Mix and match

THE STUDENT STRIKE in Quebec in 2012 did not just bring down the province’s government; it also revealed deep cultural differences in ideas about university funding. French Canadian students, influenced by European thinking, were outraged that their government had proposed raising tuition fees from C$2,168 ($2,168) a year to C$3,793; the rest of Canada, used—American-style—to much higher fees, was baffled by their fury.

In most European countries the state pays 80-100% of the costs of tuition. The main advantages of this model are equity and cost control. Where it works well—in northern Europe—graduate education levels are uniformly high. Where it works badly—in southern Europe—they are uniformly low.

American uses mixed funding, with individuals paying most of the costs of tuition and the government helping out with loans and grants. In some countries with similar models, such as Japan and South Korea, individuals and families pick up the tab. These systems tend to be better funded and more expensive than the European ones (see chart 4) because people fork out readily, and costs are harder to control.

The mixed-funding model is spreading. That’s partly because rising demand has increased the burden that higher education places on government budgets. So has “Baumol’s disease”, which increases the relative cost of labour-intensive industries, such as health and education, as technological change lifts the productivity of capital. Ageing populations are pushing up health bills, so education—another huge chunk of government spending—loses out; and since the social benefits of primary and secondary education are clearer than those of tertiary education, universities tend to suffer the most.

One option is to allow quality to deteriorate. That has happened in many European countries. In Germany students commonly pack lecture halls in their hundreds. “We have more and more students,” says Georg Krücken of Kassel university, “but the number of professors doesn’t grow at the same pace.”

Another option is to make individuals pay more. In America, retrenchment in state budgets has pushed up tuition fees. In California, for instance, they have tripled over 15 years, and a further 28% rise is proposed. Outside America, the first big shift towards private funding happened in Australia, where tuition fees were jacked up in the late 1980s. A host of other countries followed, including New Zealand, Chile, South Africa, some of the former Soviet republics, Britain and Thailand. China used to impose no fees at all; now it charges 5,000-10,000 yuan ($800-1,600) a year, not much for an urban family but a lot for a rural one. Countries with good universities increasingly rely on foreign students—who tend to pay more than domestic ones—as a source of revenue. In Britain, for instance, nearly a fifth of students are foreigners. International flows of students are up from 1.8m in 2000 to 3.5m in 2012.

Another source of private funds for universities is philanthropy. Endowments at some American universities dwarf income from fees. Institutions elsewhere are scouring the globe for wealthy alumni. Cambridge, which has done best out of the British universities, had collected £4.9 billion ($7.6 billion) by 2012. Sometimes philanthropy extends across borders: in 2013 Stephen Schwarzman, chief executive of Blackstone, a private-equity company, handed over $100m to establish a scholarship programme at Tsinghua University.

Horses for courses

The biggest provider of higher education that nobody has ever heard of is Laureate, an American for-profit education company with revenues of $4 billion, nearly 1m students and 70,000 staff. It does not promote its brand because it prefers to be known through the names of the 80-plus universities and colleges it owns all over the world.

Private provision is growing. In some systems, private colleges (usually non-profit ones) provide a first-class education. That is true in America and is beginning to happen elsewhere, including India. Philip Altbach, director of the Centre for International Higher Education at Boston College, describes India’s higher-education system as “a sea of mediocrity in which islands of excellence can be found”. But those islands—such as the Indian Institutes of Technology—are accessible only to a lucky few. New private non-profit institutions are helping to broaden the provision, including Azim Premji University in Bangalore (whose eponymous founder made his fortune from Wipro, an IT company) and Shiv Nadar University near Delhi (the money for which came from HCL, another IT company). These new non-profits are too few and far between to transform India’s system, but they may well create a wider choice of high-quality islands.

In much of Latin America, governments have handed over the job of providing mass higher education to the private sector. The results are patchy. In some countries, such as Brazil and Colombia, the state does a decent job of providing quality assurance, and there are many good private-sector outfits, both local and foreign-owned. Laureate has 11 colleges and universities in Brazil; nine have seen their scores improve since Laureate took them over, one has deteriorated and the remaining one has been bought too recently for the effects to have become clear.

In most of the world the private sector is active at the margins of higher education. Private for-profit companies, such as Kaplan and Apollo, both American companies serving the global market, tend to supply the more vocational end, like courses in law and accountancy. They cater to older students, often working people or parents, for whom the standard campus-based three- or four-year degree is not suitable. They also bring international students up to the level of the rich-country universities in which they have enrolled. The numbers in both categories are large and growing, so these are healthy markets.

As the protests in Quebec showed, raising tuition fees can be politically explosive. Several German states introduced such fees a decade ago and all have since abandoned them. “Tuition fees didn’t fit well into the German tradition,” says Professor Krücken. “Here higher education is seen as a public good.” In Chile, student protests against the cost of higher education helped oust the government in 2013; the new government is committed to eliminating tuition fees. And Britain’s Labour Party promises that if it wins the general election in May, it will bring down the maximum fee from £9,000 to £6,000 a year.

He who pays the piper

Advocates of private funding say that it makes students more demanding and universities more responsive (though they often forget to add that it may also increase the pressure to inflate grades). Sir Steve Smith, vice-chancellor of Britain’s Exeter University, says his university spent £470m in 2009-14, raised from donations, borrowing, the government and its own cash, on getting the campus up to scratch: students paying fat fees expect decent facilities. The university is also making extra academic efforts: it has, for instance, promised that students will get essays marked and returned within three weeks of submitting them.

A decade ago Exeter had 11,000 students. Now it has 19,000 and plans to expand to 22,000. As better universities get bigger, worse ones will come under pressure. More reliance on philanthropy will mean that rich universities, which tend to produce rich alumni, will get richer still. Greater independence from government tends to make higher education systems more stratified, and thus more American—just when America itself is increasingly worried about its own system.