Indicator C3. How much public and private investment in educational institutions is there?

The largest share of funding on primary to tertiary educational institutions in OECD countries comes from public sources, although private funding at the tertiary level is substantial. Within this overall average, however, the share of public, private and international funding varies widely among countries.

In 2017, on average across OECD countries, 83% of the funding for primary to tertiary educational institutions came directly from public sources and 16% from private sources, being the remaining 1% from international sources (Table C3.1). However, there are many disparities across countries. In Denmark, Finland, Luxembourg, Norway and Sweden, private funds constitute 3% or less of expenditure on educational institutions. In contrast, they make up around one-third of educational expenditure in Australia, Chile, Colombia, Japan, Korea, the United Kingdom and the United States. International sources provide a very small share of total expenditure on educational institutions. On average across OECD countries, they account for 1% of total expenditure, reaching around 2% or more in Estonia, Latvia, Lithuania, Luxembourg, Poland and Portugal (Table C3.1).

Public funding dominates non-tertiary education (primary, secondary and post-secondary non-tertiary) in all countries. In 2017, private funding accounts for 10% of expenditure at these levels of education on average across OECD countries, although it exceeds 20% in Colombia and Turkey. In most countries, the largest share of private expenditure at these levels comes from households and goes mainly towards tuition fees (Table C3.1 and Figure C3.2).

The share of private expenditure on educational institutions varies across countries and according to the level of education. At the primary level, 7% of expenditure on educational institutions comes from private sources on average across OECD countries. However in Norway and Sweden, all educational funding of primary institutions is public, while in Chile, Colombia, Spain and Turkey, more than 15% of funds come from private sources (OECD, 2019[1]).

The share of private funding at the lower secondary level is similar to the share at primary level. Around 9% of educational expenditure on lower secondary institutions is privately sourced on average across OECD countries. In around three-quarters of OECD countries for which data are available, private expenditure accounts for less than 10% of total expenditure at this level compared to more than 20% in Australia, Colombia, Ireland and Turkey (OECD, 2019[1]).

Upper secondary education relies more on private funding than the primary and lower secondary levels, reaching an average of 13% across OECD countries. Private sources contribute a similar share to the spending on vocational and general programmes, at around 13% of spending on upper secondary institutions on average across OECD countries. However, in Germany, the Netherlands and New Zealand, the share of private funding in vocational upper secondary education is at least 28 percentage points higher than in general education. In Germany, private companies have a long tradition of involvement in the provision of dual training (combined work- and school-based programmes), helping to improve the availability of the skilled individuals needed in the labour market. On the other hand, in Chile, Spain, Turkey and the United Kingdom the share of private funding of general programmes exceeds that of vocational programmes by at least 10 percentage points (OECD, 2019[1]). In several countries, the share of public funds they currently devote to vocational programmes is the result of various national policy developments on vocational education designed to improve the transition from school to work. For example, in the 1990s, France, the Netherlands, Norway and Spain introduced financial incentives to employers offering apprenticenships to secondary students. As a result of these policies, programmes combining work and learning were introduced more widely in a number of OECD countries (OECD, 1999[2])

The level of public funding in post-secondary non-tertiary education stands at only 69% on average across OECD countries. Unlike the three lower levels presented above, post-secondary non-tertiary education in Germany, Ireland, New Zealand, Poland and the United States relies more heavily on private than public sources of funding (OECD, 2019[1]).

The high private returns to tertiary education (see Indicator A5) have led a number of countries to expect individuals to make a greater financial contribution to their education at tertiary level. Some countries have implemented financial support mechanisms to ease the burden on individuals when private contributions are expected, although this is not always the case (see Indicator C5). In all OECD and partner countries, the proportion of private expenditure on education after public-to-private transfers is far higher at tertiary level than at lower levels of education. In 2017, on average across OECD countries, nearly 29% of total expenditure on tertiary institutions was sourced from the private sector after transfers (Table C3.1 and Figure C3.2).

The share of private funding is strongly related to the level of tuition fees charged by tertiary institutions (see Indicator C5). In countries where tuition fees tend to be low or negligible, such as Austria, Denmark, Finland, Iceland, Luxembourg and Norway, the share of expenditure on tertiary institutions sourced through the private sector (including subsidised private payments such as tuition fee loans) is less than 10%. In contrast, more than 60% of funding on tertiary institutions is privately sourced in Australia, Chile, Japan, Korea, the United Kingdom and the United States, which also tend to charge students higher fees.

On average across OECD countries, households account for 74% of private expenditure on tertiary institutions. While household expenditure is the biggest source of private funds in the majority of OECD countries, almost all private funding comes from other private entities (mainly for research and development) in Finland and Sweden (Figure C3.2).

Although educational institutions from primary to tertiary level are still predominantly publicly funded, their reliance on private funding is growing (Table C3.3). Between 2012 and 2017, the share of private spending after transfers on primary to tertiary educational institutions increased by 0.5 percentage points on average across OECD countries, while the share of public spending fell by about the same amount. Increases in the share of private funding were observed in more than half of OECD and partner countries, with the United Kingdom showing the largest increase (10 percentage points). In contrast, Chile experienced the largest decrease in the share of private spending (at least 6 percentage points), balanced by an equivalent increase from public sources (Figure C3.3).

In many OECD countries, the increase in the share of funding from private sources between 2012 and 2017 was moderate at non-tertiary level (0.4 percentage points), the share from public sources remained stable. There are, however, some variations across countries: in Estonia, Hungary, Latvia, Lithuania, Spain and Turkey, the share of private funding for non-tertiary education increased by approximately 2 percentage points between 2012 and 2017. In other countries, large increases were observed during the same period in the share of public funds, notably in Chile, Mexico, Portugal and the Slovak Republic, where the increases were over 4 percentage points (Table C3.3).

At tertiary level, although the share of public funding on institutions increased in some countries between 2012 and 2017, they have fallen below their 2012 levels in others. In many cases, these reductions have been matched by an equivalent increase in the share of private funding. This is the case for example for Belgium, Greece, Lithuania, Norway, Spain and the United Kingdom, where the share of public funds decreased by at least 5 percentage points in 2017 compared to 2012 but the share of private funds increased by the same amount. On the other hand, countries such as Chile, the Czech Republic, Estonia, Hungary, Iceland, Poland, Portugal and Turkey have seen increases in the share of public funds of at least 5 percentage points (Table C3.3).

A large share of government spending goes directly to educational institutions, but governments also transfer funds to educational institutions through various other allocation mechanisms (tuition subsidies or direct public funding of institutions based on student enrolments or credit hours) or by subsidising students, households and other private entities (through scholarships, grants or loans to cover tuition fees to educational institutions).

Governments use transfers to provide institutions with incentives to organise their educational programmes and teaching to better meet student requirements, as well as to increase access to education and reduce social inequalities. Channelling funding for institutions through students helps increase competition among institutions and results in greater efficiency in the funding of education.

Public transfers to the private sector are not a significant feature at non-tertiary educational levels. In 2017, on average across OECD countries, 1% of the total funds devoted to these educational levels are transfers from the public to the private sector. France and the Slovak Republic are the only countries where this share exceeds 1% (Table C3.2). Upper secondary education accounts for a larger share of public transfers to the private sector, reaching an average of 2% across OECD countries, mainly driven by public-to-private transfers in vocational programmes (4%) (Table C3.2).

Public transfers to the private sector play an important role in the financing of tertiary education in some countries (Figure C3.1). In countries where tertiary education is expanding, and particularly in those where students are charged tuition fees, public-to-private transfers of funds are often seen as a means of expanding access for lower-income students. However, there is no single allocation model across OECD countries (OECD, 2017[3]). Despite the considerable impact of public transfers on reducing the financial burden of access to tertiary education, government and international support seems to cover only a relatively small share of the private costs of tertiary education in some countries while in othersprivate spending is largely covered by public transfers. This creates challenges for access and learning as higher private spending could deter students from participating in tertiary education, particularly in countries with high tuition fees and limited financial support mechanisms (Table C3.2).

In 2017, on average across OECD countries, 8% of the total funds devoted to tertiary institutions were transfers from the public to the private sector. The countries with the highest transfers are also those that tend to have the highest tuition fees. Transfers exceed 18% in Australia and the United Kingdom, both of which have high tuition fees. In contrast, public transfers were below 1% in countries with no or lower fees, such as Austria, Denmark, Estonia, Finland, Greece, Norway, Slovenia and Sweden. However, some countries, such as Lithuania, Portugal and Spain, have high levels of private spending (above 30%) without high levels of support from the government in forms of public transfers to the private sector (below 3%) (Figure C3.1 and Table C3.2).

Initial public, private and international shares of educational expenditure are the percentages of total education spending originating in, or generated by, the public, private and international sectors before transfers have been taken into account. Initial public spending includes both direct public expenditure on educational institutions and transfers to the private sector, and excludes transfers from the international sector. Initial private spending includes tuition fees and other student or household payments to educational institutions, minus the portion of such payments offset by public subsidies. Initial international spending includes both direct international expenditure for educational institutions (for example a research grant from a foreign corporation to a public university) and international transfers to governments.

Final public, private and international shares are the percentages of educational funds expended directly by public, private and international purchasers of educational services after the flow of transfers. Final public spending includes direct public purchases of educational resources and payments to educational institutions. Final private spending includes all direct expenditure on educational institutions (tuition fees and other private payments to educational institutions), whether partially covered by public subsidies or not. Private spending also includes expenditure by private companies on the work-based element of school- and work-based training of apprentices and students. Final international spending includes direct international payments to educational instructions such as research grants or other funds from international sources paid directly to educational institutions.

Households refer to students and their families.

Other private entities include private businesses and non-profit organisations (e.g. religious organisations, charitable organisations, business and labour associations, and other non-profit organisations).

Public subsidies include public and international transfers such as scholarships and other financial aid to students plus certain subsidies to other private entities.

All entities that provide funds for education, either initially or as final payers, are classified as either government (public) sources, non-government (private) sources or international sources such as international agencies and other foreign sources. The figures presented here group together public and international expenditures for display purposes. As the share of international expenditure is relatively small compared to other sources, its integration into public sources does not affect the analysis of the share of public spending.

Not all spending on instructional goods and services occurs within educational institutions. For example, families may purchase commercial textbooks and materials or seek private tutoring for their children outside educational institutions. At the tertiary level, students’ living expenses and foregone earnings can also account for a significant proportion of the costs of education. All expenditure outside educational institutions, even if publicly subsidised, are excluded from this indicator. Public subsidies for educational expenditure outside institutions are discussed in Indicators C4 and C5.

A portion of the budgets of educational institutions is related to ancillary services offered to students, including student welfare services (student meals, housing and transport). Part of the cost of these services is covered by fees collected from students and is included in the indicator.

Expenditure on educational institutions is calculated on a cash-accounting basis and, as such, represents a snapshot of expenditure in the reference year. Many countries operate a loan payment/repayment system at the tertiary level. While public loan payments are taken into account, loan repayments from private individuals are not, and so the private contribution to education costs may be under-represented.

Student loans provided by private financial institutions (rather than directly by a government) are counted as private expenditure, although any interest rate subsidies or government payments on account of loan defaults are captured as public funding.

For more information please see the OECD Handbook for Internationally Comparative Education Statistics 2018 (OECD, 2018[4])and Annex 3 for country-specific notes (https://doi.org/10.1787/69096873-en).

Data refer to the financial year 2017 (unless otherwise specified) and are based on the UNESCO, OECD and Eurostat (UOE) data collection on education statistics administered by the OECD in 2019 (for details see Annex 3 at https://doi.org/10.1787/69096873-en). Data from Argentina, the People’s Republic of China, India, Indonesia, Saudi Arabia and South Africa are from the UNESCO Institute of Statistics (UIS).

The data on expenditure for 2005, 2012 to 2017 were updated based on a survey in 2019-20, and expenditure figures for 2005 to 2017 were adjusted to the methods and definitions used in the current UOE data collection.

References

[1] OECD (2019), Education at a Glance Database, https://stats.oecd.org/ (accessed on 6 July 2018).

[4] OECD (2018), OECD Handbook for Internationally Comparative Education Statistics 2018, OECD Publishing, Paris, https://doi.org/10.1787/9789264304444-en (accessed on 16 April 2020).

[3] OECD (2017), “Who really bears the cost of education? : How the burden of education expenditure shifts from the public to the private sector”, Education Indicators in Focus, No. 56, OECD Publishing, Paris, https://dx.doi.org/10.1787/4c4f545b-en.

[2] OECD (1999), Implementing the OECD Jobs Strategy: Assessing Performance and Policy, The OECD Jobs Strategy, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264173682-en.

Table C3.1 Relative share of public, private and international expenditure on educational institutions, by final source of funds (2017)

Table C3.2 Relative share of public, private and international expenditure on educational institutions, by source of funds and public-to-private transfers (2017)

Table C3.3 Trends in the share of public, private and international expenditure on educational institutions (2005, 2012 and 2017)

StatLink: https://doi.org/10.1787/888934164579

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