A while ago I delivered a speech on financing of Higher Education, wherein I emphasized that education entails a cost. Once this fact is comprehended, it is wise enough to walk the roads of strategic thinking to timely secure the funding options for tuition fees. This would ensure that each element of the French higher education is strengthened not only for the good of all its stakeholders (students, families, teachers, support staff, etc.), but also for companies and the country as a whole.
To state a precise number, let me mention that the annual cost of graduate studies, whether private or public, is €13873. This accurate figure, calculated by the OECD, perfectly highlights the importance of this subject. But to our amazement, this topic is a taboo in some countries (see below). In such countries, the fact that the state is the main donor has caused the public to believe that studies are “free” because of redistribution.
Why education has a cost
Regardless of its status, just like any business or organization, an educational institution bears a range of expenses that span multiple dimensions:
- investment expenditure (premises, infrastructure, information system, etc.)
- operating expenses divided between:
- salaries (teachers, support staff and others)
- classic operations
- specific functions (direct cost of training – case purchases for a business school, for example)
Let’s also take a note of the fact that whenever an institution of higher education operates as a business in the high value-added services sector, then it’s a rule that 60% of its budget is spent on the salaries of its staff.
Who finances education and higher education?
Two philosophies structure the global landscape:
1. The more business-orientated Anglo-Saxon philosophy applied to the education sector:
- Education is a market
- It’s the customer who has to pay (often very significant amounts). Let’s recall the student protests that punctuated the years 2010 and 2015 in Great Britain, following successive and massive increases in tuition fees in the Kingdom’s universities.
2. Latin, Nordic or Scandinavian philosophy:
- Education is not a market
- It’s mainly subsidized by a third party: the state or companies in the context of apprenticeship
In Finland or Norway, for example, the state takes care of 95% or more of the financing of education, while in South Korea, Japan or the United States, the state only finances 29% to 38%. In France, 80% of funding is from public sources, which is more than the average of OECD countries (70%). In Germany, this share is 86% and in Spain it is 73%.
Tuition fees aren’t one size fits all
Tuition fees aren’t the same across all business schools, at least for the business schools that I know well:
- No state funding except for rare exceptions
- Hence, the school must generate its own resources
Our schools have resorted to various alternatives for funding:
- Tuition fees, class size, width of the program portfolio
- Funding by businesses including the funding of apprenticeships, Chairs and Foundations
- Calls for projects and other grants
BUT, this is no longer sufficient to finance the development of our business schools.
We have reached our limit:
- in terms of production capacity (professors, rooms) due to accreditations
- in terms of tuition fees (acceptable limit)
We might run into a problem in future because our cost will increase due the following reasons:
1- Increase in wages:
- other staff due to the verticalization of business (international, digital, search for funding)
2- Cost of recruitment due to the intensification of competition
3- IT, Digital & Digital Transformation
4- Security and cybercrime
5- Innovation in teaching methods (Edtech):
- Projects (for example, GEM created the connected Shop or GEM playground)
- New configurations for training rooms
- Educational Repositories
Welcoming and supporting the students/executives
Support Centers (career center, for example)
7- Marketing and recruitment costs
8- Social Responsibility (a little paradoxical but essential)
As a matter fact, our fixed cost related to the main nurturing and development of our brand are so huge that you could almost compare us to a luxury hotel.
See also Jean Francois Fiorina’s post » Toqué? Grandes écoles and starred restaurants: same fight!
How to succeed in financing business schools?
The solution hinges on several factors:
- Brand awareness: by making our services better known to businesses, from support for talent recruitment to continuing education or research
- Alumni mobilization: especially international students, because they are more inclined culturally to give back to their “alma mater”
- The pooling of our resources across the board within a school (graduate school, post-graduate school,…) in order to maximize synergy
- (For schools affiliated to the local chambers of commerce, as is the case in France) Leverage recent changes in the laws and regulations granting more leeway (as per the new EESC status established in France)
Last but not the least, working constantly on our strategies to make our schools stand out of the crowd.