Report: If higher education funding is frozen, the introduction of tuition fees seems unavoidable

Uku Varblane, head of research at the Foresight Centre, explained that a weaker than expected economy and increased defence spending have reduced the growth rate of higher education funding that was agreed by the state and higher education institutions. “Private money has a relatively small share in Estonian higher education expenditure, and the funding of higher education institutions depends primarily on state operating support. However, this year, the increase in support was smaller than previously agreed,” said Varblane.

In 2022, the government decided to increase operating support for higher education institutions by 15% per year for the years 2024–2026, but this year, the growth rate was reduced to 13% and some of the targeted support for universities was also stopped. According to current plans, operating support for higher education institutions will no longer increase in 2027–2030.

To mitigate the impact of freezing the state funding, the possibility of introducing a tuition fee has been discussed. According to the Foresight Centre’s calculations, establishing a tuition fee of 1300 euros, which would cover about one-fifth of the average cost of a study place, would provide up to 40 million euros of additional revenue to higher education institutions per year.

“At the same time, it is important that the introduction of tuition fees does not reduce access to higher education,” said Varblane. “Offering a student loan on favourable terms and linking loan repayment to the graduate’s later income could be one option for covering tuition fees.”

As part of the research stream “The Future of Higher Education”, the Foresight Centre created a higher education financing calculator and used it to analyse the implications of different scenarios for the revenues and state costs of higher education institutions.

In the “Economy Mode” scenario, starting from 2027, higher education funding would be frozen and there would be no additional funding from tuition fees. In this scenario, the purchasing power of higher education institutions would gradually decrease due to inflation. “Up to 65% of higher education institutions’ operating expenses are made up of personnel costs, and in this scenario, paying lecturers a competitive salary would be very difficult, which would directly affect the provision of future generations of lecturers for higher education institutions,” said Varblane.

In the “Student Pays One-Fifth” scenario, the revenue of higher education institutions would increase from 284 million euros in 2026 to 324 million euros in 2030, and tuition fees would cover 20% of the cost of a study place. The money received as tuition fees would partially compensate for the freezing of operating support.

In the “Sustainable Free Higher Education” scenario, state operating support would grow by 7% per year, resulting in 368 million euros of funding for higher education institutions by 2030. In this scenario, no additional tuition fees would be established.

Higher education institutions would have the greatest revenues by 2030 in the “High Tuition Fees” scenario, in which universities would establish a tuition fee of 5000 euros per year, and 20% of students would be exempt from it. However, this scenario would not be the most beneficial for the state, as the state would have a potential future obligation to repay the principal of student loans for borrowers whose income does not exceed the set threshold. For example, in this scenario, higher education institutions would generate 144 million euros in additional revenue from tuition fees in 2030, but the state would potentially incur 53 million euros in extra costs to cover student loans and interest.

The short report “The Future of Higher Education Funding: Implications of Different Scenarios for the Revenues and State Expenditure of Higher Education Institutions” (in Estonian) is based on simulations conducted with the higher education financing calculator developed as part of the Foresight Centre’s research stream “The Future of Higher Education”.