THE

RATIONALE
OF FINANCING
EDUCATION
 
By: JUNIND MAE C. BARRIOS
KAREN MAY P. URLANDA
EdD-EML Students
L/O/G/O
 Objectives
Analyze the sources of financing
A
education

Explain the rationale of financing

B
education in the public sector

C Examine some of the challenges facing

public financing of education
Examine the concept of diversifying
D
sources of financing education
 FINANCING EDUCATION

 It examines both the investments and

returns to education and human capital.

A Sources of Financing Education:

1. Public Sources

2. Private Sources
 1. Public Sources
 These are support channeled to
education from public government
budget. The government raises money
for financing education either through
general taxation or specific education
taxes.
2. Private Sources
 These are support channeled to education
from non-governmental sources which
includes direct financing, indirect
financing, donations, and external aid.
 B Rationale of Financing Education in the
Public Sector:
 Education is considered as
both a private and social
investment which is shared
by individual students, their
families, employers,
government and other social
groups.
 The high private rates of return to educational
investments at all levels justify large investments by
individuals and their families through immediate or
deferred cost sharing.
B Rationale of Financing Education in the
Public Sector:

 On the other hand, there is a

strong case for government
(Public) funding of education
due to a number of reasons,
namely; income distribution,
capital market imperfections,
information asymmetries and
social benefits/externalities.
 B Rationale of Financing Education in the
Public Sector:

1. Income Distribution

 Equality of distribution of education usually

results in equality of distribution of income. Thus,
education opens new opportunities for the poor
and so increases social mobility.
 Not all groups in society can afford to meet the
direct and indirect costs associated with investing
in education and the government, therefore, has
a role in promoting equality of opportunity.
 B Rationale of Financing Education in the
Public Sector:

2. Capital Market Imperfections

 In many countries, the private cost of education,
is beyond the means of many poor families. Most
credit markets do not provide an effective solution
because of strong imperfections that reduce
participation, especially of the very poor people.

3. Information Asymmetries
 Researches have shown that parents with little
education are usually less informed than better-
educated parents about the benefits or quality of
education.
 B Rationale of Financing Education in the
Public Sector:
4. Externalities/Social Benefits

 According to an adaptation of the growth theory,

a worker’s productivity is affected by the average
level of human capital as well as by the worker’s
own human capital (Lucas, 1988). Therefore, the
state invests in the education of its citizens due to
the following spill-over benefits:
Reduction in fertility for women
Improved health
Better social relations
Reduction in crime rate
 C Challenges Facing Public Financing of
Education
1. Misallocation among
education sub-sectors
 Public spending on
education is often
inefficient when it is
misallocated across
levels and within levels.
2. Misallocation within subsectors

 Inefficiencies which are prevalent within all

education sub-sectors reflect an inefficient mix of
input such as staff and instructional materials.
 C Challenges Facing Public Financing of
Education
3. Inequitable Public Spending
Public spending in education is inequitable when
qualified potential students are unable to enroll in
institutions due to lack of educational opportunities
or because they are unable to pay or obtain
financing.
4. Inadequate Funds for Education
 Although the country devote 82% share of the
national budgets to education, the funds are in a
majority of the cases inadequate due to the
numerous educational needs at all levels of
education.
 D Diversifying Sources of Financing
Education

 Public investment in education slowed down due to

a number of factors.
One, many countries suffered serious budget
deficits as a result of the “oil shock” which led to a
sharp increase in the prices of oil seriously affecting
the terms of trade and increasing and international
indebtedness of oil importing nations.
Secondly, other sectors such as health, population,
nutrition and rural development began to give
education major competition for public funds.
 D Diversifying Sources of Financing
Education

 Cost-recovery measures
Due to strained public financial resources, many
governments have been forced to introduce cost-
recovery measures in the provision of education.

 Employers providing or contributing to

training
Some countries charge training levies to firms
with a certain number of employees.
 D Diversifying Sources of Financing
Education

 Community involvement in financing education

Some countries have attempted to overcome
financial constraints by using direct labor to build
schools, by allowing communities to provide goods
and service in kind rather than cash payments, and by
relying on other forms of community involvement or
self-help.
 Income generating activity
Educational institutions have been encouraged to
undertake initiatives that can generate income rather
than just relying on the government.
 THANK YOU VERY
MUCH! MAY THE LORD’S
BLESSINGS ABOUND IN
ALL ASPECTS OF OUR
LIVES! 