Background

From 1960 to 1975 Colombia made significant progress in the education sector: the  average years of schooling increased from 2.5 to 5.5 and the primary school  enrollment rate reached 85 percent. However, the secondary enrollment rate was a low 50 percent. This was attributed to the prohibitive cost of private schools (more than 40 percent of secondary schools are private), lack of spaces in public schools, and the children's need to work (Vélez, 1994). Inequity of the secondary education system was another problem. A low-income household spent, on average, 9 percent of its income on secondary education, while a high-income household spends only 1.7 percent (Molina, Alviar and Polanía, 1993).

Seeking to address these problems, the Colombian government launched the PACES (Programa de Ampliacion de Cobertura de la Educacion Secundaria) voucher program in the ten largest Colombian cities in October and November of 1991.  Partly funded by the World Bank, this program offered subsidized enrollment in private secondary schools to 18,000 students. The three implementing agencies were the Ministry of Education; the central and regional offices of ICETEX (Colombian Insititute for Education, Credit and Training Abroad); which was responsible for administration, and the banking institution Banco Central Hipotecario (BCH) which made the voucher payments to the private schools (World Bank, 1990).

Eligibility

The program gave a voucher to low-income students who could not find a place at a public high school or  who chose to attend a private high school.  The voucher would cover tuition, all or a large part of it, at the private school of their choice. To qualify, applicants must be entering a secondary school which begins with grade 6, be 15 years old or younger and be admitted to a school which will accept the vouchers.   Recipients were eligible for automatic renewal through the 11th grade when Colombian high school ends, as long as they maintained satisfactory academic performance. To ensure only low-income family participation, proof of residency was required and the student had to be enrolled in a public elementary school.

Value of the Voucher

The maximum voucher value was set at the average tuition of low-to-middle cost private schools in Colombia's three largest cities (Bogotá, Medellín and Cali).  Schools charging less than face value received only their usual tuition fee.    If the tuition was greater than the voucher, then the parents paid the difference.

Participating Schools

Participating schools tended to serve lower-income pupils and to have lower tuition than non-participating private schools.  Schools with a vocational curriculum were also over-represented.  After 1996 only non-profit schools were allowed to participate as there were reports of low-quality for-profit schools being established to take advantage of the voucher program.  The number of vouchers in use in any one year peaked at roughly 90,000 in 1994 and 1995 (National Bureau of Economic Research, 2001) .  

To encourage participation of private schools, the Ministry decided that the actual payment of the voucher would be done by the banking sector - Banco Central Hipotecario (BCH) and not the government. The school's account was to be credited every three months, upon presentation by the school of the grades of the voucher beneficiaries (Calderon, 1996).

Implementation

Cities and towns used lotteries to allocate vouchers when demand exceeded supply.  Municipal governments paid 20% of the voucher cost while the central government paid 80%.  Each municipality decided how many vouchers to fund subject to a maximum allocated to the towns by the central government.  Regional ICETEX office provided software and instructions to regional offices to determine the number of vouchers allowed, to verify the school requirements for participation and to monitor implementation (National Bureau of Economic Research, 2001).

Program Financing

In 1995 lottery winners received an average of $74 more in scholarship aid than losers but spent only $52 more on gross school fees.  Because lottery winners work fewer hours, there is also a loss of $41 in wages. Winning households' net resource contribution is calculated at $52 (additional school fees) + $41 (reduced earnings) - $74 (voucher) = $19 (National Bureau of Economic Research, 2001).  

The cost to the Government to provide school places through PACES rather than through the public system is about $24 more per lottery winner. This means the society-wide additional educational resource cost per lottery winner was approximately $24 (government) + $19 (households) = $43.

On the other hand, the cost of this particular expansion in secondary enrollment has been substantially lower than that provided by public schooling. The average cost per secondary student in the public sector in 1995 was $352,000 (Departamento Nacional de Planeación, 1994), which was 140 percent more than the cost of a voucher student ($145,000) for the same year.

Outcomes

The following are some of the key outcomes from this voucher program in Colombia:

The winner completed an additional .1 years of school and were about 10 percentage points more likely than losers to have completed 8th grade.  The winner also scored an average of .2 standard deviations higher than losers on achievement tests in mathematics, reading and writing, a large but only marginally significant difference. In the Bogota 1995 sample, the probability of grade repetition was reduced by 5-6 percentage points for lottery winners. Winners less likely to be married or cohabitating a marginally significant effect.

Lottery winners were less likely to be working than losers and of those who did work, winners worked 1.2 fewer hours per week than losers.  This could be due to income effects for the household, greater time demands of private school or the desire to attain good grades in order to remain in the voucher program.  While winners reduced their current earnings, they completed an additional .12-.16 grades and scored about .2 standard deviations higher on tests. With returns to schooling of about 10%, PACES is likely to raise lottery winners' wages by $36 per year, and might raise wages by as much as $300 per year if higher test scores have a grade-equivalent pay-off  (Calderon, 1996).

Expansion

During 1992 the number of students increased to 49,573 and the number of municipalities involved reached 78. By 1995, the number of vouchers had increased to 88,672  (Banco de Fuentes Primarias - DNP). Furthermore, the municipalities involved expanded to 212 and the number of schools which have voucher students are currently 1,765 with an average of 50 subsidized students per school. Also, the percentage of scholarships renewed was 77 percent. This is consistent with the national high school promotion average of 70 percent.

Summary

This program's success was ensured by several factors.  First, the existing private schools were able to absorb about 80 percent of the  total number of subsidized students. And, these schools offered a better, or at least similar, quality of education than that of public schools. Lastly, the voucher plan was cost effective: the average cost per secondary student in the public sector in 1995 was 140 percent more than the value of the voucher for the same year.

Part Two: Global Marketplace – Trends & Issues For Private Higher Education

Trends in Private Higher Education Around the World



The  increasing importance of knowledge as a major driver of economic development combined with a global population expected to reach 7 billion before 2014, will continue to fuel the demand for higher education. Some countries already have very high tertiary enrollment rates. South Korea has reached 84% and Philippines and Japan  have 76% each. In Brazil, tertiary education has grown by more than 70 percent over the last seven years, with private enrollments reaching 71% of all tertiary enrollments in 2002.  And in Mexico, the recent rise to 33% from around 20% has happened over the last 5 years.  


        Higher education provision will increasingly come from the private sector and non-government sources as Governments are forced to pass on an additional share of costs on to students and their parents. In China, for example, public higher education institutions are charging tuition fees to students that average between $725 and $840 per annum..  Average undergraduate tuition fees in Canada increased by 135% between 1991 and 2001 and in Britain tuition fees will  rise from $1,760 to just above $4,500.  Today, the private sector conservatively accounts for around 17% of education spending, often in the form of fees.  It is about 13% in OECD countries, around 12% in Western Europe – with developing country non-government spending estimated at between 20% and 25%. In the United States, higher education is a $300 billion market, of which private provision of education is only about 6% but this continues to increase annually.

 



Many students are prepared to travel abroad for their tertiary education: today there are some 1.6 million international tertiary students studying in OECD countries and the total number of foreign students in the United States in 2001/02 was nearly 583,000, or about 35% of the OECD total. In 2000, China had as many as 44,700 students from 164 countries. The composition of student bodies is changing also, as there are a growing number of lifelong learners. Today, well over 40% of all undergraduates in the United States and 30% in Canada (by head count) are over the age of 25.  New systems of education and training are being offered to a student body that is increasingly comprised of workers, mid-career executives, entrepreneurs or the unemployed. Distance and on-line education are attractive options for this group. Indeed, for many students around the world the low cost and flexibility of these programs make them interesting options. Latin America currently has over 1 million tertiary distance education students.  


Challenges to be Met


Student Financing: Demand for student financing continues to rise across developing countries.   More than 60 countries have student loan schemes and virtually all of them are public schemes.  Their performance has been variable with evidence of social resistance to repay in a number of cases, and private banks are averse to moving in to this area.  Today, the private banking sector experience is limited, the cost of credit is typically high, the mobility of students after graduating can be a problem – and underwriting risk across borders can prove to be difficult. We need to create a better performing student loan schemes against which future ratings for risk will be treated more favorably.  




Accreditation: From the perspective of a private investor, accreditation systems can influence commercial stability.  Regulations can set minimum standards and bring some order to the market and create level playing fields where higher education institutions – national and foreign – can compete with each other on fair and equal terms.  Demand for joint degree programs and affiliated programs between national and foreign accredited institutions are growing. In China alone there were about 720 affiliated programs between public higher education institutions and foreign providers last year.
In terms of quality management, there is also a growing awareness about the benefits that regional associations or co-operating bodies can provide for external evaluations, both at the institutional and specialized levels.  

GATS: The one hundred and forty-four countries that trade in higher education services are presently contemplating the removal of barriers to entry for foreign providers in to local markets. How governments will attempt to bring some order to the delivery of competing national and foreign programs remains uncertain.  The notion of equal treatment of national and foreign providers applying for local education subsidies – as well as issues relating to research and property rights protection are yet to be determined.  

Changing Business Models & Modus Operandi:  Higher education institutions are changing the way they operate.  More public institutions are today considering the benefits of starting up commercial or private ventures. Delivery systems are a combination of bricks and mortar models with technology and mass/distance education applications.  There is now a growing demand for clearer separation between institutional management and the academic power of the faculty – where traditional academic decision-making bodies are delegating control of the "business administration" of the institutions to others who might be better qualified.





Articles of Interest


Sylvan Learning Systems is closing its South Asia International Institute in Hyderabad, southern India. Sylvan had expected accreditation by the state government by now. However, a Supreme Court ruling last summer dictates that  higher-education companies should not be allowed to engage in "profiteering," and that states should have the right to review and regulate the tuition that private colleges may charge.  See the February 3, 2004 article in The Chronicle at:
http://chronicle.com/daily/2004/02/2004020314n.htm

Chinese Education Minister Zhou Ji recently he warned that  profits pursuit in education might endanger equal rights of education for every Chinese citizen. Statistics show that by the end of 2002, about 61,200 privately-funded schools enrolled more than 11 million students. See the entire January 6th article: http://news.xinhuanet.com/english/2004-01/07/content_1263401.htm

President Bush has said that he wants to expand the Washington Dc voucher program nationwide.  Bush has asked Congress for $50 million for school vouchers nationwide in the 2005 budget year that starts October 1.  He asked  for $50 million in 2003 and $75 million in 2004 for vouchers. All that survived is a $14 million private school-choice program for low-income children in underperforming public schools in the District of Columbia. See the entire February 13, 2004 story at:
http://www.cnn.com/2004/ALLPOLITICS/02/13/bush.vouchers.ap/index.html

Policy Adviser Norman LaRocque criticizes the New Zealand Ministry of Education discussion paper "An Education with a Special Character: A Public Discussion Paper on the Private Schools Conditional Integration Act 1975" which calls for greater government regulation of integrated schools. Integrated schools are privately owned, but  funded at about the same level as state schools, offering an educational choice for many families. LaRocque argues that piling more regulations on these schools - such as subjecting them to enrolment scheme legislation, tightening enrolment limits on non-preference students, or giving the minister the power to close integrated schools - will only limit their ability to be different and detract from their educational mission. See the article in the New Zealand Herald:
http://www.nzherald.co.nz/storydisplay.cfm?storyID=3549356&thesection=news&thesubsection=dialogue

Business students and educators in India are criticizing the government's decision last week to lower tuition and other fees charged by the country's most prestigious management schools. Government ordered annual fees to be reduced to $660, from $3,320. However administrators, students, and alumni say that less revenue will hurt the quality of instruction and facilities at the institutes. Because the institutes are quasi-independent, however, it remains unclear whether the ministry that oversees education can legally set their tuition rates. The fees are traditionally set by each institute. See the article in The Chronicle by M. Overland:
http://chronicle.com/prm/daily/2004/02/2004021108n.htm


Publications

In the forthcoming issue of the Journal of Studies in International Education, Professor David Wilmoth (Pro Vice Chancellor, Group Governance) describes the Royal Melbourne Institute of Technology (RMIT) International University Vietnam and the ways in which such a university can contribute to poverty alleviation and sustainable development.  See the article "RMIT Vietnam and Vietnam's Development: Risk and Responsibility" in Vol.7  No.X, Season 2004 1-20, edited by Hans de Wit.  

In Education Matters: Government, Markets and New Zealand Schools Dr. Mark Harrison discusses the role of government and the market in education.  Is education better run through political decision making or allowing parents to choose in a market setting?  What is the best way to promote equity, efficiency and liberty; to protect children and consumers; to provide information, evaluate students, supply capital, train and pay teachers, determine the curriculum and provide incentives to innovate? For further publication information please contact dyoung@nzbr.org.nz

Events

The 10th Annual Harvard International Development Conference is scheduled for April 16-17, 2004.  The theme is Reconstruction and Transformation: Creating and sustaining development in an uncertain global environment.  There are two panels of interest under the heading of Market Mechanisms: Panel 3:  Improving education in countries undergoing transformation Key Question:  Will fostering competition increase quality in schools? Panel 4:  The role of knowledge in economic transformation Key Question:  How do you effectively link universities, government and private-sector knowledge? For further details see the website:
http://www.ksg.harvard.edu/kssgorg/HIDC/portal_hidc.html

On January 22 and 23rd, 2004 the IFC hosted an International Forum on Investment in Private Higher Education.  The powerpoint presentations are now available on the website: http://ifcln1.ifc.org/ifcext/che.nsf/Content/EducationConference

The Online Educa Madrid conference will be held in  Madrid from May 12 - 14, 2004.  

Over 500 high-level decision makers in higher education, business and government from more than 30 countries will participate, making it the key networking venue in the rapidly expanding sector of e-learning in the Spanish-speaking world. The official conference language is Spanish. Extensive information on the event in English is available at www.online-educa-madrid.com.

Michael Latham (send comments to edinvest@ifc.org )