Bottlenecks in higher education funding: will they change?

Politicians want to adjust the funding of higher education, but how? The Royal Netherlands Academy of Arts and Sciences (KNAW) has already published the bottlenecks of the current system online.

Each year, the Ministry of Education distributes billions of euros to universities of applied sciences and universities, partly based on the number of students. More students mean more funding.

That works well during growth, but what do you do in times of decline? Higher education has been grappling with this question for several years, as student numbers are falling. Can higher education handle a period of contraction after years of rapid expansion?

In The Hague, some political parties are alarmed by the first consequences. Institutions are laying off staff, cutting small programmes, and dismantling research groups – and the decline has only just begun.

Is this caused by the funding system? What are its pitfalls? And will politicians resolve the problems?

The Royal Netherlands Academy of Arts and Sciences (KNAW) has produced an analysis of the bottlenecks in funding, ahead of advice expected later this year. The analysis shows that changing the system will be challenging.

1. Historical arbitrariness

Sometimes the system is hard to follow. Universities, for example, receive a so-called “fixed share”. Part of the nationally available budget is distributed to institutions according to fixed percentages. TU Delft receives 14 percent, Wageningen 7.9 percent, and Maastricht 4.8 percent. The KNAW has been unable to determine where these percentages come from.

Similar fixed-share percentages are set in law for universities of applied sciences. There are twice as many of these institutions, so the percentages are lower, but they also vary widely: Fontys receives almost 9 percent, the universities of applied sciences in Rotterdam and Groningen 6 percent, and Avans 5 percent.

2. More students, the same research funding

Education and scientific research are intertwined, say the KNAW and the universities: you want students to be taught by active researchers. Their reasoning is that if there are more students, the research budget should also increase.

But that is not happening: while the number of students and awarded degrees has grown significantly in recent years, the research budget for universities has not increased accordingly. The education budget, however, has kept pace.

3. International students

Conspicuously absent from the KNAW analysis are the budgetary effects of the growing group of international students. Over the past decades, they have brought universities significant income and, due to their large numbers, have become a factor in their own right.

In 2010, there were around 24,000 international students in university education. By 2024, that number had quadrupled to 93,000, more than a quarter of the university student population. This brings advantages for the institutions.

European students are funded by the government, just like Dutch students. They also tend to graduate faster, which is financially beneficial. Non-European students pay a high “institutional fee”, so the institutions do not incur a loss on them either.

4. The role of administrators

The authors of the KNAW analysis write that the funding system has “adverse effects” for programmes with many slow-progress students or dual-enrolled students, as these students do not generate additional funding. Small programmes would also struggle under the current system.

But this can be nuanced. No matter how flawed the system is, institutions ultimately receive a single large sum, which they can then allocate across their programmes themselves. There is therefore a buffer between the government and the programmes: the executive board of the university or university of applied sciences.

Administrators can decide, for example, to allocate enough funding to a large programme to keep a few small but important programmes running. Or they can choose to close a small programme, even if politicians consider that a shame.

5. The goal was growth

The KNAW raises the question of what purpose the funding system actually serves. Originally, the aim was to get many more people into higher education, both from the Netherlands and abroad. In that context, a system that encourages growth makes quite a bit of sense.

6. Accessibility and selection

Paying for a certain “capacity” of students? Universities are somewhat in favour of so-called “capacity-based funding” or “mission-based funding”, even though it has not yet been fully developed.

We will have to wait for the final advice, but the KNAW is currently less enthusiastic. In the Netherlands, anyone with a havo or vwo diploma can enrol in higher vocational education (hbo) or university (wo). Introducing a maximum would require large-scale selection. In the United Kingdom, this is normal, meaning a portion of young people each year cannot find a place. A previous working group already described this as “undesirable”, the KNAW notes.

7. Workload

At universities, as well as at universities of applied sciences, workload is a problem. Early-career researchers in particular often move from one temporary contract to another and have to compete for research grants. But even experienced researchers spend a lot of time writing research proposals, the vast majority of which are rejected.

8. Autonomy

Who holds the power? The core issue is not only how much money should go to higher education and research, but also who decides how it is distributed. At present, that responsibility lies, in principle, with the institution’s executive board.