Costs and Financing in Open Schooling/Funding Open and Distance Learning/Government Funding

Government Funding
In many countries, governments have supported the establishment of open schools and other ODL institutions in order to improve access for those who would otherwise be unable to attain educational qualifications. Open schools can relieve pressure on the formal education system by accommodating young people for whom there are insufficient places in secondary schools. They also play a valuable role as a ‘safety net’ by providing an alternative pathway for disadvantaged individuals to improve their general education and employment prospects.

Government support for open schools, colleges and universities can take a number of different forms in order to assist with:
 * operational expenditure,
 * capital costs, such as:
 * buildings and equipment,
 * course development costs,


 * project-based funding,
 * provision of facilities (for example, access to school builidings for tutorials),
 * secondment of staff, and
 * loans, scholarships and bursaries to students to cover their fees.

Few secondary schools achieve full cost recovery and, in most countries, national, regional/provincial and/or local government bodies provide continuing support for education at this level. Subsidisation is also important for open schools and other ODL institutions in order to enable them to fulfil their social mandate. There are four broad approaches to the provision of subsidies:

Normal Budget Negotiations
Where open schools have their origins in organisational units within education ministries, managers and other staff may already have experience of government budgeting processes. Although the overall budget for a ministry of education or higher education authority is typically shaped by sectoral priorities and advanced planning, the final preparation of estimates and allocation of funds often takes place under severe time pressure and in an environment of competition between different units and interest groups. In such a situation, the core business of the ministry (formal, school-based education) or higher education authority (conventional third-level education) may be given priority at the expense of peripheral activities, such as ODL.

In reality, the process of preparing estimates within this framework involves very little negotiation. Rumble (2006, page 103) describes normal budgetary negotiations as a ‘maelstrom’ – a whirlpool-like situation of confusion and turbulence that overpowers any attempt to impose order. Open schools or other ODL institutions are often given a guideline amount within which they must tailor their budgets. In cases where open-ended or unlimited estimates are entertained, the ministry or higher education authority may impose cutbacks that (from the point of view of the ODL institutions) appear arbitrary, impossible to implement and unsustainable. Multi-annual budgeting processes may provide greater security with regard to future streams of funding, but rarely ensure additional resources.

Budgetary Framework Document
A second major approach to determining the level of government subsidies to ODL institutions is through a budgetary framework document, which outlines clearly what the institution plans to do and presents estimates of the average costs of such activity. The model used for funding the UK Open University up to the 1990s is an example of such a framework (Rumble 2006, pages 126-133). The annual subsidy to UKOU was calculated on the basis of the following variables: Although Rumble refers to this model as a funding formula, in fact it simply produced estimates of expenditure that were open to subsequent negotiation and scrutiny by the UK Department (Ministry) of Education and Science. In this respect, it differs little from the normal budgetary process.
 * business-sustaining costs (unattached overheads)
 * student course enrolments
 * variable costs per course enrolment
 * number of courses offered
 * average course maintenance costs
 * number of new courses in development
 * average course development costs
 * average life of a course.

The main advantage of a budgetary framework approach is that it makes clear to both parties exactly what changes need to be made if the available subsidy differs from the amount requested. In cases where cutbacks need to be made, the institution’s management can demonstrate which activities will need to be sacrificed to live within a reduced guideline. Where the subsidy exceeds the amount requested, it is also easy to identify which activities can be expanded to take advantage of the additional funds.

However, the budgetary framework approach is still subject to many of the constraints and limitations of normal budget negotiations. All areas of the institution’s expenditure would be open to scrutiny and ministry officials may still demand reductions in costs without any reduction in the services provided. Where ODL institutions have been given a high degree of autonomy, as is the case with many universities (either in law or by tradition), concerns may also arise about the potential impact of this model on the institution’s freedom to take decisions on the basis of academic criteria, as opposed to purely economic ones.

In addition, the calculations required for the budgetary framework document are normally derived from Activity-Based Cost analysis. As noted in other units, this is a demanding, expensive and time-consuming process that would need to be carried out at least once every two or three years. At the end of the day, there is no guarantee that additional funds will be made available to the ODL institution despite the very considerable amount of work that goes into preparing a budgetary framework document. Moreover, if student enrolments fall below those used to calculate the annual grant-in-aid, the implication is that this amount should either be refunded to the ministry or deducted from the following year’s subsidy.

Funding Formula
Perhaps the most common way of subsidising the provision of educational services by autonomous ODL institutions is through a funding formula. This model differs from the budgetary framework approach in that, once agreement has been reached on the principles and method of calculation enshrined in the formula, no further negotiation is required. Both parties should accept the figures arising from the formula without demur, though provision can always be made to review its operation after a given period. A funding formula has the advantage of providing a certain degree of predictability for both the institution and the ministry. Where more than one institution is competing for funding from a limited pool, the formula approach ensures that all institutions and requests for subsidy are treated equitably.

Rumble (2006, pages 92-99) outlines a range of options for formula-type funding of ODL institutions, and these may be categorised on the basis of two separate variables:
 * How Students are Counted – Are student numbers based on a simple head count, on the number of subject/course enrolments, on their relative ‘credit loads’ or on another measure for establishing equivalency with full-time students? These issues have been discussed in Unit 8.
 * What is Measured – Should we count the inputs (courses) provided to registered students, the outputs of the system (usually measured in terms of examination passes or graduates), or a mixture of inputs and outputs? Each of these options is considered below.

Input-Based Formulas

From the perspective of the ODL institution, an input-based formula is preferred since all of the major costs associated with providing a course are incurred in making available study guides or other courseware and in organising tutorials. Regardless of what results learners achieve, or even whether they avail of the services provided, the ODL institution has lived up to its obligations in relation to registered learners. In this respect, the institution is not penalised for high rates of drop-out or failure which may be the result of factors outside its control. Governments, on the other hand, are concerned with actual outputs. If ODL programmes are less efficient and cost-effective than conventional education, it is difficult to justify continued funding for alternative forms of provision, despite their potential to produce benefits for wider society.

The agreed mechanism for subsidising the Alternative Secondary Education Programme (ASEP) offered through the Namibian College of Open Learning (NAMCOL) is an example of an input-based funding formula. Because all of the students registered for the ASEP are technically classified as 'part-time learners', subject enrolments are employed as the measure for establishing FTE on the basis of courses provided. The Ministry of Education pays NAMCOL a percentage of the cost of educating an equivalent number of full-time learners in government secondary schools. In this example, the funding formula is open to criticism because there is no guarantee that ODL programmes will be more efficient than conventional education. While the average cost per student of providing the ASEP is currently lower than formal schooling, if the number of students were to fall significantly, there is no guarantee that it would continue to be cheaper. In addition, the formula makes no provision for the costs associated with the development of new courses/materials, which must be met from operational expenditure.

Output-Based Formulas

Governments understandably favour output-based formulas because payment is contingent on the results achieved. The rationale for calculating funding on the outputs of the educational system is that it creates incentives to improve the services provided by rewarding success in examinations. However, if such an approach is used to determine the level of government funding for open schools, in fairness it should also be applied to the formal education system. On the contrary, however, when students from a particular school perform poorly in public examinations, there is a tendency to provide extra supports (in the form of advice from subject inspectors, further training for teachers or additional resources) in order to bring the standard up.

From the point of view of ODL institutions, funding formulas based solely on outputs are seen as unfair. As discussed in Unit 8, ODL programmes tend to have higher rates of early withdrawal and examination failure than conventional education, though this is not always the case. Yet, the same level of resources must be expended for each registered learner regardless of whether he/she drops out, passes or fails. Moreover, relatively small changes in the pass rates of either school-based or ODL learners from year to year can have a significant impact on the total amount of funding received in a particular financial year. For this reason, it may be preferable to utilise figures averaged over a number of years in order to ensure a certain level of predictability, while still enabling the formula to reflect longer-term trends.

Mixture of Inputs & Outputs

In order to ameliorate the shortcomings of both the approaches outlined above, formulas combining a mixture of input and output measures have been devised in various places. However, the calculations required to establish equivalency between the ODL system and conventional education are more demanding. In addition, the administration of such funding is more complex, since a portion of the payment may be retained until after the examination results have been released. From the perspective of ODL institutions, such contingent payments undermine the security of funding arrangements and complicate financial planning and management.

Service Agreement
A service agreement is a legally-enforceable contract for the provision of specified services that must be paid for at specified rates. Such agreements between private-sector companies and government departments are common in certain situations (for example, when leasing photocopying equipment), but less so in relation to the provision of educational services. Nevertheless, if a ministry of education were to engage a commercial company to provide alternative education programmes, it would most likely be on the basis of a service agreement.

The chief advantage of this mechanism for funding such services lies in its predictability. All terms and conditions are negotiated before the document is signed, and the service agreement (if it is well drafted) spells out in detail what is expected of both parties under all conceivable circumstances. This enables the ODL institution to proceed with the agreed programme without any concern about payment, while the ministry can set aside adequate funds to cover its liabilities. Provisions are often put in place to deal with disputes between the parties, should these arise.

The main drawback of the service agreement approach is the problem of continuity. Even when multi-annual agreements are in place, there may be a gap between the end of one contract and the signing of the next, and this can pose problems for learners who wish to continue their studies in order to complete a course or programme. Another potential problem is that, where a particular course would not be economically viable without government subsidies, the ministry holds a dominant position in any negotiations with the ODL institution, as it is the only body likely to fund such a course. In addition, it is not uncommon for governments to insist on a force majeure clause in any service agreement, which would enable it to renege on its financial obligations when some unforeseen event arises that is beyond its control (e.g. natural disaster or war).