Palestinian Higher Education Financing Strategy
Ministry of Higher Education and Scientific Research
Palestinian National Authority
With financial and technical assistance provided by
Abbreviations and Acronyms – vi
Chapter 1. Palestinian Higher Education: Main Challenges
1.1 Meeting Increasing Demand – 6
1.2 Achieving Financial Sustainability – 7
1.3 Improving Internal Efficiency – 12
I.4 Raising External Efficiency – 12
1.5 Improving Equity – 15
1.6 Enhancing Management – 16
1.7 The Consequences of Not Addressing the Challenges – 17
Chapter 2. Developing a Financing Strategy
2.1 The Importance of Developing a Financing Strategy – 20
2.2 Principles of the Financing Strategy – 20
2.3 Main Feature of the Financing Strategy – 21
Chapter 3. Assessing the Financing Strategy
3.1 The Budget Tradeoff Model – 30
3.2 Using the Budget Tradeoff Model – 32
3.3 Building Scenarios – 33
Chapter 4. Implementing the Financing Strategy
4.1 Administrative/Regulatory Measures – 49
4.2 Taking the Next Steps: Implementation of the Strategy – 50
4.3 Financing the Implementation of the Strategy – 51
Higher education (HE) has developed very quickly in Palestine over the last three decades and faces expansion problems induced by pressing demand from a quickly increasing number of high school graduates, efficiency and quality issues related to its very development, and financing problems resulting from the aftermath of the Gulf War in 1990, with the cut-off of Arab financial support to the Palestinian Liberation Organization (PLO), which negatively affected the financing of Palestinian colleges and universities. The outbreak of the second Intifada in September 2000 further aggravated the situation because of the imposition of tight closure by Israel. In a context of severe fiscal constraints, Palestinian National Authorization’s (PNA) contribution towards higher education has declined substantially, raising further concerns about the financial sustainability of the sub-sector.
In response to the challenges facing the Palestinian HE sub-sector, the Palestinian Ministry of Higher Education and Scientific Research has developed an overall higher education strategy1 and is now proposing a more specific financing strategy for the sector as a whole. The main purpose of the strategy is to create a more effective, accessible, efficient, sustainable and accountable higher education system.
1 Proposed Direction for Palestinian Higher Education: A Vision for the Future (October 1999)
In developing the strategy, a fundamental reality was acknowledged, namely, that the level of public financial support for Palestinian higher education is not currently, nor likely to be in the foreseeable future, sufficient to ensure the financial sustainability of the system as it currently exists. Therefore, major reforms are being proposed so that public funds are targeted in ways to improve what will remain a largely public not-for-profit higher education system.
To achieve this purpose, the financing strategy is based on the following principles:
• Targeting public funds to national and regional human resource development needs by focusing on programs identified as having high priority;
• Enhancing students’ ability to pay for higher education over sustaining institutions as a primary means of public support;
• Promoting quality through competitive funding of selected projects by PNA;
• Promoting HE institutions investments for expanding capacity and improving quality, especially in priority fields, through partial funding of selected projects on a competitive basis and identification of potential donors;
• Promoting research through competitive funding of selected projects by PNA;
• Combining the autonomy of public non-profit Palestinian universities with greater accountability by emphasizing incentives more than regulations; and
• Improving the management of the institutions and higher education sector.
Those principles mean that the global philosophy of the strategy is incentive-based rather than regulatory.
The Council of Higher Education (COHE) and the relevant ministries and stakeholders will be responsible for establishing high priority Human Resources Develpment (HRD) needs. They will elaborate a long term human resources development strategy, and will identify short and medium term priority needs using information on graduate employment and recent trends on labor markets. Priorities will be adjusted at intervals on the basis of new evidence on labor markets.
In priority fields of study, fees will be subsidized through vouchers funded by the PNA, granted to all students fulfilling specific income and achievement criteria, and cashed by the institution they select. Fees and vouchers will be set in relation to normative economic costs including recurrent and annualized capital costs. All students will be entitled to apply for a loan to help them finance their fee. Loan beneficiaries will be selected on the basis of achievement and income. A limited rate of interest covering administrative and insurance for repayment costs will be charged. Repayment will start only after graduates get a job and the repayment period will be such that no graduate will be charged more than 10 percent of his/her income. The student loan scheme, which might grant new loans in the order of US$4 to 5 million in 2005/06 and US$7 to 8 million in 2010/11, should be funded through grants and soft loans, and the PNA will contribute to it to a limited extent.
The PNA will promote quality improvement and capacity expansion, especially in priority fields, by partially funding competitive institution projects responding to specific criteria. The PNA will also promote research in key areas related to national development by partially funding competitive research projects responding to specific criteria.
In order to strengthen institutional management, MOHER will develop a plan including the establishment of a HE management information system, incentives to attract qualified staff, as well as in-service training of existing staff.
A Budget Tradeoff Model has been designed to assess the consequences of alternative options concerning admissions, staff, premises and equipment needs, priority areas, fees and vouchers levels, and student loans characteristics, on:
• PNA total contribution and its distribution by main component; and
• HE institutions’ financial balance.
Various scenarios have been built to test the sensitivity of PNA’s contribution and HE institutions financial balance to changes in the main parameters. A ‘Base Scenario’ showing what might be the main policy options and corresponding financing structure of HE in Palestine in 2005/06 and 2010/11 has been identified and is proposed for policy dialogue.
The following conclusions may be drawn from the various scenarios:
• Under present admission criteria, total enrollments are bound to increase very quickly. This raises the issue of whether and how MOHER should control admissions in order to take into account tradeoffs between quantitative expansion and reform;
• Specific studies should be undertaken to understand staff recruitment and utilization practices, and identify measures to improve quality while raising efficiency;
• MOHER should be very careful in deciding priority fields and setting vouchers levels, since those decisions have a strong influence on the total value of vouchers and the corresponding MOHER contribution.;
• Vouchers would not represent much more than 6 to 8 percent of students’ resources for funding fees. Vouchers will not be a very significant resource for the students considered as a whole. They will, however, be a significant source for those enrolling in priority fields and this incentive needs to be carefully assessed, lest MOHER face a strong increase of demand for these fields;
• Vouchers fund a share of an institutions recurrent expenses, varying between 4 and 8 percent for most institutions and in most scenarios. They are not, therefore, a significant mechanism for financing institutions recurrent expenses. They will, however, become a strong incentive for institutions to develop innovative programs and attract students;
• The financial sustainability of HE institutions is mainly dependent on the level of fees in relation to normative costs. Fee setting is, therefore, a crucial policy issue and should be controlled by MOHER. Normative costs will be a key tool for MOHER in this regard;
• Fee setting has significant implications on students’ financing and HE overall funding. Increased fees mean increased personal contributions from students, which should be funded partly through loans. Depending on assumptions concerning loan conditions, annual repayments would represent a share of new loans that may vary between 25 and 35 percent in 2010/11. The institutions financing the loan scheme must, therefore, be prepared to inject annually substantial amounts of additional funds, which will be repaid only in the medium/long range. Furthermore, the management of a large student loan scheme is complex, and controlling the default rate may prove difficult. The tradeoff between promoting students ability to pay through increased contribution to the loan scheme and reducing fee levels in priority fields through increased vouchers must be carefully assessed by MOHER;
• In 2010/11, loans would fund 5 to 6 percent of students’ expenses for fees, depending on the assumptions. Loans will not play a major role in funding students’ fees in general, but they will be a significant resource for those students benefiting from a loan;
• In the ‘Base Scenario’, MOHER financial deficit would total US$4.7 and 9.0 in 2005/06 and 2010/11, respectively. All HE institutions would have a recurrent surplus and a capital deficit, which should be funded through grants and loans. Vouchers and loans would fund 7.3 and 6.0 percent, respectively, of students’ fees in 2010/11. Additional funds to inject in the student loan scheme would amount to approximately US$53 million in 2010/11, while repayments would cover 35 percent of new loans if the repayment period is of 5 years on average.
Those conclusions suggest the following lines of action:
• Review present admission criteria and determine whether the admission policy should be reconsidered in the future;
• Carefully assess staff recruitment and utilization practices and select the most costeffective options for improving efficiency while preserving quality;
• Develop an advanced Higher Education Management Information System (HEMIS), based on modern management techniques. This HEMIS could also take into account the information needs suggested by the model;
• Set up a comprehensive training program for high and middle level staff in MOHER and institutions. This program could include training in the use of the model at the subsector and institutional level;
• Identify sources for funding institutions quality improvement and capital needs, the loan scheme and the various actions aiming at strengthening the capacity of MOHER and HE institutions;
• Consider increasing PNA’s contribution towards HE when the fiscal situation has improved.
A series of administrative and regulatory measures are needed to support and implement the policies outlined above. They include:
• Improving licensing and accreditation: (a) MOHER will establish an autonomous Commission for Accreditation and Licensing; (b) MOHER, in coordination with COHE, will develop an effective quality assurance mechanism and a continuous evaluation process; (c) COHE will set up evaluation teams to review and evaluate all existing programs at HE institutions. Following the evaluation, MOHER should make the necessary modifications and adopt its accreditation system; (d) Funding of HE institutions will be limited to accredited programs that meet national high priority needs.
• Strengthening the HE Management Structure. In consultation with HE institutions, MOHER will develop a plan to improve institutional management. The plan will include the development of an HEMIS and staff training in areas such as database, planning, financial management, assessment, and self-evaluation. In coordination with HE institutions, MOHER will also develop a plan to provide incentives to attract qualified staff and expertise and recruit mid-level staff to the MOHER.
MOHER will take into account that the pace of implementing this strategy might need a transitional period to shift from the traditional financing mechanism. However, it is important that a series of concrete steps be taken in 2002 to demonstrate the viability of the strategy. Six steps are required to accomplish such a demonstration:
• Determine the high priority HRD needs. COHE needs to conduct its first meeting for the purpose of discussing and determining high priority needs. This step will constitute the cornerstone in the process of implementing the strategy, since it will not only identify the areas of funding, but will also rank them in terms of priority;
• Introduce the proposed administrative measures. This includes setting-up an autonomous commission for accreditation and licensing, constitution of the HEMIS task force, and designing and introducing institutional management plans in coordination with HE institutions;
• Elaborate the HE Funds design, and implementation plan. One of the most recent accomplishments of MOHER has been the launching of a Student Revolving Loan Fund (SRLF), and laying the design for HE Development Fund. This was initiated in 2001;
• Generate consensus among decision makers and stakeholders. MOHER should organize a series of workshops for the purpose of decision maker and stakeholder buy-in into the financing strategy;
• Train institutional staff in the use of the Budget Tradeoff Model (BTOM). The model may be easily adapted to the institution level and could be used as a tool for helping decision making at this level. This could also be a step towards building the HEMIS and developing institutional plans;
• Carry out the studies suggested in this paper.
Since the reform of higher education implied by the strategy will have significant consequences on HE internal and external efficiency, quality, financial sustainability and equity, it is urgent to start implementing it as soon as possible. In the present context of financial strains, however, implementing the strategy requires external resources which should be earmarked to components vital for its success, such as:
• Strengthening the capacity of MOHER and HE institutions. This component might include the establishment of the HEMIS, training of MOHER and institutions high level staff, and elaborating the long term human resources development strategy which will guide in the identification of priority fields (US$3.0 million);
• Supporting and expanding the student loan scheme (US$8 million);
• Establishing the Quality improvement fund and contributing to its funding for targeted interventions (US$5 million); and
• Supporting the development of a few selected high priority fields of study, as identified by COHE through the long term human resources development strategy (US$14 million).
