HIGHER EDUCATION: TO PROFIT, OR NOT TO PROFIT?
By O. G. Dayaratne (Phd)
The Government has seemingly decided to embark on further liberalising the higher education sector along a patchwork process commenced in 1978, getting the private sector to provide higher education. As has been argued, universities must play a dual role in their mission: creation and dissemination of knowledge as the primary mission, and training of skilled workers as the secondary mission.
But there can also be higher education institutes for the purpose of training skilled workers. The attempt of the government appears to have been to allow those who are able to pay, to buy higher education, by widening the options available to seekers of higher education. Accessibility for bachelor’s degrees should be broadened as there are a large number of qualified students seeking higher education. However, public universities will never be able to fully provide higher education for all due to public funding shortages. So, part of the seekers, at least those who are able to pay, need to be allowed to buy higher education.
For the purpose of widening the higher education options, the country needs to choose an appropriate model. However, the government has still not made it clear to the people of Sri Lanka the kind of model that it has planned to introduce by reforming the existing state university system. Three different models are available for the policymakers. They are: for-profit private universities, non-profit public universities, and not-for-profit public and private universities. First, since the introduction of free university education, Sri Lanka practised a non-profit public university system. Internal undergraduate education was fully funded by the state initially. Since 1978, universities in Sri Lanka have been allowed to sell postgraduate degrees and diplomas, undergraduate diplomas and certificates through external mode in diverse fields. These provisions allowed universities to recover part of their cost while broadening their mission in higher education. In some countries however, there are non-profit private universities which operate through various income generating activities including tuition fees. Revenue sources are donations and tuition fees. In this system, the expenditure always exceeds revenue so that the huge expenditure gap is financed by the state. The second model is the not-for-profit private or public universities. In this system, universities charge tuition and other fees from students meaning that students pay to get a postgraduate or undergraduate degree/diploma. Other revenue sources are donations and government funds. However, the net revenue (revenue minus expenditure) is not distributed as dividends or profits to the owners or shareholders. The net revenue is, in fact, reinvested as scholarships, fellowships, chair professorships, quality improvement activities, and subsidies to the needy etc. The third model is a system of traditional for-profit universities. The objective of for-profit higher education institutes is to make profits which are subsequently distributed among owners and/or shareholders. So, a for-profit university/institute is similar to any manufacturing firm producing goods such as sausages and garments etc. I will try to analyse the system of universities in the United States by way of understanding how each of these models has worked. In order to analyse the feasibility of different models of higher education, I will examine the U.S. system of universities which is one of the best university systems in the world.
The US example
In the United States, there are three types of universities, public non-profit/not-for-profit universities, private non-profit/not-for-profit universities and private for-profit universities. Approximately 2,200 colleges and universities offer bachelors degrees in the U.S. Although more than two-thirds of these are private non-profit institutions, the majority of students attend public universities. The smallest percentage of students attends for-profit private higher education institutes in the U.S. In the fall of 2007, there were 15 million students enrolled in degree-granting undergraduate programmes in the U.S. Nearly 80 percent of these students were studying at public universities, which are known as state universities in the U.S, that were founded and operated by state governments. Every U.S. state has at least one public university, and the largest states have more than thirty. In the non-profit/not-for-profit universities, needy students are either subsidised or exempted from fees. A large number of scholarships are available for students from within the state. More affluent students pay for their higher education while the poor and the middle class get free education to a large extent. There are not-for-profit private universities in the U.S. This model has enhanced the freedom of choice of higher education in the U.S. Not-for-profit public and private universities have also encouraged a lively competition among public and private institutions for the best students and the best academic staff. That competition promotes a high level of quality in education and scholarship. Competition also creates strong incentives for institutions to be rigorously self-critical in periodic assessments of their curriculum and performance.
State owned universities which are fully funded by the state, possess inherent impediments for university governance thereby reducing academic freedom and independent scholarship. However, autonomous not-for-profit public and private universities can enhance academic freedom thereby strengthening creative and critical thinking. Not-for-profit system of public and private universities in the U.S. has significantly improved university governance. Since universities are not completely relying on government funds, financial freedom exists for taking innovative decisions. As a result of private not-for-profit universities, public universities have also been strengthened and protected from undue political influence on matters such as curriculum and staff appointments, and ensured that the universities, both public and private, remain bastions of independent, creative thinking.
In the model of not-for-profit universities, charities and endowments are performing a central role in the financial health. This is one of the salient features of most of the U.S. universities. Without depending too much on government funds, most universities have established endowment funds, created through donations. This is one of the leading financial sources of spending in the universities of the United States. The size of endowments in U.S. universities is huge. In 2010, the endowment of Harvard University was about USD 27.5 billion, of Yale University was about USD 16.6 billion, of Princeton University was about USD 14.3 billion, and the University of Texas at Austin was about USD 14 billion. Endowments represent money or other financial assets that are donated to universities or colleges. The sole intention of the endowment is to invest it, so that the total asset value will yield an inflation-adjusted principle amount, along with additional income for further investments and supplementary expenditures. Colleges and universities are frequently controlling an endowment fund that funds a significant portion of the operating or capital requirements of the institution. In addition to a general endowment fund, each university also controls a number of restricted endowments that are intended to fund specific areas within the institution. The most common examples are endowed professorships, endowed fellowships and endowed scholarships.
Often Alumni of universities contribute to the endowment of the bulk of the capital. An endowed professorship (or endowed chair) is a position permanently paid for with the revenue from an endowment fund specifically set up for that purpose. The position is designated to be in a certain department of study. The donor is allowed to name the position. Endowed professorships aid the university by providing an academic staff member who does not have to be paid entirely out of the operating budget of the university, allowing the university to either reduce its student-to-staff ratio, a statistic used for university rankings and other institutional evaluations, and/or direct money that would otherwise have been spent on salaries toward other university needs. An endowed scholarship is tuition (and possibly other costs) assistance that is permanently paid for with the revenue of an endowment fund specifically set up for that purpose. It can be either merit-based or need-based depending on university policy or donor preferences. The amount of money that must be donated to start an endowed scholarship vary greatly. Fellowships are similar, although they are most commonly associated with postgraduate students and visiting scholars. In addition to helping with tuition, they may also include a stipend. Fellowships with a stipend may encourage students to work on a doctorate. Frequently, teaching or working on research is a mandatory part of a fellowship or scholarship.
There are a small percentage of for-profit universities and colleges in United States. Only about ten percen of total undergraduate student population is enrolled in these universities/colleges. Even in the United States, for-profit model has not been feasible. Bloomberg reported on May 27, that costs in for-profit universities exceed their non-profit or not-for-profit peers. It was reported that the average cost of attending a four year bachelor’s degree in for-profit university surpassed expenses at both U.S. state and private non-profit/not-for-profit universities. Fulltime student paid an average of USD 30,900 annually at the for-profit university in 2007/2008 academic year, almost double the USD 15,000 average paid at the public universities, according to the U.S. Department of Education. American Congress has been investigating costs and students’ debt burdens at for-profit colleges, which get as much as 90 percent of their revenue from federal student grants and loans. Default rates among former students at for-profit universities soared to 15.2 percent, the biggest rise in the higher education field. Based on historical experience, there is a consensus among policymakers in the U.S. that the for-profit model is not feasible for higher education sector. A large number of higher education institutes that emerged over the last few decades in Sri Lanka offering various diplomas, certificates, and foreign degrees appear to have been established as for-profit private institutes.
However, the for-profit model is very profitable for investors as well as the academia. Though the vice chancellor/president of non-profit or not-for-profit universities in the U.S. are paid high salaries, for-profit peers received even higher pays. The President/Vice Chancellor of Harvard University, Lawrence H. Summers (a reputed economist), was paid about USD 595,871 in the 2004-2005 academic year. During the same academic year, Rensselaer Polytechnic Institute President, Shirley Ann Jackson, was paid USD 983,365, University of Pennsylvania President, Amy Gutmann, was paid USD 767,030, Columbia University President, Lee C. Bollinger, was paid USD 685,930, and the Vanderbilt’s President, E. Gordon Gee, was paid USD 1.17 million. Apollo Group’s (the biggest for-profit college operator in the U.S.), CEO received USD 6.75 million and the President/Vice Chancellor of the University of Phoenix received USD 1.8 million as take home salaries, for the 2008-2009 academic year.
Policymakers may wonder why professors in local state universities do not aspire to get these high salaries by allowing the government to adopt the for-profit model. They may be thinking that academics in the state universities would prefer high perks than choosing a collective bargaining action demanding higher salaries. However, it is the altruistic motive of academics that has encouraged them to demand higher salaries and protect the non-profit university system rather than supporting a for-profit private university system. Though a better salary is a must, academics are not much concerned about maximising their own welfare. They are more concerned about maximising social welfare because a larger part of the population in Sri Lanka, the students of the poor and the middle class, will be unable to undergo higher education under a fee-paying system as they are unable to pay, if the for-profit model is adopted. So, current trade union action of the FUTA is highly motivated by altruism rather than self-interest/selfishness.
Given economic, social, and political principles/imperatives governing Sri Lankan society, the appropriate model for Sri Lanka appears to be either a system of non-profit public and private universities or a system of not-for-profit public and private universities. If Sri Lankan society is more concerned about economic/social equality and humanity than mere economic rationality of higher education, it may prefer a system of not-for-profit public universities and not-for-profit public-private partnership universities. It is true that ‘economic justifications’ for a free university education is not very strong, Sri Lankan society may not let ‘economists’ or more specifically ‘neo-liberal economists’ or their thinking and theories to decide the future of higher education. Historical, social, political, cultural and humanitarian values should be considered as crucial in determining the future of free university education.