Higher Education Finance

Higher Education Finance

Germany currently invests around 1.1% of its Gross Domestic Product in tertiary education. The majority of the funds stem from public sources. In 2010, the total volume of public funds for universities amounted to 23.3 billion euro. Of this, 19.9 billion euro (85.4 per cent) was provided by the federal states, which are responsible for the universities. The German Federal Government provided 3.4 billion euro (14.6 per cent). Recently, the role of education, science and research in economic and social development has received increasing recognition from politicians and the general public. The overall spend in these areas has grown, although the increase in funds has not been nearly enough to keep up with the heavily growing demand for higher education. The number of new students has doubled since 1995. With this in mind, basic financing for universities can only be described as unsatisfactory overall. 

Higher education funding in the federal system

The contribution towards higher education funding made by the Federal Government has increased over the last decade: previously the proportion was around 10 per cent, whereas now it is almost 15 per cent. Although the Federalism Reform of 2006 gave greater autonomy to the federal states on issues related to education and universities, they increasingly lack the financial power to provide adequate funding for the ever-expanding field of higher education. They provide tax revenue, but have no income of their own to add to their total budget to meet any increased costs resulting from added demands on their resources. States are responsible for a broad range of socio-political tasks as decreed by the Federal Government, which leaves only a small margin for financing their own educational institutions. The difficult financial situation of the federal states will be compounded over the next few years by the statutory regulations that have been put in place in order to significantly reduce the national debt (the ‘debt brake’).

The opportunities for the Federal Government to make a financial commitment to education are also limited under constitutional law. The German Basic Law (‘Grundgesetz’) allows for cooperation between the Federal Republic and the federal states in cases of supraregional importance on the basis of joint agreements. Both the federal and federal state governments are called upon in future to invest more in education in order to ensure future prosperity. An amendment to the Basic Law has made it possible for the federal government to intervene in financing of higher education institutions and to assist the federal states in the financing of teaching. The higher education institutions had called for a long time for improving possibilities for cooperation between the federal government and the federal states with reference to the basic financing of their operations, in particular including teaching. The future will show if and to what extent the new article of the Basic law will work.

Pursuant to Article 91b, Paragraph 1 of the Basic Law, in cases of supra-regional importance, the federation and the Länder may now cooperate in the promotion of:

• Scientific research institutions and projects outside of institutions of higher education

• Scientific and research projects at institutions of higher education (agreements require the consent of all Länder)

• Research buildings at institutions of higher education, including major equipment.

Higher Education Pact

The Higher Education Pact 2020 is an example of a special programme jointly run by the Federal Government and the states. It is designed to absorb the additional demand for university places that has arisen due to the reduction in time spent at school and the abolition of compulsory military service. Under the Higher Education Pact 1, which ran from 2007 to the end of 2010, university places for an additional 91,000 first-year students were to be provided on the basis of co-financing between the Federal Government and the states, whereby each party provided 50 per cent of the funds. In reality, the demand for university places was much higher, with double the number of new students arriving at university than expected. The Federal Government and the states also agreed to finance this surplus in arrears. The second stage of the Higher Education Pact (Higher Education Pact II), effective until the end of 2015, is therefore designed to create places for up to 334,000 additional new students. A sum of 26,000 euro will be provided for each student for the duration of their degree programme.

A new forecast of the numbers of current and new students suggests that over the next few years, the number of those interested in studying will be even higher than expected so far and that, despite demographic data suggesting the contrary, the demand will remain high in the long term. This means that the Higher Education Pact II will need to be modified and its volume almost doubled. The Higher Education Pact III, which will be effective from 2016 - 2020, will likewise have to take into account a considerable increase in demand. 

Minor role of private finance

Private funds play a minor role in the funding of higher education. According to OECD statistics, around 30 per cent of the funds spent worldwide on higher education stem from private sources; however, in Germany this is only around 16 per cent. This is linked to the fact that tuition fees play a very minor role in Germany. Fees were introduced in around half of the federal states a few years ago (set at approximately 1,000 euro per academic year) providing universities with an additional revenue of by 0.8 billion euro, and yet they could not be sustained. Today, only two states, Bavaria and Lower Saxony, continue to levy tuition fees for their universities.

"Recommendations on Funding" from 22.11.2011 (in German)