Higher Education and Finance in Germany, Canada and the U.S.
A changing global economy and the effects of a persistent recession have thrown into stark detail the differences in the way the world’s leading countries approach the financing of higher education – and to what extent they consider it a priority. Germany, whose prosperous states have experimented with tuition fees, are returning to a traditionally state subsidized model. Canada must battle a steady drop in funding in order to maintain what have been classified among the best outcomes in higher education. For the U.S., where private funding is among the world’s highest, a compromised economy has reduced state revenues, resulting in skyrocketing tuition and a crippling student loan system. These three case studies, despite their weaknesses, present a hybrid model with the potential for solidifying higher education financing.
Keywords: Global economy, Germany, Canada, U.S., higher education, tuition.
The status and success of higher education in Germany, Canada and the United States reflects the relative state of economic affairs in three of the world’s leading democracies. Higher education has traditionally been identified with affluence in these and other “First World” societies, though the vagaries of the world economy, the effects of globalization and shifting priorities of party politics determine how and to what extent institutions of higher learning are funded. In Germany, Europe’s largest economy, an experiment with a tuition-based education system is gradually being stripped away as new governments in prosperous German states, or Lander, “are bringing back free university education” (The Economist, 2011). In Canada, where higher education reflects a general decline among UK commonwealth nations, the total population of post-secondary students “is half of that enrolled in Mexico and France and 15 times fewer than the US” (MacDonald, 2011). In the U.S., where people are saddled with student loan debt decades after graduation, technology and a slowly evolving employment landscape are forcing a reassessment of the role higher education plays in American society. The growing demands of an increasingly globalized economy has made it more important than ever for countries like the U.S., Germany and Canada to combine federal and state resources to ensure that colleges and universities maintain high academic standards while remaining a feasible option for prospective students.
Few countries can match the legacy of Germany’s venerable universities, schools that can trace their origins to the Protestant Reformation and which have produced some of the world’s greatest scholars and artists. In 2005, the nation’s constitutional court ruled that the Lander could charge tuition. Today, only two – Lower Saxony and Bavaria – intend to continue assessing fees (The Economist, 2011). In terms of funding, Germany’s constitution places the impetus for higher education on the country’s 16 federal states, though some aid is provided by the federal government. Germany offers two basic educational tracts: the Universitaten, or universities, and Fachhochschulen (or Hochschulen), which means universities of applied sciences. Germany has maintained its commitment to a free, quality education for all of its citizens.
Statistics bear out that sentiment. In Germany, more than $9,000 per year, or about 6.8 percent of total public expenditures, is spent on a system of higher education that serves approximately 1.8 million students (as of 2009) (Chronicle of Higher Education, 2012). But despite the stellar historic reputation of Germany’s universities, very few today compare favorably to top institutions in other countries. Observers argue that despite state-subsidized tuition, there is insufficient funding available for the kinds of programs and research initiatives that are typically found among truly cutting-edge institutions. Germany receives minimal funding from private sources (about 15 percent), a practice which is commonplace in the United States and other prosperous Western nations (The Economist, 2011).
Considering the horror stories that are commonplace in the United States, where college graduates have declared bankruptcy due to college debt loads, it is difficult to overplay the benefit of free higher education. And there are several national organizations that endow research and other academic initiatives in German universities, such as the German Research
Foundation, the German Academic Exchange Service and the Alexander von Humboldt Foundation (DAAD, 2012). But with tuition fees seemingly on the way out, universities will lose public funding that had been used to improve infrastructure, maintain lower instructor-student ratios and upgrade general university services. Students in most German states had been paying the equivalent of about $720 per semester (Goethe Institut, 2012), which has generated more than $1 billion worth of revenue for universities.
Lander governments draw from “many areas of centralized financial governance and management” in order to help with policy orientation, and many Lander pass on responsibility for budgeting to the universities themselves, as well as staffing and internal management duties (Hartwig, 2006). This institution-focused approach to budgeting and management is part of the “New Public Management” philosophy, which is aimed at improving efficiency and accountability. German educational institutions are considered public corporations and, as such, their budgets are intrinsic to the Lander budgets. Certain capital expenses, however, such as buildings and high-cost scientific equipment are shared equally between Lander and Bund (2006).
Canada is similar to Germany’s provincial system of academic governance in that the Canadian Constitution of 1867 directs that post-secondary education is the responsibility of the country’s 10 provinces and three territories. The relationship between the federal government and the provinces is also reminiscent of Germany because federal funding for higher education is administered indirectly through financial transfers and through funding of university research and various forms of student aid. On average, Canada spends a relatively high amount on higher education with about 8.3 percent of total public expenditure going toward colleges and universities. Students paid an average of about $5,500 this year (Statistics Canada, 2012), which represents a 5 percent increase over the previous academic year (2011-12). As of July 2010, 1,112,300 students were enrolled in Canadian institutions of higher learning (2012).
Canada has experienced a downturn in higher education over the past decade, a situation that is almost uniform throughout the United Kingdom’s commonwealth of nations. From 2000 to 2006, funding for higher education in Canada was reduced by 5 percent according to the Organization for Economic Cooperation and Development (OECD, 2012). However, what some may consider Draconian cuts in funding are considered successful efforts at streamlining by others: Canada has achieved the world’s most successful overall return on its education money according to the OECD. Put succinctly, “Canada graduates more students as a percent of its population than any country in the world” (MacDonald, 2011). This has produced what can only be termed a positive return on investment. “Canada continues to be among the countries with the most highly educated labour force in the OECD area” (OECD, 2011).
About 50 percent of the working-age population holds a tertiary degree, compared to just 30 percent on average in OECD countries (OECD, 2012). Among OECD member states, Canada spends the third-highest amount per tertiary student, at more than $20,000 per year (2012). Only Switzerland and the United States spend more. The results of Canada’s emphasis on higher education is manifested by the success and prestige of many of the country’s finest universities, including the University of Toronto, University of British Columbia and McGill
A gradual drop in government funding for higher education in the United States has made it more difficult to obtain a degree. America’s colleges and universities are continually raising tuition fees to remain ahead of inflation and to ensure profitability. This seems a strange state of affairs for a country in which 42 percent of all 25-64 year old Americans can claim “tertiary (higher education) attainment,” making the U.S. one of the most well-educated countries in the world (OECD, 2012). The U.S. spends an average of $12,550 per student annually, just over 7 percent of total gross domestic product (Chronicle of Higher Education, 2012). As of 2010, 20.3 million students were enrolled in America’s colleges and universities, representing about 5 percent of the population (National Center for Educational Studies, 2012). The U.S. is different from the vast majority of OECD countries in that more than 60 percent of higher education funding comes from private sources; among all other countries the figure is 30 percent. (OECD, 2012).
The OECD reports that the total cost of earning a degree is “quite large,” costing an average of $116,000, a figure exceeded by only three other countries (Japan, the Netherlands and the United Kingdom) (OECD, 2012). The cost to taxpayers is quite large as well, with nearly $46,000 in tax revenues going to support an individual who completes a degree program (2012).
As previously mentioned, the U.S. receives a much higher percentage of its financing for higher education from private sources than the majority of other OECD countries. While this is a decided strength and a notable characteristic of the American system, it should be remembered that the breakdown of government funding in the U.S. is also more diverse than in many other nations – a situation driven by need and a concerted effort to keep American institutions competitive on the world stage. Whereas federal funding is not committed to general operations, but goes for student assistance and research support (not unlike the German system), most state-level funding goes to support general institutional operations (Dougherty, 2004).
A gradual decline in state funding has typified American higher education in recent years. Students face a number of daunting challenges, ranging from a decided drop in the public share of finance to a much greater reliance on loans versus grants for student aid (Dougherty, 2004). Performance-based funding, an attempt to control accountability, and the rise of community colleges have also been impactful (2004). Ultimately, the sluggish U.S. economy has been the major contributing factor in all of these trends, a problematic situation resulting from “dropping or flat state revenues and increasing demands for spending on areas other than higher education” (2004). As well, politics and shifting public opinion have occasioned a substantial shift in higher education’s budgeting priority.
A review of the American, Canadian and German systems reveals that a hybrid of the best aspects (or best practices) of each presents the best possible financing scenario. There would appear to be promise in the German system, or a variation on it, in which state financing could be augmented by a student fee system. In order to avoid, or at least mitigate a situation like the student loan debt nightmare in the U.S., a system of deferred payment could be made available for undergraduates. The success of the Canadian system, which utilizes a performance/quality control model to ensure positive academic outcomes, also holds considerable potential for ensuring that both students, taxpayers and the corporate sector alike reap the benefits of an effective system.
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