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Higher education is considered throughout the world to be the key to both individual and societal aspirations. For individuals, education beyond the secondary level is assumed to be the way to social esteem, better paying jobs, expanded life options, intellectual stimulation--and frequently a good time in the pursuit of any or all of the above. For societies, higher education is assumed to be the key to technology, productivity, and the other ingredients of international competitiveness and economic growth. Higher education also shapes and preserves the values that define a culture. And it is believed to be a major engine of social justice, equal opportunity, and democracy.
For all of its importance, higher education throughout the world is increasingly troubled by costs that are high and rapidly rising and that seem to be outrunning available revenues. Governments are cutting outlays to universities and other institutions with consequent loss of staff, deterioration of plant and equipment, erosion of salaries, and loss of capacity to expand to meet student demand. Where costs are passed on to students and parents, debt levels are increasing and access is being threatened, if not outright curtailed. Exacerbating the political tensions of the cost-revenue squeeze are charges of higher education's inefficiency and lack of cost-benefit accountability. In a recent review, Jean-Claude Eicher and Thierry Chevaillier of the University of Dijon's Institute for Research on the Economics of Education write (1992): "The conclusion is clear. There is a financial crisis in education in most countries. That crisis is much deeper than macrostatistics reveal; and it is not going to disappear soon, especially in developing countries, if new solutions are not found." This paper examines the nature and the dynamics of higher educational costs and summarizes some trends and patterns that are observable worldwide as institutions and governments deal with rising costs and faltering revenues.
The Categories of Cost
It may be useful to view four broad categories of higher educational costs. First are the basic costs of instruction, categorized by American accounting standards as "education and general." These are the costs of faculty and staff salaries, equipment, libraries, administrative and basic academic computing, and certain capital or locational costs such as rent. In effect, this is what it costs the institution to do its mission of teaching and whatever basic research or scholarship its faculty are expected to do absent special grants or contracts.
Second are the costs associated with sponsored research or special activities covered by their own funds or appropriations and that would presumably not be incurred without such specially-designated revenues. Although the costs incurred at a particular university by the conduct of sponsored research and other special activities may be high, these costs to the institution's basic missions of teaching and scholarship ought, in principle, to be low or zero because of the nontransferability of the revenues. Expressed another way, a sponsored research activity should have no cost to the institution because all costs, direct and indirect, should be picked up by the sponsor. Similarly, cessation of the sponsored activity should not benefit the institution in the sense of permitting the expansion of an alternative activity because the revenues would be lost along with the expenditures.
A third category of costs associated with higher education are the costs of student living: room, board, clothing, laundry, entertainment, and other expenses that would be incurred whether or not the individual was a student. In this sense, they are not strictly attributable to higher education. To the student and his or her family, however, they are every bit as real as the costs of tuition or books, and must be met from the same combination of sources (students, parents, taxpayers, or institutional resources) that meets the costs of instruction.
The costs of student living will vary according to whether the student lives at home with parents or with a spouse or in a student flat or dormitory. The costs will similarly vary according to the prevailing standard of student living, which may range from traditional student penury or to a standard of living commensurate with non-student age peers. Finally, the cost may be evident and easily measurable, as when they are paid directly by the student or his or her parents, or quite obscure and sometimes virtually immeasurable, as when the expenditures are in the form of subsidies to canteens and residence halls or tax benefits to the parents.
The fourth category of cost is the cost of foregone earnings (actually, foregone real production) of the student while disengaged from the productive work force. While this is a perfectly valid cost in theory, it presumes productive labor force alternatives for persons of university age, foregone by the decisions of some to be students instead. It is a very real cost in a society with labor shortages and where the loss of students from the work force causes real lost production. It is less relevant where the marginal productivity and employment options of young unskilled labor are minimal.
Cost Issues
The costs of higher education present three mega-issues in virtually any nation (Johnstone, 1991). First, how much of a nation's total resources ought to be, or can be, devoted to higher education? Essentially, this issue translates to the questions: how large a proportion of any age cohort should go on to higher education (as opposed, presumably, to labor market alternatives), and how long should they remain there, or to what average degree levels should they aspire?
Second, what ought higher education to cost -- per-student or per-degree granted, or per-unit of learning, or per-any other reasonable unit of higher education's output? This issue deals with efficiency and productivity of institutions, in contrast to the preceding issue that dealt more with the total resources that a nation devotes to its higher educational enterprise. The unit costs of higher education are elusive because of the multiple and hard-to-measure outputs. At the most simplistic level, per-student costs (ignoring real learning outputs or any outputs of faculty scholarship) are a function of:
The issue of efficiency or productivity, then, is whether the outputs or products of higher education can be produced with fewer or cheaper inputs, or whether a given monetary value of inputs can yield a greater volume or value of outputs. The search for greater efficiency leads to considerations of, e.g., better management, more effective incentives, consolidations and economies of scale, and more application of technology.
The third mega-issue is how the costs of higher education ought to be shared among the general citizen/taxpayer, parents, students, businesses, and philanthropists or donors? Whatever the costs, and in whatever country, they must be borne by some combination of the following:
In fact, the three issues above interact. Higher education as a strictly private expenditure, supported mainly by tuition, may be thought by some to be overly expensive, but that is no more a public issue than the high cost of any luxury good freely purchased by persons affluent enough to pay. The concern with unit costs or even with total spending arises mainly from public expenditures -- that is, to the degree to which the costs of higher education are borne by the general citizen/taxpayer.
Furthermore, it is when the costs of higher education are both large in the aggregate and borne mainly by the general citizen/taxpayer that the equity of the distribution of benefits becomes a public issue. As Gareth Williams put it in his summary of OECD country financing patterns (1990): "The larger the number of people who obtain the benefits of higher education, the greater the relative deprivation of those who do not have it. Other claimants on public funds begin to see higher education as a voracious competitor of public resources and not merely as an insignificant fringe activity."
"Who pays" may also have a bearing on unit costs as well as on the social goals of expanded opportunity and equity. Efficiency and equity alone, for example, would suggest that users or beneficiaries -- in this case, students and, to a degree, their parents--should bear most of the costs of higher education, as they do in the private sectors of, e.g., the United States, Japan, the Philippines, Korea, and much of South America, or as they do in those public sectors that have begun covering a substantial portion (say, 20 to 40 percent) of unit costs by tuition as in, e.g., the United States, Canada, or Australia. The reasons are obvious and conventional. The requirement to cover more nearly the full costs with tuition fees should discourage waste and encourage a reallocation of resources to the most productive uses. The reliance on tuition as a significant revenue source also places a substantial share of the burden on those who benefit (and who are more likely to be affluent anyway) rather than on those general taxpayers who do not so directly benefit and who are also likely to be from less-advantaged backgrounds.
At the same time, the goals of expanded opportunity for the disadvantaged and of expanded participation for the social and economic benefits enjoyed by all citizens suggests the appropriateness and even the necessity of some taxpayer subsidy for higher education generally, as well as the need for means-tested subsidies for those families otherwise unable to pay. Thus, the goals of access, efficiency, and equity interact with the issues of aggregate expenditures, unit costs, and the apportioning of the burden.
Unit Costs and Quality: Efficiency Versus Mere Parsimony
Efficiency must be measured by the relationship between costs (as a measure of inputs) and outputs. Although cost per-student (usually refined to "full-time equivalent student") is the conventional measure of efficiency in higher education, it is clear that "student," meaning a single student enrolled full time for a year or its equivalent in part-time students or in total course units taught, is not higher education's output, at all, but only an easily-calculated proxy.
Real efficiency comes about as we find ways to increase the amount of additional student learning or newly discovered knowledge per dollar spent. Sometimes, we would become more efficient by investing more dollars -- as with better instructional equipment, for example, or with better paid and more dedicated professors, or with more instructional support staff, all of which might be presumed to increase the real outputs of added learning and research. However, in the absence of reliable real output measures, the quest for efficiency can be reduced to mere parsimony: cutting costs without regard to the effect on real benefits or outputs. Equipment and library budgets may be cut. Full-time faculty may be replaced by part-time faculty or, as is the case in many developing countries, by faculty paid so little that their attention to teaching and scholarship becomes effectively part time, with a virtually inevitable diminution of quality teaching and of the real learning that could otherwise be taking place.
The Rate of Increase of Costs Over Time: Higher Education's Inflationary Engine
The costs of higher education may present problems less for the aggregate expendi-ture, or even for the unit costs at a point in time, than for the seemingly pervasive rate of increase of those costs over time. Unit costs, for example, tend to rise at rates generally mirroring the rates of increase of wages and salaries of the faculty and staff, reflecting the general absence in higher education (as in most of the service sector of the economy) of the kind of sustained productivity increases characteristic of the goods-producing sectors of most national economies. Non-labor costs peculiar to the enterprise of higher education, such as library acquisitions and scientific equipment, tend also to rise at rates that are above the average of cost increases generally.
But this means that the unit costs of higher education -- assuming only a "steady state" of teaching loads, student/staff ratios, and accessibility of academic equipment--will tend always to rise at rates in excess of the average increase in costs: that is, faster than the rate of inflation. If the sheer volume of students or degree programs or research expec-tations is also increasing, the rate of increase of total expenditures, or at least the pressure for increased expenditures, will rise inexorably and pervasively. Obviously, this means that the revenue sources, mainly from taxes and/or tuition fees, must rise at the same high rate as the costs -- or else higher education must suffer cutbacks either in total number of staff or in relative wage and salary increases or in capital and equipment.
The Politics of Higher Educational Costs
Because higher education in most countries is either governmentally owned and operated, or at least publicly funded, or both, its cost structure is usually subjected to the pressures and distortions of politics and public sector management practices. While all nations are not alike, of course, nor are all institutions alike in many countries, four common practices, or political phenomena, form a context in which higher educational efficiency and productivity in most countries are severely tested:
Civil service employment practices. In most countries, faculty and staff are employees of the state, like other governmental employees, rather than of the institution itself. Governmental or civil service employment tends to feature job protection and level, or generally equivalent (if sometimes very low), salaries. One result is that universities are frequently unable to match private sector salaries in high demand fields such as engineering or computer science and are forced instead to employ very large classes or part-time faculty, or in any event to a less-than-optimal match of salary costs with benefits. Another consequence is that universities typically have great trouble retrenching or laying off faculty or staff whose contributions have become minimal and thus have difficulty reallocating resources from low-need to high-need departments.
Public sector budgeting and control. Most governments seek to maximize finan-cial control of their key agencies, including colleges and universities, and to minimize the outlays of what the finance ministry or budget office bureaucrats tend often to consider "their money." The discretion of universities or agencies to reallocate resources to meet the highest priority needs may thus be limited. It may be difficult, or at least very risky, to effect economies or savings in one function or in one fiscal year in order to increase spending on, or in, another function or year without losing the saved funds altogether. Increased nongovernmental revenues--e.g., from tuition fees or private giving--may be met with a commensurate withdrawal of taxpayer-originated funds. In short, traditional practices of public sector budgeting tend, to greater or lesser degrees, to discourage savings, resource reallocation, the augmentation of public resources with private funds, and decentralized decision making, all of which are thought by most observers to be important ingredients of productivity and efficiency.
Public subsidies and the politics of tuition. Where goods or services have been traditionally free or heavily subsidized by the taxpayer or general citizenry (whether those goods be bread, housing, higher education, or public transportation), the lessening of the subsidy, or sometimes even the mere passing on of real underlying cost increases while maintaining a constant relative subsidy, can elicit a political firestorm. Thus, attempts to impose tuition where costs have hitherto been borne only by the general taxpayer can mobilize what in many countries are politically powerful student unions, joined by other parties of the political left that generally support high subsidies and entitlements, price controls, and high taxes. (The most vivid recent example has been the attempt of the National Autonomous University of Mexico in early 1992 to raise a tuition rate that had been frozen since 1948 when it was 25 percent of instructional costs, and which had subsequently fallen in real terms to a United States dollar equivalent of some six cents. Student leaders opposed the increase and threatened to shut down the university.)
Universities as regional political prizes: the consequences of geographic dis-persal and small size. Since the end of World War II and the explosive growth, world-wide, of higher education, one of the real prizes for a regional political leader has been to induce the government to build an institution of higher education (preferably a university) in his or her home town or region. A new university meant jobs during its construction and other (albeit different) jobs during its subsequent operation. It meant opportunities for the local electorate. It meant regional prestige. What was less important was the critical mass of enrollments, faculty, disciplinary coverage, and operating budgets that were required, over time, to achieve both quality and some reasonable economies of scale. Furthermore, an institution once built has enormous political staying power--even if it no longer has the students or programs or resources needed to maintain itself.
New Factors Influencing Higher Educational Costs and the Willingness or Ability of Governments to Meet Them
Almost every country has experienced in recent years some manifestation of "financial crisis" in its institutions of higher education: loss of faculty and staff, erosion of salaries, deterioration of equipment and plant, tuitions rising beyond the reach of traditional customers, and the like. Underlying all of these difficulties is the phenomenon of costs that press upward beyond the ready ability of revenues to support them. Contributing to this financial squeeze affecting public higher education in most nations as of the early 1990s are the following trends and events:
The upward cost pressures of technology and the competitive meritocracy of higher education. Contrary to some popular wisdom, universities are not complacent or conservative or resistant to change. Rather, they are constantly attempting to incorporate new technology, new scholarship, and new missions (albeit, we must add, finding it difficult to shed the old). Computers can save on costs, but only if outputs and quality and capacity are held constant. But they are not, of course, so the computer usually allows us to manage more effectively, write more voluminously, and calculate and analyze with vastly greater speed and sophistication -- and, in the end, at greater cost. The same pheno-menon is found with advances in scientific equipment, pedagogy, assessment, and attention to the student's life outside of the classroom. Higher education is an aggressively compe-titive and meritocratic institution. The faculty, the governing leadership, the students, and generally the controlling boards or ministries all want to do ever better: to keep up with other scholars and other universities, to master the available technologies and metho-dologies, and to earn higher degrees or more peer recognition. And "better," however appropriate and even efficient, generally means "more costly," contributing to the infla-tionary engine of higher education.
Economic stagnation in much of the developing world (outside of Asia's Pacific Rim) and a slowdown, in the early 1990s, of economic growth in much of Western Europe and North America. The effects of slower economic growth are fewer tax revenues, heightened cost pressures on the various socioeconomic "safety nets" such as unemployment insurance and public assistance, and a diminished ability of students and families to afford whatever shares of the cost of student living and the cost of instruction are to be borne by them. Unfortunately, the very economic hard times that argue for more investment in higher education, by both individuals and societies, also make ministries and universities cut back and forego the needed new investments in human capital.
The collapse of the governments, economies, and higher educational systems of the former Soviet Union and the nations of Central and Eastern Europe. This extraordinary event has brought about new cost pressures on salaries and all other goods and services traditionally purchased by the universities of these regions, plus the enormous added costs of bringing their faculty and curricula up to date. The challenge of meeting these new costs is made especially daunting by the major (it is to be hoped only temporary) breakdown of the economies and the near absence of taxing capacities, along with continuing political instability and uncertainty of what the future may bring.
New social priorities. For two decades or more after the second World War, higher education was a high priority of nearly all countries, reflecting national aspirations for social, political, and economic progress. The last decade, though, has seen in some countries at least some relative slippage of higher education's once-vaunted priority--and perhaps even of its esteem. The developing world has turned more toward elementary and secondary education and to vocational, short-cycle, and other non-university forms of tertiary schooling. The industrialized nations are seeing a relative enhancement of such public needs as environmental conservation, health, and public infrastructure. Ironically, the undiminished private value placed on higher education by those willing to pay dearly for it may be one of the reasons why some governments seem less inclined to spend scarce taxpayers' money on it.
Trends in Containing Costs and Enhancing Productivity in Higher Education
Several trends are discernable worldwide in response to the forces described above. This section summarizes four trends in containing costs and enhancing productivity. The following and final section will describe trends in diversifying revenues and expanding private, or non-taxpayer borne, sources.
Adjusting sector balance: expanding non-university sectors of higher educa-tion. "Non-university" higher education, although an unfortunately negative term, refers to institutions that deliver shorter and more vocationally-oriented curricula, taught by faculty for whom research is a secondary, and hence less time-consuming and thus less expensive, obligation. Such institutions include polytechnics in the United Kingdom, Fachhoch-schulen in Germany, community colleges and, to a degree, comprehensive colleges in the United States, Institutes Universitaires de Technologie in France, higher vocational schools (HBO Institutes) in The Netherlands, technical institutes in Mexico, special training schools (Senshu Gakko) in Japan, and so forth. A variation on this theme are those institutions delivering "distance learning" by telecommunications and correspondence: the British Open University, Thailand's Sokothai Thammathirat Open University, or the State University of New York's Empire State College.
Such institutions generally have lower per-student costs for some combination of the following reasons:
It is likely that more and more countries will turn increasingly toward non-university institutions, especially to absorb new demand for student places and to respond rapidly to the training and retraining needs of business and industry. Countries like Spain and Italy, where the non-university sector is negligible, or the countries of the former Central and East European Socialist Bloc, where it is relatively undeveloped, as well as the developing nations of Latin America, Africa, and Asia can be expected to place increasing emphasis on the expansion of their non-university institutions.
At the same time, the per-student costs in the university sectors of some countries--Spain, Greece, Italy, Portugal, come to mind (Kaiser, et al, 1992)--are so low due to enormous class sizes and student/faculty ratios that a shift to a reasonably-funded non-university sector might well increase the cost per-student, even though it could lower the costs per-degree granted.
Shedding non-essential activities. Many universities and other postsecondary institutions, especially in developing nations and in nations long dominated by central planning and Marxist ideology, are extensively engaged in activities unrelated to the core functions of a university. Such activities may relate to student life or to the maintenance of employees -- such as university-run dormitories, restaurants, bookstores, apartments and social camps -- or they may be remnants of a political ideology that attempted to immerse universities, faculty, and students in the politically noble work of farms and factories. Some university-owned enterprises, such as medical clinics, may be useful or even essential to teaching and research, although it may not be necessary to own, manage, or subsidize them. Still other activities (all with costs) may have emerged from faculty entrepreneurial activity and may be viewed simply as eventual net revenue sources -- "moneymakers." Cost pressures and modern managerial thinking, however, are likely to "spin off" more of these activities to private or quasi-private forms and to force those that remain to stand financially "on their own bottoms." Even if such activities warrant continuing subsidization, the process of setting them up as separate and supposedly self-sufficient entities can inject them with discipline, motivation, and entrepreneurship and can make clear exactly how much they cost in revenues that have alternative uses.
Reforming practices of public sector budgeting and management. The United Kingdom in the late 1980s and early '90s radically altered the governance and financing of both the universities and the polytechnics. These changes greatly lowered per-student, taxpayer-borne costs, with considerable pain and probably some real losses. But they also engendered more effective planning, some reallocation of resources, a devolution of control from the ministry and the local authorities to the polytechnics, and a great expansion of entrepreneurial activity (Williams, 1992). Planning and "outcomes assess-ments," or "quality indicators" are being introduced throughout Europe and North America. It is likely that such reforms will continue not just because they are reasonable and desirable (which may have little correlation with the likelihood of their adoption), but because intrusive and inefficient management is becoming a political liability. The tougher the decisions to be made, the wiser it will be for ministry officials and elected politicians to let the campuses make their own decisions -- both for the greater likelihood of a good decision and also for the opportunity to let someone else make those decisions that are most likely to cause unhappiness.
Applying technology to research, to more effective and efficient management, to the more effective assessment and guidance of students, and to the learning process itself, through distance learning and self-paced instruction. Technology has already transformed financial controls and student registration. During the 1990s, digitized infor-mation storage and retrieval will begin actually to see returns in library efficiency, inventory management, and energy control. Even more important, new learning technologies should allow the more productive use of the time of the students: less redundancy, less attrition, more genuine "mastery learning," and less time to the degree. In a few countries--e.g., China, Thailand, Indonesia--a significant amount of the new student demand is being met by distance learning, albeit as yet of relatively low technology.
To date, with the exception of the aforementioned national open universities, technology has arguably added as much cost (with greatly added benefits) as it has cut. In time, however, technology can still be expected to lower unit costs significantly through:
Trends in Enhancing Revenue
Trends in cutting costs, or the enhancement of productivity, are being comple-mented by trends in the enhancement of revenue. Because revenue from the government, or taxpayers, may be assumed to be maximized at a point in time, given the prevailing fiscal and political realities, the "enhancement of revenue" generally means shifting a greater proportion of costs onto the non-taxpayer sources: principally parents and students, but to some degree businesses, philanthropists, and institutional entrepreneurial activities. This final section summarizes seven trends, or techniques, of enhancing nongovernmental revenue.
Reducing taxpayer-borne subsidies for the costs of student living--e.g., for residence halls, meals, transportation, and the like. Direct government (taxpayer) contributions to the costs of student living were estimated in 1980 to constitute about 14 percent of government recurring expenditures on higher education in the OECD countries, but as much as 47 percent (1988 figures) in the lowest income countries (Albrecht and Ziderman, 1991, p. 10). Clearly, substantial public funds can be saved, or shifted, to support of instructional costs if these subsidies can be reduced, and parents and students, to the limit of their financial capabilities, be required to pay more of the costs of student living. In fact, such a shift will probably precede the imposition of, or significant increases in, tuition fees for reasons both of politics and economics. There are clear users and non-users of subsidized student canteens and housing, and while free or highly-subsidized tuition has at least an intellectual defense and substantial precedent (including most of Europe), there is very little defense for the practice of highly-subsidized room and board other than affordability for the poor -- which can arguably be handled more efficiently and equitably through means-tested loans and grants for the costs of student living. Beyond the sheer relief to government budgets (or the shift of public revenues to more generous support of instructional costs), placing enterprises such as restaurants and student residence halls on a "break-even" basis introduces all of the signals and incentives of the market into enterprises that can easily have become both inefficient and unresponsive under the cover of government subsidies.
Establishing at least modest tuition fees and requiring them to increase annually as underlying costs increase. Tuitions have long covered a significant portion of instructional costs in the public institutions of the United States, Japan, and Canada, and have recently been introduced, via a graduate tax obligation, in Australia (Johnstone, 1992b). Eicher (1992) reports that tuition levels in Europe, traditionally zero or insignificant, have recently been increased to levels that are "not nominal" (i.e., from $200-800) in Belgium, Spain, Netherlands, and Switzerland. In the developing world, tuitions are significant in the public colleges and universities of Korea, Indonesia, the Philippines, and in some of the Anglophone nations of Africa; they have been minimal in Bangladesh, China, India, Malaysia, and Thailand, but have been introduced or seriously considered for a more significant role in most of those countries (Johnstone, 1991a, 1992a; Tan and Mingat, 1989).
On the negative or at least precautionary side, however, the ability of students and parents to bear substantially greater shares of the institutional instructional costs via tuition is limited by three significant factors. First, student living costs alone are very high in all countries and, as suggested above, these costs are likely to make the first claim upon possible additional revenues from parents and students; the proportion of families, even accepting the upper-middle class enrollment bias in virtually all countries who can now afford to meet all student living costs and then also cover a more significant portion of instructional costs via newly-increased tuitions may be minimal in many countries. Second, any significant cost borne by students and parents requires the complex and not inexpensive administrative machinery of means testing and of grant and loan programs. Third, tuition remains politically unpopular, perhaps especially in Europe and other countries that have lacked either a tradition of public sector tuition or a genuinely private higher educational sector to demonstrate its viability. Nevertheless, the need for expanded and diversified (i.e., nongovernmental) revenues for higher education is so pervasive that the trend toward some greater reliance on tuitions, and thus toward parent and student revenues, will undoubtedly continue.
Encouraging the development of private higher education, with substantial reliance on tuition. Another way that nations are drawing more revenue from parents and students is the encouragement of a private sector with a substantial reliance on tuitions. It is possible, of course, for there to be private sectors that are nearly entirely publicly financed, as in the United Kingdom, the Netherlands, Finland, or India, and that have thus become virtually absorbed into the public system (Williams, 1992, p. 21). But private sectors can also be largely self-supporting, as in the United States, Korea, Japan, the Philippines, Indonesia, Brazil, Colombia, Argentina, and Mexico (Levy, 1986; Geiger, 1988; Johnstone, 1992b); such private sectors take a substantial burden of support off of the state, and they generate revenues from parents and students that would otherwise have to come from taxpayers. Arguably, private institutions can also provide higher educational benefits at lower costs than state-owned and state-run institutions through their greater managerial flexibility and their independence from state civil service rules and work habits. Private higher education, mainly outside Europe, is encouraged by government through capital and operating grants, access of their students to means-tested grants for the costs of student living, tax advantages to donors, and liberal policies of licensure and control.
Maintaining access, while increasing parent and student contributions toward the costs of higher education, through means-tested grants and governmentally-sponsored student loans. If revenue is to be increased through greater dependence on parents, provision must be made for "means testing," or the determination of what in the United States is termed a fair "expected parental contribution," so that families unable to contribute can receive state (i.e., taxpayer-borne) support through means-tested grants or subsidies. In nations like the United States, the United Kingdom, Germany, and Japan, such means testing draws on an extensive, reasonably well-accepted, and reasonably well-policed system of taxation on income and assets. Nations without such systems, however, find means testing difficult to implement with confidence (Albrecht and Ziderman, 1991). Some East European countries continue to leave the distribution of means-tested grants up to the students themselves, through student governments, apparently on the theory that the students know best who is and is not truly needy and also have a strong self-interest, in the face of scarce grant funds, in maintaining a fair system.
Students can bear a significant portion of costs only through borrowing, and the use of student loans is spreading throughout the world (Albrecht and Ziderman, 1991; Johnstone, 1986, 1992b; Van Oijen, Smid, and Broekmulen, 1990; Stager, 1989; Woodhall, 1988, 1989, 1992). Student loans have been major features of higher educational finance in Scandinavia, the United States, Canada, the Netherlands, and Japan. Germany's student support scheme requires a partial repayment, as an interest-free loan. After decades of fierce opposition to student loans from the National Union of Students and their Labor Party allies, who saw student loans as essential to any significant burden sharing by students and thus to be resisted, England and Wales have adopted a "top-up" loan program, supposedly to shift a portion of student living costs, over time, from parents and taxpayers to students. Australia's Higher Education Contribution Scheme is more of a graduate tax than a loan, per se, but most students are nonetheless emerging from their higher educational studies with a repayment obligation, even if it is discharged as a progressive income surtax. Turkey has a student loan agency, YURT-KUR. Colombia's student loan program dates back to 1953, and loans in Latin America have become significant in Argentina, Brazil, and Jamaica. In Asia, student loans are well-established in Japan, Hong Kong, and Singapore, and are under serious study for initiation or revival in China, Korea, Malaysia, and the Philippines. In Africa, student loans are employed in Ghana, Kenya, Lesotho, Malawi, Nigeria, and Zimbabwe. In short, there is a definite worldwide trend, albeit uneven and fraught with both administrative and political pitfalls, toward shifting a larger share of costs, both for instruction and student living, onto parents and students mediated by means-tested grants and governmentally-sponsored and subsidized loans.
Increasing revenues from business. Because of the obvious links and depen-dencies between business and higher education, and because of the increasing need for non-tax revenues, universities and other higher educational institutions are trying several approaches to more directly tap business revenue:
As yet, however, contributions from businesses, aside from their contributions to the general tax coffers (the incidence of which is almost certainly passed directly to consumers, not unlike a general sales tax) are uneven and in most countries not yet significant.
Increasing revenue from alumni and other philanthropic sources. The United States has long led the rest of the world in obtaining revenues for higher education from alumni, foundations, friends, and corporations. Other nations are now turning to fund raising as a continuous and significant revenue source. Success in fund raising, however, requires a tradition of philanthropic activity generally, plus good alumni records and fund-raising techniques, a cadre of alumni or friends with large fortunes capable of major gifts (say, $500,000 and up), and income, capital gains, and estate tax laws deliberately designed to encourage eleemosynary giving. Without such conditions -- not easily or quickly put in place in countries where they do not now exist -- "fund raising" as we know it in the United States, at least for most institutions, will remain costly and of increasing, but nonetheless marginal, importance.
Universities themselves engaging in entrepreneurial, profitable activities. Institutions of higher education perform many functions that have potential value on the market and that can, with good management and favorable regulatory treatment, become sources of revenue for certain programs or for the institutions generally. Sponsored research for private enterprises, for example, can potentially turn a real profit, at least through aggressive marketing of patents, copyrights, and licensing possibilities. Medical and other health profession schools operate clinics, the income from which, at least in the United States, has become a significant source of salaries and departmental operating revenue. Certain schools catering to, e.g., "executive training seminars" and various short-course "refresher" and certificate programs can earn revenue in excess of their costs to support other programs of the institution. Big-time athletics, for a few American universities, is a moneymaker. Universities in China, the former Soviet Union, and other formerly socialist nations frequently own factories and farms, which might, with good management, someday turn profits for the benefit of the institution.
Two significant cautions should be observed in considering more aggressive entrepreneurial activities as revenue producers. First, such activities can compete, and sometimes even conflict, with the academic mission and principles of the university. Second, such activities can appear to be profitable when, by more complete and forthright accounting of all costs and revenues, they might in fact prove to be financial drags on their institutions. A general guideline is to account carefully and to pursue activities, such as short course certificates and applied research, that are intimately connected to the university's basic activities.
Summary: Trends in Cost Control and Revenue Enhancement
Higher education's formidable appetite for revenue, coupled with the slowdown of many economies and thus of tax revenues, plus in some countries a reassessment of priorities, not necessarily to the advantage of higher education, will place universities and other higher educational institutions and the governments that support them in an increasing financial squeeze. Part of the response to this pressure will be an increasingly aggressive quest for non-tax revenue from parents, students, businesses, and donors. At the same time, there are important limitations to the capacities of most of these non-tax sources in most countries, and it may be well to sound a note of warning that higher education will continue to need stable and generous support from the general citizen/taxpayer, and that higher educational institutions are going to have to earn more of that support by their own aggressive actions of controlling costs and assessing outcomes.
The solution to the diverging trajectories of cost and revenues is going to have to come at least as much on the cost side. Higher education must become more productive, through sector differentiation, more attention to the economies of scale, and rigorous cost control that constrains the natural inclinations of higher education always to do more and better, at more cost.
References
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* Prepared for the Sixth International Conference on Higher Education (ICHE) held in Washington, DC in August 1992. Published as a chapter in Altbach, Philip G. and D. Bruce Johnstone, Eds., The Funding of Higher Education: International Perspectives. New York: Garland Publishing, 1993.