Financing Options to Support Public Spending on Education

By Annastacia Kimtai

Education is a key determinant for economic growth, employment and incomes. It goes without saying that resources are required in order to provide education, but these resources are not free, necessitating the need to address the issue of education funding. Education, as we all know, has both social and private expenses leading to various types of funding including public and private sources.

Public sources come from public finances or government budget. The government raises funds for education either through general taxation or education-specific taxes such as the Industrial Training levy.

Private sources entail support from non-governmental entities. This comprises direct and indirect financing such as school fees, endowments or gifts from the NGOs and other donors; foreign aid, such as World Bank loans and credit; aid from bilateral and international agencies, and so on. Kenya’s Free Primary Education programme is a good example and has benefitted greatly from foreign aid.

There is compelling justification for government (public) support of education for a variety of reasons, including income distribution and capital market flaws, which put the cost of private schools out of reach for many poor families. Many countries have developed government-funded student loan schemes that give low-interest loans to students pursuing higher education to overcome capital market defects e.g., the Higher Education Loans Board (HELB) in Kenya which gives loans to university students.

There are many obstacles to public education funding such as misallocation of funds across and within levels. The rates of return on investment in basic education (primary and lower secondary) are often higher in poor and middle-income nations than in higher education. As such, when it comes to public education funding, basic education should take precedence, particularly in countries that are yet to attain universal enrolment in basic education. However, in most of these countries, spending per student is geared towards higher education students, who are still heavily subsidized. This subsidy stimulates demand for higher education.

All education sub-sectors have inefficiencies due to an inefficient mix of inputs such as personnel and instructional materials. For example, salaries for teachers and education employees absorb around 80% of the public education budget in Kenya and many other developing countries, leaving relatively little money for essential teaching-learning resources. Increased student-teacher ratios could save money and increase learning in low and middle-income countries. They would be able to use fewer teachers and dedicate resources for teachers to other inputs that increase accomplishment, such as technology. The scope of improving efficiency through modest increments in student-teacher ratios is enormous because teacher costs typically account for 2/3 of total spending in education in most developing countries.

Public spending in education is inequitable when competent potential students are unable to enrol in institutions due to lack of educational opportunities or because they are unable to pay or obtain financing, e.g. in Kenya only 10,000 of the 60,000 students who qualify for university admission get government funding.

Similarly, while public investment on primary education benefits the poor, total public spending on education in low and middle-income nations frequently advantages the wealthy, owing to the fact that impoverished students attend secondary and higher education institutions in smaller numbers. In most countries, spending more public funds per higher education student than per primary student is inefficient since the societal rates of return to elementary education are higher than those to higher education, particularly in nations with lower than universal primary and secondary enrolment. It is also inequitable that higher education students receive a larger absolute subsidy than students at lower levels, given that higher education students are disproportionately from wealthier families who are better able to pay.

Despite the fact that many developing nations allocate over a third of their national budgets to education, the funds are sometimes insufficient due to the wide range of educational needs at all levels. This frequently leads to a narrow distribution of financial resources devoted to education, reducing its effectiveness.

To help mitigate these issues, educational institutions should try diversifying their funding sources. Rather than relying solely on the government, educational institutions have been pushed to pursue programmes that can create revenue. In Kenya, public colleges have begun offering alternative degree programmes that charge full tuition in order to supplement government support. The University of Nairobi has established a limited liability company, University of Nairobi Enterprise Services (UNES), to oversee all of its revenue-generating activities. Kenya’s national polytechnics earn around a quarter of their revenue via Income Generating Activities. Many Kenyan secondary schools engage in farming, which helps to augment their finances.

Some countries have attempted to overcome financial constraints by using direct labour to build schools, by allowing communities to provide goods and services in kind rather than cash payments, and by relying on other forms of community involvement or self-help. For example, in Kenya, many educational institutions have been developed through public fundraising or constituency development funds.

Financial institutions can also assist the government by providing learning institutions with inexpensive lending facilities, allowing them to get resources that will help them address the current issues in the education system.

Teacher shortages may be alleviated via credit facilities such as loans and overdrafts for salary payment. Infrastructure loans could be used to upgrade or expand infrastructure in select schools following the implementation of the new Competency-Based Curriculum (CBC) Programme in junior and secondary schools. Asset-based financing can also assist in the purchase of school buses, which will help to support student activities.

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