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What is education finance?

Updated: 9/21/2023
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Educational finance is the financing of educational institutions and, depending on their ownership, they can be either privately or publicly financed. Privately owned institutions receive funding from tuition fees, sponsors' contributions, private donations and grants, while governments directly allocate funds to public institutions. Financing provided by the governments is especially common in developing countries therefore it is subject to the economic situation of the country and its fiscal resources. Investment in education, in turn, boosts economic growth and employment and affects the future prosperity of the nation as a whole. By investing in human capital each country aims at increasing individual productivity and thus raise students' future earnings which will result in higher tax payments.

Educational institutions are mainly funded by students and their parents, employers from the private sector, government tax revenue or they rely mostly on private donors. Funding can be direct, that is through recurrent grants, capital grants and taxes or through student tuition fees and other charges which are the main source of revenue for institutions. A small number of institutions are funded through loans. A school or university can choose between one or more of those funding sources.

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