a review of a review of innovative allocation innovative allocation

mechanismsmechanisms

Jamil Salmi and Art HauptmanJamil Salmi and Art Hauptman

international forum on tertiary education international forum on tertiary education financing financing

Barcelona, 30 Nov-2 Dec 2005Barcelona, 30 Nov-2 Dec 2005

the future of the future of tertiary education tertiary education

financing?financing?

key financing questionskey financing questions

• resource mobilizationresource mobilization

– how much money for tertiary education?how much money for tertiary education?

• resource utilizationresource utilization

– are available resources used efficiently and are available resources used efficiently and

effectively?effectively?

• buffer body or not?buffer body or not?

– is it more desirable to rely on an intermediary is it more desirable to rely on an intermediary

body?body?

outline of the presentationoutline of the presentation

• typology of allocation mechanismstypology of allocation mechanisms

• which mechanism is more effective?which mechanism is more effective?

• preliminary lessons from preliminary lessons from international experiencesinternational experiences

outline of the presentationoutline of the presentation

• typology of allocation typology of allocation mechanismsmechanisms

allocation mechanisms

from direct funding toindirect funding

&

from untied fundingto

performance-based funding

direct funding to institutions:traditional approaches

set guidelines

negotiated budgets

line-item allocation

block grant

categorical / earmarked funds

direct funding: innovative approaches

formula funding input-based output-based benchmarking charge back

competitive funding performance contracts

formula funding

formula linking amount of financing and some measures of inputs and/or outputsnumber of teaching staffnumber of studentsnumber of graduates

unit costs per level of studies / discipline (actual, average, normative costs)

competitive funds

set objectives

competition on the basis of projects

transparent rules & criteria

peer review and selection

independent monitoring committee

performance contracts

institutional agreement to achieve certain objectives

additional funding based on meeting agreed objectives

examples: France, Denmark, Austria, Finland, Colorado & Virginia in US

indirect funding of institutions /

direct funding of students

grants and scholarships

student loans

vouchers

tax credits

Colorado funding modelColorado funding modelOld ModelOld Model

Indirect Gov’t Funding via

Stipends

New Model

Tuition

Direct Government

Funding

Tuition & Stipends

Colorado experienceColorado experience

• voucher for an undergraduate education at voucher for an undergraduate education at eligible universities; no cash actually touches eligible universities; no cash actually touches students’ hands.students’ hands.

• $2,400 per year at public institutions$2,400 per year at public institutions

• $1,200 per year for low-income students $1,200 per year for low-income students attending private institutionsattending private institutions

• degree-seeking, non-degree, and teacher degree-seeking, non-degree, and teacher licensure undergraduate students eligiblelicensure undergraduate students eligible

• age, income and financial aid eligibility are age, income and financial aid eligibility are irrelevant to qualifyirrelevant to qualify

outline of the presentationoutline of the presentation

• typology of allocation mechanismstypology of allocation mechanisms

• which mechanism is more which mechanism is more effective?effective?

policy objectives pursuedpolicy objectives pursued

• improving access and equityimproving access and equity

• improving external efficiencyimproving external efficiency

• improving internal efficiency and improving internal efficiency and sustainabilitysustainability

improving access and improving access and equityequity

• traditional age studentstraditional age students– increased cost sharing with more student grants, scholarships and/or increased cost sharing with more student grants, scholarships and/or

loans to offset adverse effects of higher feesloans to offset adverse effects of higher fees– income contingent student loan repaymentsincome contingent student loan repayments– input-based formulainput-based formula

• disadvantaged studentsdisadvantaged students– expanded need-based grants and scholarshipsexpanded need-based grants and scholarships– pay institutions premiums for enrolling and graduating disadvantaged pay institutions premiums for enrolling and graduating disadvantaged

students (contracts)students (contracts)

• lifelong learning opportunitieslifelong learning opportunities– grants and scholarshipsgrants and scholarships– student loansstudent loans– tax benefits for workers enrolled in tertiary programs tax benefits for workers enrolled in tertiary programs – lifelong learning voucherslifelong learning vouchers– savings accountssavings accounts

improving external improving external efficiencyefficiency

• improving qualityimproving quality– competitive fundscompetitive funds– merit-based scholarshipsmerit-based scholarships

• increasing relevanceincreasing relevance– formula with differential weights for high priority formula with differential weights for high priority

fieldsfields– competitive fundscompetitive funds– grants and scholarships in priority fieldsgrants and scholarships in priority fields– student loans in priority fieldsstudent loans in priority fields– loan forgiveness for students in public service jobsloan forgiveness for students in public service jobs

improving internal efficiencyimproving internal efficiency and sustainability and sustainability

• cost containmentcost containment– funding formula based on normative costsfunding formula based on normative costs

• improving throughputimproving throughput– output-based formulaoutput-based formula– pay for resultspay for results– performance contractsperformance contracts

outline of the presentationoutline of the presentation

• typology of allocation mechanismstypology of allocation mechanisms

• which mechanism is more effectivewhich mechanism is more effective

• preliminary lessons from preliminary lessons from international experienceinternational experience

themesthemes

• combination of instrumentscombination of instruments

• adaptation to country circumstancesadaptation to country circumstances

• clear definition of policy objectives clear definition of policy objectives soughtsought

• link to quality assurancelink to quality assurance

• political economy dimensionspolitical economy dimensions

• unanticipated consequencesunanticipated consequences

principles of an appropriate principles of an appropriate allocation instrumentallocation instrument

• linked to performance / policy objectiveslinked to performance / policy objectives

• transparenttransparent

• flexibilityflexibility

• compatibilitycompatibility

which allocation instrument is which allocation instrument is better?better?

• local circumstanceslocal circumstances

• reform for what?reform for what?

• time dimensiontime dimension

link to quality assurancelink to quality assurance

• pro: powerful incentivepro: powerful incentive

• con: punitive, rewards strongercon: punitive, rewards stronger

• link at the margin?link at the margin?

political economy political economy dimensionsdimensions

• controversial topicscontroversial topics– tuition fees instead of “free” educationtuition fees instead of “free” education– targeted scholarships instead of universaltargeted scholarships instead of universal– student loans instead of scholarshipsstudent loans instead of scholarships– private institutions alongside public institutionsprivate institutions alongside public institutions

• dealing with the politicsdealing with the politics

• not an excuse to avoid reformsnot an excuse to avoid reforms