Financing Higher Education



Investing in the knowledge economy is now a globally required imperative.

One way to do this is to expand higher education to increase education attainment levels in society. The expansion of higher education, however, requires two things: (1) increased investments; and (2) more efficient use of existing resources.

In developing countries like the Philippines, government is expected to fund higher education. Any expansion of higher education therefore becomes a critical issue in terms of its financial impact on developing countries which have very limited resources.

Education is the central strategy for investing in its people, alleviating poverty and building national and global competitiveness. It is also necessary for development and social transformation. Not surprisingly, the number of HEIs in the Philippines has been increasing over the past decade.  From 2007 to 2010, number of higher education institutions (HEIs) increased by 10 percent from 2,034 to 2,247.

While higher education in the country is predominantly in the hands of private institutions— 88 percent of universities and colleges are privately owned—more and more public HEIs have been established in the past decade. (Public HEIs refer to state universities and colleges [SUCs], local universities and colleges [LUCs] and other government schools.)

Due to the expansion of public HEIs, data from the Commission on Higher Education (CHED) show that enrollment in private HEIs gradually declined from nearly 90 percent in 1970 to 59 percent in Academic Year 2010-2011. In that particular academic year, enrollment in private HEIs numbered 1.7 million; and in public HEIs, 1.1 million. The expansion of public HEIs was accompanied by an increase in its degree program offerings—the 18,495 programs in AY 2001-2002 increased to 32,083 in AY 2010-2011, or an increase of 73.5 percent.


The increase in number of public HEIs is an attempt to make education affordable and available to all students. For reasons both well-meaning and self-serving, national and local political leaders want to create SUCs and LUCs to bring higher education closer to their constituencies.

This expansion, while laudable, has created major problems for higher education. The creation of SUCs and LUCs, for one, has become highly politicized as the number increased rapidly over the past decade. Not surprisingly, every education commission or task force report since the late 1980s has called for a moratorium on SUC creation.

The Task Force to Study State Higher Education (1987) noted that the “creation of SUCs was obviously made without planning for an integrated system of higher education. The SUCs seem to have been established only for local or political interests.” As early as 1993, the Education Commission reported an increase in SUCs from 19 in 1970 to 79 in 1990.  As of 2011, there are 110 SUCs.

Clearly, Congress and the President are hesitant to impose or observe a moratorium or to even rationalize the creation of SUCs. This has been the case even if an uncontrolled increase in number of SUCs and LUCs results in the dissipation of scarce resources available for higher education. The untenable situation also reduces the share of each SUC in the higher education budget. In addition, SUCs and LUCs tend to crowd out private HEIs because many are located in regions where there is high density of private schools and lower tuition rates. Mindanao State University (MSU) in Marawi, for example, charges only P4.50 per unit. It is also interesting to note that almost 40 percent of SUCs have 4,000 or less students.


Budget for SUCs

The total budgetary allocation for public higher education—for CHED and SUCs—is actually significant in the sense that it is sometimes bigger than the expenditures of key agencies such as the Departments of Agriculture (DA), Agrarian Reform (DAR), Science and Technology (DOST) or Social Work and Development (DSWD). The decline in the percentage share of the higher education budget in the national budget in recent years, however, cannot be denied. From a high growth rate of 10.5 percent in 2002, the nominal budget for SUCs registered negative growth rates in 2005 (-3.85 percent) and 2006 (-1.2 percent). Based on the 2011 General Appropriations Act (GAA), the SUC sector got P22 billion. Of this amount, UP got P5.75 billion (or 26 percent of the total). MSU (P1.97 billion) and Polytechnic University of the Philippines (P677M) are the only SUCs that got significant funding from the national government.

As regards the budget for the SUCs’ maintenance and other operating expenses (MOOE), it has increased by almost 6 percent from P2.1 billion in 2001 to P2.2 billion in 2005 even if it has fluctuated on a year-to-year basis. Capital outlay (CO) has been the most affected as there was zero allocation in 2003 and 2004, a standard allocation (P400,000) in 2006 and 2007 and then back to zero allocation in the years that followed. There was also no release in Congressional Insertions (CI) when the Aquino administration took over in July 2010. In the case of UP, it has P6.5 billion worth of unreleased CIs over the past six years.


Given the meager allocation, most of the income and trust funds of SUCs are used to supplement the limited MOOE and CO. From 2001 to 2006, the SUCs’ spending for CO and MOOE constitutes almost 50 percent of their actual expenses. And while dependence on government subsidy has decreased, the resource generation efforts of SUCs created problems like the prospects of tuition and fee increases, heightened student opposition and criticisms on commercialization of education.

Policy makers have argued that SUCs have the mandate and responsibility to mobilize their own resources and must not rely on government subsidies for their operations. There are many resource mobilization options such as:

  • Commercialize properties.
  • Mobilize legislative support (through the Priority Development Allocation Fund or Congressional Insertion).
  • Encourage more grants/projects from executive agencies/funding agencies.
  • Reduce operating costs.
  • Generate funds from alumni.
  • Increase tuition/school fees.

But many of these options are easier said than done.

For example, commercialization of properties is not an easy task. Many SUCs are unable to commercialize their landholdings because these are not titled, are not inventoried, or are occupied by informal settlers. Some properties are covered by deeds of donation that limit commercialization of the donated property. Most SUC charters do not allow these institutions to sell their properties. For those whose land grants are located in remote areas, they obviously have little commercial value and no investor could be enticed to lease the property. It is also clear that most SUC leaders do not have the capacity or entrepreneurial skills needed to go into full-blown commercialization activities. Sadly, neither the DBM nor the CHED have capacity building programs for SUC leaders on land management and commercialization.


Rationalization as option

Of course, the rationalization of SUCs remains an option. But how can this be done? For one, Congress is reluctant to impose a moratorium on creation of SUCs as political pressure remains strong. In fact, more than 20 bills have been passed by the HOR on the creation of SUCs and these are awaiting Senate approval. Even the President is unwilling to impose a moratorium either through his state of the nation address (SONA) or any policy statements.

Fortunately, the current leadership of CHED has imposed an “unwritten moratorium” while pursuing what I refer to as the amalgamation initiative. Amalgamation proves to be a viable and a cost-effective strategy to rationalize the higher education system. What CHED does is to cut the number of HEIs by amalgamation into a regional university system (RUS) which will remove overlap and duplication of programs. This initiative allows more developed institutions to assist developing ones. It also enables HEIs to work together for greater impact and allows government funds to be strategically distributed.

This amalgamation initiative has been successful at the provincial level, as in the case of the Rizal University System. The RUS is being piloted in Region XI and an RUS bill has already been submitted to Congress. So far, there is no strong resistance from politicians. That the CHED has an incentive system increased interest from many SUCs as regards the amalgamation initiative. At present, however, there is no clear policy with regard to amalgamation for LUCs.

Increasing tuition and other fees at SUCs, on the other hand, remains a sensitive issue. The debate continues whether or not tuition should be charged, to which students and how much (if ever). Differential tuition has a long tradition in the Philippines whose experience is similar to the United States (US), Canada, Korea and Japan. While the government policy is deregulation, SUCs are reluctant to increase tuition rates due to access and equity issues, as well as political pressure. Instead of tuition, school fees are increased instead. And since tuition rates are low, SUCs actually increase inequity by providing “practically free education” even to those who can afford to pay.

Student loans have a long tradition in Australia, Canada, Austria, US and some Asian countries. From an economic perspective, loans are considered more cost-effective than grants because these must be repaid. However, loans also include costs, considering the administration and interest subsidies and the cost of non-repayment or default. Grants, on the other hand, require continuing allocation, and, even when well-targeted, provide subsidies to those who may not need them.


In the case of the Philippines, the policy is combination of loans (for private HEIs) and scholarship grants (for public HEIs). However, the government’s Study Now, Pay Later and Student Financial Assistance Program have not worked as designed. At any rate, there are merit-based scholarship grants available through government agencies like the DOST and the Government Service Insurance System (GSIS). The use of PDAF for scholarships has also increased the number and amount of scholarships in SUCs.

Adapting the practice in the United Kingdom, it is actually possible to replace grants with loans through a Student Loan Program that has flexible repayment options. For example, there could be income-contingent loans where graduates repay their loans as a percentage of their income. This program could have a long repayment period and a write-off mechanism. The program could also be accompanied by “means-tested grants” for students coming from low-income families. Of course, the question remains if this could work in a country where there is a culture of avoiding debt, employment options are limited and students are considered legally and morally dependent on parents.

It is also possible to increase and strengthen the Student Assistantship Program. Student or graduate assistants could receive tuition waivers or reduction while earning money to cover living costs. Student assistantship could address human resource requirements of administrative offices or develop a teaching assistantship system. This could also develop a culture for work and reduces “dole-out” mentality regarding government subsidy to higher education. Then again, will politicians channel their PDAF to assistantship where political gains are low or invisible?

Indeed, there are options available for financing higher education. It takes, however, a high degree of political will and creativity to solve the age-old problems confronting higher education in the Philippines.

Dr. J. Prospero E. De Vera III is vice-president for public affairs of UP. This article was based on his slide presentation titled “Challenges in Financing Higher Education in the Philippines: Options for Reform” presented during the Graduate Education Summit held at the Heritage Hotel, December 10, 2011. Email him at [email protected].