likely to produce the highest level
of stability, innovation, and sustainability in
both instruction and research
• The following chart lays out a general set of
strategies that countries may consider
pursuing in seeking each of these objectives
in both instruction and research
Mechanisms for Ensuring Higher Education
Stability, Innovation, And Sustainability
-Forward fund allocations to all HE institutions
-Use actual numbers in designing funding formulas
-Adopt multiyear budgets
-Fully fund approved research
projects on a multi-year basis
-Establish policy goals for research
-Fund competitive grants to spur innovative instruction
-Fund alternative institutions to spur greater innovation
-Support ‘Blue Skies’ research
-Competitive research grants
-Increase the level of public investment in HE
-Design formulas to spur more efficiency &performance
-Increase share of public funds to more efficient sectors
-Shrink the size of the HE system
-Increase tuition fee revenues in various ways
-Redesign student support systems
-Encourage more private funding of public HE
-Expand the private provision on HE
-Employ more technology to improve productivity
-Increase institutional autonomy to increase flexibility
-Achieve appropriate mix of
direct/indirect costs of research
-Adequately fund approved research
projects separately from core grants
for instruction
-Encourage more private sector
support of research
-Require research collaboration from
multiple institutions
III. Achieving Sustainability
• In designing policies to achieve sustainability, it is
important first to define what it means for both
instruction and research funding to be sustainable
• What it should mean is to ensure that adequate
resources are available to provide a high quality level of
instruction and a robust research program
• What it should not mean is simply maintaining current
levels of funding per student or per research project
– Adequate levels of instructional funding will change with growth or
shrinkage of enrollments given economies of scale, capacity limits, and
the ability of institutions to adjust to changing conditions
– Research funding adequacy will also depend on institutional
arrangements such as mix of direct and indirect cost funding and
determination of what constitutes a critical mass of research in
different fields of inquiry
Sustainable Strategies for Financing Instruction
• Increase the level of public investment in HE
• Design funding formulas to spur more efficiency & performance
• Increase share of public funds allocated to more efficient sectors
– Rely more on further education to accommodate demand
• Shrink the size of the higher education system
• Increase tuition fee revenues in various ways
– Increase fees for current domestic students
– Increase numbers of domestic students at current prices
– Increase numbers of international students and prices they are charged
• Redesign student support systems
– Target non-repayable aid on students with most financial need
– Adopt income contingent repayment of student loans
Encourage more private funding of public higher education
Expand the private provision on higher education
Employ more technology to improve productivity
Enhance institutional autonomy to increase system flexibility
Sustainable Strategies for Funding Research
- Achieve an appropriate mix of paying for the direct
and indirect costs of research
- Adequately fund approved research projects
separately from core grants for instruction
- Encourage more private sector support of research
– Provide government matching funds for private funding
– Provide R&D tax credits
- Require research collaboration from multiple
IV. Key Conditions for Achieving Stability and
Sustainability in Funding Instruction and Research
Sustainability and stability requires a funding regime that:
• funds both instruction and research adequately at
predictable and stable levels that allow for the
achievement of high levels of quality
• relies on a mix of public and private funding to achieve
sustainable and stable funding levels
• provides a research agenda that recognizes the
importance of both basic and applied research
• relies more on institutional accountability than
government control to determine spending patterns
and priorities, an approach which allows for greater
innovation and agility at the institutional level

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