Who really bears the cost of education?

by Marie-Hélène Doumet
Senior Analyst, Directorate for Education and Skills

It can be difficult to get your head around education finance. Who actually pays for it, where does the money come from, and how is it spent are all crucial questions to ask if you want to understand how the money flows in education. In many countries, basic education is considered a right, and governments are expected to ensure universal access to it. However, educational attainment has reached unprecedented levels, and more people are participating in education than ever before, leaving governments struggling to meet the demand through public funds alone. The role of private funding has become more significant in the past decade, particularly at the pre-primary and tertiary levels of education. 

But the reality is more complex than a binary public-private model would suggest. Other financing mechanisms, involving the transfer of funds between governments, households and other private entities, are blurring the lines of what is commonly understood as public or private.

Take government-subsidised loans to students. A loan, by definition, needs to be repaid, and so is commonly considered as a private cost to households.  But before that, loans actually come out of the public purse, and so are actually a public cost to governments at the time the loan is issued. The cost, however, shifts to individuals once they enter the labour market and start earning enough to make repayments.  

The latest Education in Focus brief  tries to answer the question “Who really bears the cost of education?” by looking at these transfers as two sides of the same coin.  Separating out transfers from the traditional public-private split of costs also provides more granularity on the sourcing of private expenditure, differentiating what comes in the form of government support from what is truly out-of-pocket costs. 

Consider, for example, two countries well known for their reliance on private expenditure to fund tertiary education: the United Kingdom and Japan. In 2014, both countries relied on private funding to provide around 70% of the cost of tertiary education (when considering the final allocation of funds after transfers). However, two-thirds of that private funding in the United Kingdom comes from government transfers to private non-educational entities, mostly in the form of loans, with advantageous repayment schedules and conditions, to students. This means that while the private sector is ultimately responsible for this expenditure, it is the public sector that bears a significant share of the initial cost, not only of the value of the loan, but also the risk of future default on payments. By contrast, in Japan, only 20% of final private expenditure originated from government transfers, leaving the private sector, a large share of which are households, to fund the rest from their own pockets.  

The chart above shows the extent to which countries balance out public and private funding in tertiary education, and how they compensate for private funding through government transfers to households, students and other non-educational private entities. Interestingly, some countries with the largest share of private funding in education provide the least financial support as a share of total private expenditure. This is the case in Chile, Japan, Korea and the United States. By contrast, countries such as Belgium, the Netherlands and Slovenia cover a large share of private expenditure through public-to-private transfers, and households bear much less of a financial burden. In between the two models, countries such as Australia, New Zealand and the United Kingdom rely on public funds to unlock private ones.  A strong financial support system, mostly structured on publicly subsidised loans, lightens the initial high cost of education for individuals, but allows graduates to repay the loans when they are most able to do so.    

Central to the idea of who should bear the cost of education is the philosophy behind who actually benefits the most from it: the public or the individual. Primary and secondary education are generally considered as a fundamental human right to basic skills that should mostly be provided by governments, which, indeed, is often the case. However, the earnings premium provided to higher education opens the debate as to who benefits the most from higher education and therefore, who should be paying for it. But thinking mainly in terms of public or private spending misses an essential element: what happens behind the scenes in the form of public-to-private transfers. Understanding these financial transfers provides insights as to how the cost of education shifts between the public and private sectors over time, and sheds some light on a sometimes overlooked measure of education finance.  

Links

Education Indicators in Focus No. 56 - Who really bears the cost of education? How the burden of education expenditure shifts from the public to the private sector

Education at a Glance 2017 - OECD Indicators

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Which careers do students go for?

by Marie-Helene Doumet
Senior Analyst, Directorate for Education and Skills

Career decisions are wrought in complexities. Many students start by looking at their interests, selecting a career in line with their personal affinities or aspirations. They will consider their own self-beliefs in their capacity to perform and succeed in a given career, and then factor in labour market prospects, employment, earnings, and the possibilities to progress in their chosen profession over a lifetime.

But career decisions are not only about students’ choices: they also interact with a number of public policy objectives, such as making education systems more efficient, aligning skills to the demands of the labour market, and helping improve social equity. Some countries have sought to promote certain fields or pathways over others through financial incentives or by opening access. Conversely, other fields impose highly selective admissions processes. As students are confronted with more possibilities, it is essential to ensure that they have the proper guidance to navigate through the wealth of pathways open to them. That will ease the sometimes bumpy transition from education to the labour market.

This 2017 edition of Education at a Glance focuses on fields of study – who studies what across different education pathways . Results show that the most common field of study for tertiary students is business administration and law, whereas the fields of natural sciences, mathematics and statistics or information and communications technology (ICT) are the least attractive. Gender differences in enrolments are striking: 24% of entrants into engineering programmes are women compared to 78% in the field of education. The law of supply and demand determines the employment prospects of tertiary graduates. For example,  although they are among the smallest group of tertiary graduates, ICT graduates enjoy one of the highest employment rates. This signals a shortage of supply in the labour market. Data from a new indicator on the national criteria to apply and enter into tertiary education shows that, as tertiary education expands, some countries have turned towards regulating access to certain fields of study in order to link them more strongly with the needs of the labour market.

However, while educational attainment has been expanding over the past decade, there is no guarantee that everyone will progress smoothly through it. In fact, upper secondary graduation is still a challenge for some. A new indicator on upper secondary completion rates shows that almost one in four upper secondary students does not complete the programme within two years of its theoretical end date – of which most drop out of school entirely.

This is not the only area where equity remains elusive. Education at a Glance dedicates a full chapter to the Sustainable Development Goals, analysing where OECD and partner countries stand in their progress towards achieving “inclusive and equitable quality education and promoting lifelong learning opportunities for all”. Results show that while progress has been made, there is still a long way to go on the road to equity and more inclusion in education.

Want to learn more? Education at a Glance 2017 analyses 28 indicators relating to participation in and progress through education, the financial and human resources invested, and the economic and social outcomes expected across OECD and partner countries.You can access and download the data from the OECD Education at a Glance Database; visualise main results for your country from our Compare Your Country interface ; and better understand the methodology underlying the indicators with the updated OECD Handbook for Internationally Comparative Education Indicators.

Links
Education at a Glance (EAG) 2017
OECD Education at a Glance Database
Compare Your Country
OECD Handbook for Internationally Comparative Education Indicators

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What happens with your skills when you leave school?

by Dirk Van Damme
Head of the Innovation and Measuring Progress Division, Directorate for Education and Skills

Mean literacy and numeracy score, by age and education enrolment status
OECD Survey of Adult Skills (PIAAC), 2012 or 2015

Moving from the world of school to the world of work is one of the most dramatic changes in the lives of young people. And for many youngsters this transition does not go smoothly. Spells of frictional or longer-term unemployment, job insecurity because of low-paid or temporary contracts, and the uncertainties associated with starting to live autonomously produce a challenging phase in young people’s lives. The most vulnerable people are those who fall between the two systems: the so-called NEETs (not in employment, education or training), who are no longer in school and are either unemployed or inactive. Some 6% of 15-19 year-olds in OECD countries – in other words, half of those of that age who have left school, or around 5 million young people – are NEET.

A new Education Indicators in Focus brief looks at the transition from school to work across different age groups. It reconfirms that leaving school is much less difficult if one has acquired an upper secondary qualification, which functions as a kind of security mechanism against most of the hardships associated with the transition. The share of 20-24 year-old NEETs who do not have an upper secondary qualification (36%) is double the share of employed 20-24 year-olds who have not attained that level of education (18%).

But an educational qualification is one thing; the actual skills that people have are another. The brief publishes some new and interesting findings about the skills disparities among young people in different age groups in and out of school. The chart above shows the difference in mean literacy and numeracy skills between people in and out of education in three different age groups. The differences are remarkable. Among 16-19 year-olds, the difference in skills amounts to the equivalent of around 2.5 years of schooling. But the differences among older age groups are also considerable – and they remain significant even after controlling for educational attainment.

The finding lends itself to various possible explanations and observations. The most obvious one is that the results reflect a selection effect: more-skilled young people tend to stay in school while the less-skilled leave. A skills-selection effect does not seem to be problematic among 20-24 and 25-29 year-olds, when continuing one’s education is based on educational merit. For the younger age group, however, the difference in skills signals an efficiency problem in our education systems. Less-skilled young people should leave school only after they have acquired a foundation level of skills. When dropping out of school at an early age is the result of a skills-selection mechanism, than we are not serving our most vulnerable youngsters well.

Another possible explanation looks at the skills difference from the other side of the transition: the labour market and the world of work. This hypothesis suggests that leaving school and entering the labour market is accompanied by a process of de-skilling. When skills are not used in employment, they erode. A difficult school-to-work transition can have a scarring effect that can last throughout an entire career. De-skilling can happen through unemployment, but also through employment in precarious jobs, where workers do not fully use their skills, or through employment in an ill-matched job. This hypothesis suggests that a difficult transition process can undermine what should be a social benefit: essentially, the investment in skills acquisition is wasted.

The policy consequences are clear: there are many reasons for governments to be concerned about the school-to-work transition. Dropping out of school at an early age without a proper qualification has a huge social cost. Policies to provide guidance and support to young people during that transition pay off: there is less risk that people become unemployed or fall between the cracks and become dependent on welfare systems. And such policies should encourage people to maintain their skills and give them the opportunity to improve their skills through quality work and training. The political responsibility to ensure a smooth transition is enormous, but it is also shared between the work of education and the world of work.

Links

Education Indicators in Focus No. 54 - Transition from school to work: How hard is it across different age groups? 

Education Indicators in Focus 

Education at a Glance 2016: OECD Indicators

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Chart source: OECD (2017), in Education Indicators in Focus No. 54, Figure 3.