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THE IMPACT OF FUNDING CHANGES IN HIGHER EDUCATION 1

The Impact of Funding Changes in Higher Education

Linda Dunn

EAD 972

Professor Fairweather

July 15, 2012


Higher education is going through a lot of change, both in the U.S. and internationally.

Questions as to whether there are jobs for graduates, how to pay for the ever increasing costs of a

college education (through tuition or state and federal funding), how to ensure that those who

want a college education have access to it, and incorporating international experiences into our

increasingly global environment are among the many issues that higher education must answer.

Change in higher education is driven by many factors including regional, national, and

international considerations. Every country wants to attract the best students, and every higher

education institution wants to attract and keep the best faculty, staff, and students. Competition

has become increasingly intense, segmenting the higher education market even more to include

for-profit education.

Finnish higher education is experiencing many layers of change, from within Finland and

from the European Union, with the goal of becoming and remaining an important competitor in

international education. Many changes have been made to incorporate the Bologna Process

degree requirements and structure. At the same time, the Finnish government is giving more

autonomy to the universities and universities of applied sciences, but is holding the reins tightly

when it comes to deciding which degrees the universities and universities of applied sciences

may offer. The government also decides how funding is allocated to higher education

institutions.

At each point of change, universities and universities of applied sciences must reevaluate

and realign priorities. Sometimes there is a chance for input and consensus before change, and

sometimes the changes are dictated. How can universities react quickly and efficiently with this

constant change, especially in matters of funding? It becomes apparent that Finnish higher


education institutions are searching for these answers at the same time that United States higher

education institutions are looking for answers to similar questions.

European Union Influence and Bologna Process

Finland is one of 47 member countries in the Bologna Process, launched in 1999 to create

a common European Higher Education Area (EHEA) and standardize European higher education

by establishing a competitive and attractive system of higher education in Europe.

Contrastingly, there are many associations for universities in the United States, but there is not a

North American or national organization that countries or states have joined to create a common

focus.

Objectives of the Bologna Process include: all member countries will have comparable

and easily understood degree structures and a consistent system of credits; increase student and

staff mobility and promote European higher education; improve the quality of higher education

and quality assurance; and lifelong learning and the social dimension of higher education. By

2005, Finland had introduced the European Credit Transfer System (ECTS) which is based on

the assessment of student workloads, core content analysis of the curricula and clearly defined

learning outcomes, which aim at a more student-led teaching approach. All students in Finnish

higher education automatically receive a Diploma Supplement in English on graduation.

Before the Bologna process, a bachelor’s degree took three to four years in Finland, while

completing a master’s degree took six to seven years on average (OECD, 2005). As Saarivirta

(2010) states, Finnish universities had no deadline for finishing studies, so students could receive

a degree in a couple of years, or they could study for 20 years. This policy changed when the

government imposed a ten-year deadline for university studies. The length of time allowed for


student study does play a part in the cost of higher education. It also has impact on the job sector

since students may stay in school longer before joining the workforce.

Overview of Higher Education System in Finland

The Finnish education system includes nine years of basic education (7-16 year olds),

with one year of voluntary pre-primary education (6-year olds); upper secondary education,

comprised of vocational and general education; and higher education, provided by two parallel

sectors – universities and universities of applied sciences. Universities of applied sciences were

established in the 1990s as regional, multi-discipline institutions focusing on contacts with

working life and regional development. Finland’s combination of two models of higher

education also has funding implications and influences the workforce.

There are 16 universities in the Ministry of Education and Culture sector; two of them are

run by foundations and the rest are public corporations. The total number of bachelor’s and

master’s degree students in Finnish universities is about 103,000. One year of full-time study

corresponds to 60 ECTS.

There are 25 universities of applied sciences in the Ministry of Education and Culture

sector; seven of them are maintained by a municipal consortium, four by one municipal, nine by

a company with a majority of municipal-ownership and five UASs are maintained by a privately-

owned company or foundation. The total number of students is over 130,000, and all degree

studies include practical on-the-job learning.

The Finnish higher education sector was quite centrally controlled and regulated through

the mid-1980s (Holtta, 2000). As stated by Holtta, this began to change with the gradual

introduction of self-regulatory structures and institutional autonomy given to the universities and

the newer universities of applied science. In the 1990s, Finland shifted from a very traditional


and detailed allocation model of funding to a system of lump sum budgeting, with a results

oriented model.

Our visit to the Ministry of Education and Culture was instrumental in understanding the

many nuances of the funding process. The ministry funds universities and universities of applied

sciences based on how well they achieve the ministry-imposed targeted goals. The 2010-2012

funding formula for universities was based on performance agreements that included quantitative

targets regarding the number of bachelor’s degrees, number of master’s degrees, number of PhD

degrees, number of foreign degree students, number of exchange students, number of pupils at

schools for practice of teachers, and number of ECTS completed under teacher training guidance

at the schools for practice. The 2010-2012 performance indicators for university education also

include the percentage of graduation after seven years of study, the percentage of students who

have passed more than 45 ECTS, and the percentage of graduates compared to drop-outs. The

research areas are judged by publication in international and scientific publications, the

percentage of national competitive funding compared to total university funding, and the

percentage of international research funding compared to total university funding. The

performance indicator for internationalization is based on faculty and staff international mobility.

Other indicators are based on societal interaction and impact, and include the percentage of

complementary funding compared to total university funding and the percentage of graduates

employed compared to the total number of graduates.

The Ministry of Education and Culture announced a new core funding formula in June

2012 to begin in 2013. The new model comprises three main parts: education, research, and

education and science policy objectives. Funding will be allocated to universities in a lump sum.


The funding formula for universities of applied sciences differs from universities in

several ways. According to the Ministry of Education and Culture, State funding comprises

approximately 45% of universities of applied sciences funding. The additional 55% is allocated

by municipalities. For 2010-2012, the universities of applied sciences received quantitative

targets for the number of polytechnic degrees, number of vocational teacher education students,

number of polytechnic master’s degrees, number of foreign degree students, and number of

exchange students. The early draft of the funding model for universities of applied sciences for

2014 will use a similar funding model as the 2013 university model, basing funding on three

main parts: education, research and development, and strategic development.

Aarrevaara (2012, p. 81) brings up several points regarding funding changes for

universities and universities of applied sciences, including the innovation system whose key

players are the Ministry of Education and Culture, the Ministry of Employment and the

Economy, the Science and Technology Policy Council of Finland, the Academy of Finland, the

Finnish Funding Agency for Technology and Innovation (TEKES) and the Technical Research

Centre of Finland (VTT). Since the universities are now independent and no longer part of the

State, they need to make informed choices in order to support the innovation system.

Our visit to the University of Jyvaskyla provided an opportunity to hear first-hand how

higher education institutions have been affected by the New University Act that went into effect

on January 1, 2010. The institutions are no longer part of the State, and are now independent

legal entities. With this change in status, institutions are expected to be more independent and

autonomous, which includes decision-making about funding priorities and how to meet the

demands of the Ministry of Education and Culture performance criteria. Institutions with great


leaders in place will most likely do better at meeting the criteria than institutions with struggling

leadership.

Our meeting with Dr. Charles Mathies helped explain the differences between the 2010-

2012 funding formula, and the 2013-2016 funding formula about to be introduced. Changes

include an increased emphasis on quality, effectiveness, and internationalization; funding from

the Ministry of Education and Culture will now be based on the actual number of degrees

completed, instead of the target number; funding is increased for the number of students who

complete 55 ECTS, which is considered full-time; and 25 percent of funding is based on ministry

educational and science policy objectives. These changes arise at the same time that university

leaders must consider how to take greater control of their institutions’ finances and academic

directions.

Kohtamaki (2012, p. 148) notes that a current policy trend is the expectation that higher

education institutions are increasingly expected to secure operating funds from external sources

and diversify their funding bases. The universities of applied sciences have a somewhat longer

history of financial autonomy, though they were newly established in the 1990s. Kohtamaki

states that the universities of applied sciences inherited – intact - the systems of ownership,

governance, and public funding of the upper secondary level pre-merger institutions, which

further shaped the frameworks governing how the financial autonomy of the current university of

applied sciences appears.

Our visit to the University of Tampere provided a great discussion about structure and

funding of higher education. One of the issues with the old structure was that it was bottom up,

which can be fine when there is not much change needed. Bottom up structure can keep change

from happening. One example given was that in the past, faculty did not know the formula for


departmental funding. Now it is public knowledge that funding is based on the number of

degrees, number of publications, etc.

As noted by Kohtamaki (2012, p. 156), Finnish higher education institutions are now

allowed to sell educational services in international markets to customers that can be states,

organizations, or private corporations. In this way the higher education institutions can collect

tuition fees from international students who are from countries outside the EU/EEA. There are

still issues with the new funding structure regarding programs that generate funds. As we

learned from Ronald at the University of Tampere Higher Education Group regarding the

Uganda program, the funds generated do not necessarily go back to the program, but are given to

the school level. Each institution must decide how to promote autonomy and funding changes.

Some universities are developing more like businesses with central planning, funding, and

assessment.

According to Aarrevaara (2012, p. 81), universities now need to adopt a “management by

information” approach, and develop better quality assurance systems. With the addition of

external stakeholders on universities’ governing boards, decision-making involves people outside

the academic arena, and this may not sit well with some in the academic profession. Kalpazidou

Schmidt (2012, p. 37) mentions that the universities decision-making system was reformed in

2010, which changed the university boards’ composition to include at least 40 percent external

members and an external chairperson. Also, universities now manage their own assets, and

universities may implement their own staffing policies as staff members are no longer

government employees.

University leaders are faced with many challenges, including making strategic decisions

while considering cultural norms of student study rights and lack of data to inform and support


their decisions. It may be necessary to bolster internal administrative areas in order to make

decisions based on more than a gut feeling.

Kuoppala and Nappila (2012, p. 171) bring up the idea of academic capitalism, which can

manifest itself as a declining portion of public support for universities in relation to all

institutional revenues. They add that not-for-profit institutions have taken on some of the

characteristics and activities of profit-making organizations. This has led to a growing category

of managerial professionals, or middle management, of higher education, functioning in the

fields of student services, research administration, technology transfer, and internal development

functions. Bolstering these administrative areas does have real costs, but also opens the door to

more creativity and development of ideas that can lead to more autonomy for higher education

institutions.

As noted by Holtta (2000, p. 238), some universities have simplified their decision-

making processes, implemented a more individualized leadership model, invited external

stakeholders to become members of their governing bodies, and established organizational units

between their traditional academic structures and their environments. By allowing the units to

react to different demands from the environments that affect them, and unit leaders to make

decisions independently, the units can be more responsive. Holtta goes on to state that the

universities of applied sciences, who have diverse ownership and diversified funding models,

have made their organizational structures more complex by establishing education and

development centers for industrial cooperation (p. 238).

Kalpazidou Schmidt (2012, p. 45) notes that mapping the Nordic funding systems

revealed important trends, namely a move towards formula based funding; an increase in linking

of basic funding to performance indicators and contracts; a change from input to output based


funding; and an increase of funding based on competitive procedures. Each of these trends

brings opportunities for decision-making and planning, but also could have drawbacks to areas of

the university. Kalpazidou Schmidt (2012, p. 49) points out that the higher degree of

institutional autonomy has been followed by higher accountability levels and demands on quality

assurance and evaluations.

Finland and United States Funding Differences

There are many funding differences between United States and Finland higher

education. The most obvious is that students are charged tuition in the United States, but there is

no tuition for Finnish residents. Finnish universities are funded differently from Finnish

universities of applied sciences, too. Higher education in the United States is not nationally

funded or governed and the federal government does not: set any standards for academic content;

set standards for admission, enrollment, or graduation of students; inspect, accredit, or license

educational institutions; or determine educational budgets for states, localities, or institutions

(U.S. Department of Education website).

In the United States, state governments, including Michigan, have been cutting higher

education appropriations for many years. For example, in 1960 state support accounted for 77

percent of Michigan State University’s General Fund budget. In fiscal year 2010-2011, state

support accounted for only 27 percent of the General Fund budget. State governments are

responsible for funding public higher education institutions.

In 2012, the State of Michigan government is developing guidelines that will determine

appropriations for higher education institutions. Michigan’s 15 public universities are dealing

with a 15 percent reduction in state aid during the current fiscal year. As noted on the MLive

website, a budget plan moving through the Michigan Legislature could give the state’s 15 public


universities an average three percent funding increase, based on distribution of an additional $27

million in higher education funding in the fiscal year that starts Oct. 1. About 2.25 percent of

that money would be distributed in a formula that includes graduation rates, types of degrees

awarded – including science and engineering – and other factors. The rest would be awarded to

universities if they keep tuition increases at or below 4 percent. Excluding the tuition factor, the

increase slated for Michigan State University is 1.4 percent. The tuition restraint clause could be

more complicated at Michigan State University since there is a question about MSU’s

requirement that incoming students have health insurance as a fee counting against the 4 percent

tuition and fee restraint cap.

As noted by Kalpazidou Schmidt (2012, p. 50), implementation of performance, output

and competitive funding systems to promote quality, productivity, and efficiency is a complex

issue as the relationship between funding and outcome, both in terms of quantity and quality, is

not straightforward. It is possible that some of the core functions of the university will be lost by

focusing on the formula dictated by the government. Teaching and research could suffer, and it

is conceivable that certain areas of study would be dropped at higher education institutions if

they did not help the institution achieve the government-dictated goals.

There has been much talk about the inefficiencies of higher education spending.

Government legislators often speak about the high cost of higher education and infer that money

is being spent unwisely. Michigan State University has begun to address this with the

introduction of the Enterprise Business System (EBS), which aims to quantify spending and

many other factors. Currently MSU uses the human resources and purchasing areas of EBS, and

soon we will begin using the contracts and grants EBS tool. The intent of using the EBS tool is

to be able to look at the full cycle of each component, from start to end, so that some measure of

http://www.mlive.com/lansing-news/index.ssf/2012/06/michigan_state_braces_for_impa.html#incart_river_default


efficiency can be gleaned from the information. Then best practices could be identified and

shared with others, making the university more efficient.

The impact of funding changes is being felt regionally, nationally, and internationally in

higher education. The economic downturn has put pressure on all governments. Higher

education institutions are being asked to do more with less, find external or supplemental

funding sources, and compete in today’s global market. Having a strong leader who can

communicate his or her vision, plan for multiple scenarios, and be able to change direction with

purpose and speed are important factors to keeping a higher education institution moving

forward.


References

Aarrevaara, T. (2012). Oh happy days! – University reforms in Finland. In Maruyama, F. &

Dobson, I. (Eds.). Cycles of University Reform: Japan and Finland Compared. Tokyo,

Japan: Center for National University Finance and Management (pp. 79-92).

Holtta, S. & Malkki, P. (2000). Response of Finnish higher education institutions to the national

information society programme. Higher Education Policy, 13, 231-243.

Kalpazidou Schmidt, E. (2012). University funding reforms in the Nordic countries. In

Maruyama, F. & Dobson, I. (Eds.). Cycles of University Reform: Japan and Finland

Compared. Tokyo, Japan: Center for National University Finance and Management (pp.

31-56).

Kohtamaki, V. (2012). Different worlds of financial autonomy: Reflections on Finnish higher

education institutions. In Ahola, S. & Hoffman, D. (Eds). Higher education in Finland.

Jyvaskyla, Finland: Jyvaskyla University Press (pp. 147-164).

Kuoppola, K. & Nappila, T. (2012). Administrative costs and the new financial autonomy of

Finnish universities. In Ahola, S. & Hoffman, D. (Eds). Higher education in Finland.

Jyvaskyla, Finland: Jyvaskyla University Press (pp. 165-186).

Michigan state budget plan splits up education cash, and sparks political debate. (July 2012)

MLive. http://birchrunchamber.org/michigan-state-budget-plan-splits-up-education-cash-

and-sparks-political-debate/

Report of the panel of the review of the Finnish Higher Education Evaluation Council July 2010.

http://enqa.eu/files/FINHEEC%20Review%20report%20final.pdf, accessed July 2012.

Saarivirta, T. (2010). Finnish higher education expansion and regional policy. Higher

Education Quarterly, Vol. 64, No. 4, 353-372.

http://enqa.eu/files/FINHEEC%20Review%20report%20final.pdf

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