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Education Financing: Nature and Future Research Paper


Financing education from K-12 to institutions of higher learning has become an issue of major concern to the government and other stakeholders around the world. The cost of funding this process at the various levels has risen steadily in the recent past. The development is affected significantly by the economic fluctuations in the global market. As a result, stakeholders need to identify the sources of revenue in the sector. Different strategies aimed at creating sources of income to fund education have been advanced in the past. According to Zhao (2001), financial support has led to crises in various learning institutions around the world. The most affected entities are colleges and universities (Barr & McClellan, 2011). Financing education is associated with a wide range of pressures, ranging from a broadened socio-economic mix of students to increasing financial stringency.

To address these growing and compounded pressures, many institutions have adopted education policies focused on enhancing efficiency. Also, tapping into new and diverse resources to finance learning has become the norm. As a result, the sources of funds in this sector are diverse (Barr & McClellan, 2011).

In this study, the author will review the various sources of revenue concerning higher education. A total of six scholarly journal articles are used to provide the information needed for this analysis. It is noted that the sources of revenue impact variously on higher learning. In light of this, the author seeks to determine the nature of funding and its impact on this form of education. Also, the future of education financing is analyzed. To this end, recommendations for this future financial support are provided.

Federal, State, and Local Government Allocations as Sources of Revenue for Education

Federal, state, and local allocations have more impacts on higher education compared to other sources of income. In their article, Ehrenberg (2003) argues that funding from the various levels of government is usually sourced from taxes. State tax funds are normally appropriated annually or biennially by legislatures to fund institutions of higher learning. Also, government support includes local tax levies, federal grants, and contracts to purchase institutional services. Others entail state appropriation of tax funds to support learning operations (Alexander, 2001).

Governments invest in education to develop a highly-skilled workforce capable of competing globally. For example, according to Speck (2010), federal government appropriations accounted for 9% of the overall investment in K-12 and early childhood education between 2006 and 2008. State and local funding covered the remaining amount with appropriations worth 46% and 45%, respectively.

Ehrenberg (2003) agrees with Speck (2010) by asserting that the government promotes education through operations support, scholarships, and grants. Also, funding for ‘state support and governance,’ as well as direct aid to private universities and colleges, is included in government appropriations. However, the level of government funding with regards to higher education has fallen steadily over the last few decades (Alexander, 2001).

According to Speck (2010), several higher education institutions have moved from state-supported to state-assisted entities. Cheslock and Gianneschi (2008) argue that the purchasing power concerning state appropriations for fulltime students reached its lowest in 30 years in the period ending 2003-2004.

Ehrenberg (2003) argues that state and federal appropriations have significant impacts on higher education. For instance, some public universities have wealthy alumni caucuses and strong student demands. Others have improved research infrastructure, which enhances their capability to generate income from alternative sources (Alexander, 2001). Cheslock and Gianneschi (2008) argue that the disproportionate sharing of state appropriations leads to stratification in public learning institutions. The differentiation is concerning financial resources (Odden & Picus, 2008).

Tuition Fees as Sources of Revenue in Higher Education

Tuition fees are not significant sources of finance for early childhood and K-12 learning, especially considering that education at this level is supposed to be free. However, the two are major sources of funds for private and public institutions of higher education. According to Astin and Oseguera (2004), students are the main sources of revenue for these institutions. Funding from tuition fees has grown over the years due to a rapid increase in the number of students. Speck (2010) argues that the two sources of revenue are inextricably linked to state appropriations. A decrease in one leads to an increase in the other by an equal measure (Vast, 2001).

Tuition fees significantly impact education and the willingness of institutions to explore alternative sources of income (Alexander, 2001). Increasing these charges has a counterproductive effect on learning. Such impacts include reduced enrollment. According to Zhao (2001), the application of tuition fees on different students is uneven. The charges are usually paid by parents and learners. Also, the fees are not adjusted to fit the circumstances of students (Speck, 2010). Consequently, tuition and fees are more inequitable compared to government appropriations (Astin & Oseguera, 2004).

As sources of education revenue, tuition fees are viewed from two different perspectives. The first viewpoint holds that education is a commodity offered in an open market. Its price varies with demand and supply (Geiger, 2004). The process is beneficial to the learner. As such, they are expected to bear the cost. According to the second perspective, education benefits society more than it does the individual (Geiger, 2004).

Consequently, it should be viewed as a public function. The government should provide it for free where possible. Higher education should be regulated. It should not be left in the hands of private pricing systems (Geiger, 2004).

Grants, Charitable Donations, and Endowment Funds as Sources of Revenue in Higher Education

According to Zhao (2001), the majority of private universities and colleges are regarded as charitable organizations. To this end, they support numerous charitable trusts to generate funds for education. Just like endowment funds, institutions of higher learning receive grants and private gifts from various parties in society. According to Cheslock and Gianneschi (2008), these donations can either be restricted or unrestricted. The restricted gifts and grants can only be utilized for the purposes designated by the donors (Barr & McClellan, 2011). Also, it is important to note that private donations are usually from alumni and non-alumni individuals (Collins, 2001). Others are sourced from general welfare foundations and religious organizations.

Brimley and Garfield (2007) think that grants, endowment funds, and other charitable donations are regarded highly by the higher education institutions receiving them. The reason is that such sources of income offset overhead costs and other expenses. Most of the grants require a certain percentage of the overhead costs to be recouped through the sponsoring institutions (Brimley & Garfield, 2007). Consequently, these components are important since they cover the expenses indicated in the operating budget. The saved money can be used elsewhere. The grants also allow grantees to make purchases. They also permit them to stimulate the economy of the education institution by hiring employees (Alexander, 2001).

Grants, endowment funds, and charitable donations assist the higher education sector by acting as alternative sources of revenue (Collins, 2001). According to Kane and Orszag (2003), the gap between funding and what is required to provide quality education is wide. It is noted that government allocations and tuition fees are insufficient. Consequently, the charitable contributions help the learning institutions to bridge the gap.

Conclusion and Recommendations

The various sources of revenue in the education sector have significant and varying impacts on the quality of learning. They also affect the operations of higher learning institutions. For instance, state allocations for higher education are associated with rules and regulations. The reason for this is that the funds are sourced from taxes imposed on the public. As such, the institutions have to be accountable for the money provided to them by the government (Kane & Orszag, 2003). The rules and regulations attached to this form of funding can disrupt the operations of the institutions. Universities and colleges seek partnerships, enrollment, and ‘programmatic’ opportunities to support learning. However, such activities may be banned or highly regulated by the government. Consequently, education administrators have to adhere to government regulations. To this end, they are expected to provide education as per the standards set by the authorities.

Today, the cost of education in the world is rising. The growth is accompanied by increasing demands for quality services from learners. Consequently, it is essential for learning institutions, especially those providing higher education, not to depend on one source of revenue. The reason is that such sources are associated with several weaknesses and limitations (Barr & McClellan, 2011). To address this problem, institutions should explore alternative financing strategies. Such a move aims to guarantee the generation of adequate revenues to support learning operations. For instance, institutions of higher learning should seek grants to promote the quality of education provided to learners (Odden & Picus, 2008). Also, they should form partnerships with scholars and other agents to finance research projects.


Alexander, F. (2001). The silent crisis: The relative fiscal capacity of public universities to compete for faculty. Review of Higher Education, 24(2), 113-129.

Astin, A., & Oseguera, L. (2004). The declining “equity” of American higher education. Review of Higher Education, 27(3), 321-341.

Barr, M., & McClellan, G. (2011). Budgets and financial management in higher education. New York: Jossey-Bass.

Brimley, V., & Garfield, R. (2007). Financing education in a climate of change (10th ed.). Saddle River, N.J. : Allyn & Bacon.

Cheslock, J., & Gianneschi, M. (2008). Replacing state appropriations with alternative revenue sources: The case of voluntary support. Journal of Higher Education, 79(2), 208-229.

Collins, J. (2001). Good to great. London: Harper Collins Publisher.

Ehrenberg, R. (2003). Studying ourselves: The academic labor market. Journal of Labor Economics, 21(2), 267-287.

Geiger, R. (2004). Knowledge and money: Research universities and the paradox of the marketplace. Stanford: Stanford University Press.

Kane, T., & Orszag, P. (2003). Funding restrictions at public universities: Effects and policy implications. Washington, DC: Brookings Institution.

Odden, A., & Picus, L. (2008). School finance: A policy perspective (4th ed.). New Jersey: McGraw-Hill Publishing.

Speck, B. (2010). The growing role of private giving in financing the modern university. New Directions for Higher Education, 1(149), 7-16.

Vast, T. (2001). Learning between systems: Adapting higher education financing methods to early care and education. Los Altos, CA: Lumina Foundation for Education.

Zhao, F. (2001). Impact of diversification of financing sources on higher education quality. Assessment & Evaluation in Higher Education, 26(5), 427-436.

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IvyPanda. 2020. "Education Financing: Nature and Future." June 30, 2020. https://ivypanda.com/essays/education-financing-nature-and-future/.


IvyPanda. (2020) 'Education Financing: Nature and Future'. 30 June.

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