We are a concerned group of academics fighting to ensure the opportunity of high quality public higher education for the Sri Lankan masses. This blog is intended as a bulletin board to share news and ideas relevant to the cause. The views and opinions expressed here do not necessarily represent the views and opinions of the FUTA. If you wish to post any interesting articles please e-mail them to uteachers.sl at gmail.com
Saturday, July 16, 2011
Non-profit, not-for-profit or for-profit universities
O. G. Dayaratna-Banda (PhD.)
University of Peradeniya
Government has seemingly decided to embark on further liberalizing higher education sector along a patchwork process commenced in 1978 for getting private sector to provide higher education. Market mechanism partially works in training of skilled workers so that private and public provision of higher education can co-exist. The attempt of 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 may be broadened as there are a large number of qualified students seeking higher education. However, what is the appropriate institutional model for provision of higher education?
For the purpose of widening higher education opportunities, Sri Lanka needs to choose an appropriate institutional model. However, government has not still clarified proposed institutional model to the people of Sri Lanka. Three different models are available for the policymakers. They are: for-profit private universities, non-profit public and private universities, and not-for-profit public and private universities. First, since the introduction of free university education, Sri Lanka practiced a non-profit public university system. Internal undergraduate education was fully funded by the state. Since 1978, universities in Sri Lanka have been selling postgraduate degrees/diplomas, undergraduate diplomas/certificates through external mode in diverse fields. This allowed universities to recover part of their cost while broadening their mission in higher education. 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/undergraduate degree/diploma. Grants, loans, or scholarships are given to the students from low income families. 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. Third model is a system of traditional for-profit universities. So, for-profit university/institute is similar to any manufacturing firm producing goods such as sausages and garments etc. In order to analyze 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.
In the United States, there are public and private non-profit/not-for-profit universities, and private for-profit universities. Approximately 2,200 colleges and universities offer bachelor’s 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% 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 to its name, and the largest states have more than thirty. In the non-profit/not-for-profit universities, needy students are either subsidized 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 also not-for-profit private universities in the U.S. This model has enhanced the freedom of choice of higher education in the U.S.
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 the most U.S. universities. Without depending too much on government funds, most universities have established endowment funds, which were 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. For instance, in 2010, the endowment of Harvard University was about $ 27.5 billions, of Yale University was about $ 16.6 billions, of Princeton University was about $ 14.3, and of University of Texas at Austin was about $ 14 billions. 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 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 a 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 amounts of money that must be donated to start an endowed scholarship are varying 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 is a small number of for-profit universities and colleges in United States. Only about 10% 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, 2011 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 $ 30,900 annually at the for-profit university in 2007/2008 academic year, almost double the $ 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% of their revenue from federal student grants and loans. Default rates among former students at for-profit universities soared to 15.2%, 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 for the last few decades in Sri Lanka offering various diplomas, certificates, and foreign degrees appear to have been established as for-profit private institutes. The relevance and welfare implication of these institutions have to be seriously considered and necessary reforms need to be made.
However, for-profit model is very profitable for investors/entrepreneurs as well as the academia. Though the vice chancellor/president of non-profit or not-for-profit universities in the U.S. are paid very high salaries, for-profit peers received even higher pays. President/Vice Chancellor of Harvard University, Lawrence H. Summers (a reputed economist), was paid about $595,871 in 2004/2005 academic year. During the same academic year, Rensselaer Polytechnic Institute President, Shirley Ann Jackson, was paid $983,365, University of Pennsylvania President, Amy Gutmann, was paid $767,030, Columbia University President, Lee C. Bollinger, was paid $685,930, and the Vanderbilt’s President, E. Gordon Gee, was paid $1.17 million. Apollo Group’s (the biggest for-profit college operator in the U.S.) CEO received $6.75 million and the President/Vice Chancellor of the University of Phoenix (another for-profit private higher education provider) received $1.8 million as take home salaries, for the 2008/2009 academic year. This makes it clear that for-profit model is very profitable for the academia.
Policymakers may be wondering as to why the professors in the state universities of Sri Lanka are not aspiring to get these very high salaries by allowing the government to adopt the for-profit model for universities through a process of privatization. They may be thinking that academics in the state universities would have preferred these high perks rather 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 maximizing their own welfare. They are more concerned about maximizing social welfare because larger part of 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 for-profit model is adopted. So, current trade union action of the FUTA is highly motivated by altruism rather than self-interest/selfishness.
The appropriate institutional model for higher education in Sri Lanka appears to be a system of not-for-profit public universities and not-for-profit public-private partnership universities. For-profit private universities will result in extremely disastrous socio-political outcomes. Moreover, not-for-profit public universities and not-for-profit public-private partnership universities could provide higher education to all seekers including those who want to purchase it. In such a system, government will finance higher education of those who are unable to pay to demand higher education, so, free university education can continue to be given to a larger part of population.