National approaches to funding tertiary education

Many countries have similar goals for tertiary education, such as strengthening the knowledge economy, increasing access for students, encouraging high completion rates, and ensuring the financial stability of their higher education systems, according to the OECD’s latest Education at a Glance report.

Yet the OECD countries differ dramatically in the way the cost of higher education is shared among governments, students and their families, and other private entities – and in the financial support they provide to students. The following is how the OECD describes the different models its member countries are using.

Model 1

Countries with no or low tuition fees and generous student support systems include the Nordic nations of Denmark, Finland, Iceland, Norway and Sweden. These have more progressive tax structures and students pay no tuition fees while benefiting from generous public support – although they also face high income tax rates after graduating.

The average entry rate into higher education for this group is 74% over a lifetime, significantly above the OECD average of 59%. These high entry rates may also reflect the attractiveness of these countries’ highly-developed student financial support systems and not just the absence of tuition fees, the report states.

For instance, more than 55% of the higher education students benefit from public grants, loans or a combination of the two. The approach to funding tertiary education in this model reflects these countries’ deeply rooted social values such as equality of opportunity and social equity.

The notion that government should provide its citizens with tertiary education at no charge to the individual is a salient feature of the culture of education in these countries: the funding of both institutions and students is based on the principle that access to tertiary education is a right, rather than a privilege, the report says.

But, during the past decade, Denmark and Sweden decided to introduce tuition fees for international students so as to increase the resources available for their tertiary institutions, while Iceland is considering doing the same.

The risk is that this approach may discourage some international students from studying in these countries. Sweden has seen a reduction in the number of international students in the country since it introduced this reform. Between autumn 2010 and autumn 2011, the number of students who were not part of an exchange programme and came from outside the European Economic Area and Switzerland decreased by almost 80%, the report notes.

Model 2

Countries with high tuition fees and well-developed student support systems include Australia, Canada, the Netherlands, New Zealand, the UK and the US. These countries have potentially high financial obstacles to entry into university but they also offer significant public support to students. The average entry rate for this group is 75%, significantly above the OECD average and higher than most countries with low tuition fees except the Nordic nations.

Countries in model 2 tend to be those where private entities such as private businesses and non-profit organisations contribute the most to financing tertiary institutions. In other words, in model 2 countries, the cost of education is shared among government, students and private companies.

Tuition fees charged by public universities exceed US$1,500 in all these countries, but more than 75% of students receive public support in Australia, the Netherlands, New Zealand, the UK and the US, the five countries for which data are available.

Student support systems are well-developed and mostly accommodate the needs of the entire student population. As a result, the share of public spending on tertiary education that is devoted to student support is higher than the OECD average of 22% in five of the six countries: Australia 35%, the Netherlands 29%, New Zealand 48%, the UK 74%, and the US 29%, and close to the average for Canada of 19%.

Australia and New Zealand have among the highest entry rates into university over a lifetime with 96% and 79%, respectively, although these rates also reflect the high proportion of international students enrolled.

Entry rates into university were also above the OECD average of 59%: in the Netherlands 65%, UK 64% and US 72% in 2011. These countries spend more on core services directly related to instruction per tertiary student than the OECD average and have a relatively high level of revenue from income tax as a percentage of gross domestic product or GDP, compared to the OECD average.

The Netherlands is an outlier as its level of income taxation is below the OECD average but research suggests that, in general, this model can be an effective way for countries to increase access to higher education.

However, during periods of economic crisis, high tuition fees impose a considerable financial burden on students and their families and can discourage some of them from entering tertiary education, even when relatively high levels of student support are available. This is a hotly debated topic in Canada, the UK and the US.

Model 3

Countries with high tuition fees and less-developed student support systems include Chile, Japan and Korea where most students are charged high tuition fees (on average, more than US$4,500), but student support systems are somewhat less developed than those in models 1 and 2.

This approach can impose a heavy financial burden on students and their families. Entry rates are below the OECD average in Chile (45%) and Japan (52%) but above it significantly in Korea (69%). In Japan and Korea, some students who excel academically but have difficulty financing their studies benefit from reduced tuition and admission fees or receive total exemptions.

These two countries are also among those with the lowest levels of public expenditure allocated to tertiary education as a percentage of GDP. This partially explains the small proportion of students who benefit from public loans. It should be noted, however, that both countries have recently implemented reforms to improve their student support systems.

Model 4

Countries with low tuition fees and less-developed student support systems include all other European countries for which data are available – Austria, Belgium, the Czech Republic, France, Ireland, Italy, Poland, Portugal, Switzerland and Spain – and Mexico.

All of these countries charge moderate tuition fees compared to those in models 2 and 3. Since 1995, reforms have been implemented in some countries, particularly Austria and Italy, to increase tuition fees in public institutions.

Model 4 countries have relatively low financial barriers to entry into tertiary education – or no tuition fees, as in Ireland and Mexico – combined with relatively low levels of support for students, which are mainly targeted to specific groups. Tuition fees charged by public institutions in this group never exceed US$1,300, and in countries for which data are available, less than 40% of students benefit from public support.

In addition, tertiary institutions usually depend heavily on the state for funding, and participation levels are typically below the OECD average: the average rate in this group of 56% is relatively low. In Belgium, this low rate is counterbalanced by high entry rates.

While high tuition fees can raise potential barriers to student participation, model 4 suggests that lower tuition fees, which are assumed to ease access to education, do not necessarily guarantee greater access or better quality.

In these countries, students and their families can benefit from support provided by sources other than the ministry of education, such as housing allowances, tax reductions and-or tax credits for education, but these are not covered in the OECD analysis.

In France, for example, state funding of housing allowances represents about 90% of scholarships or grants, and one in three students benefits from them. Poland is notable in that most students enrolled in public institutions have their studies fully subsidised by the state, while students enrolled part-time pay the full costs of tuition.

In model 4 countries, loan systems are not available or are only available to a small proportion of students. At the same time, the level of public spending and the tax revenue from income as a percentage of GDP varies significantly more among this group than in the other groups.

Public loan systems are particularly well-developed in Australia, Norway, the UK and US, where some 70% or more of students benefit from a public loan during their studies. Public loan systems are also quite well-developed in New Zealand, while in Iceland and Sweden 63% and 40% of students respectively take out loans – two countries along with Norway where educational institutions do not charge tuition fees for national students.