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International Aspects of Education Commerce

Private Higher Education, Private Schools, For-Profit and Nonprofit Institutions, Public-Private Partnerships

The use of government financial resources to support public basic-education provision is well established and widely accepted across the globe. However, since 1990 there has been a noticeable shift in the traditional ways that provision of higher education and, to a lesser extent, secondary education is regulated. In different contexts there are new financing strategies being implemented in the public sector, with a view toward generating additional revenues from public assets, mobilizing additional resources from students and their families, encouraging donations from third-party contributions, and involving the private sector in the provision of essential services to educational institutions. Future demand for private provision of education services, especially at the higher levels of education, is predicted to grow even more in the first decade of the twenty-first century.

All governments are concerned about investment in human capital, and, despite significant improvements in education coverage in developing countries, there is still a large unmet demand for both access and quality education at all levels.

The private sector's role as a potential partner with the public sector in both the provision and financing of education is widely recognized in the early twenty-first century. There is substantial evidence to show that the private sector can: (1) ease the pressure on governments' financial constraints; (2) encourage and demonstrate efficiency, effectiveness and innovation; (3) promote social mobility and contribute to the growth of an emerging middle class; (4) expand educational diversity; and (5) increase access and quality across all education levels and societal groups.

Private Higher Education

In higher and continuing education, private-sector provision has become a practical way for economies to scale up their investment in human capital, especially in developing countries. More than 2.3 billion people, or 53 percent of the total population of the developing world, live in the poorest countries–those that have annual per capita incomes of less than $885. These countries have a small proportion (12 million students) of the global tertiary education market (90 million). Innovative action has been necessary in these lower-income countries to provide an acceptable standard of tertiary education in order to provide the education needed to generate economic growth. In these settings, low-income countries are providing positive legal frameworks where private, specialized two-or three-year tertiary education institutions (such as technical institutes or community colleges) can provide training for technicians and applied specialists.

Studies done between 1998 and 2000 show that the size of the private higher-education sector varied significantly across developing countries. Levels of private-sector ownership included:

  • 100 percent of professional training market in Cote d'Ivoire
  • 44 percent of skills training market in The Gambia
  • 75 percent of tertiary colleges in India
  • 1,274 private institutions, with 4 million students, in China
  • 37 tertiary institutions in Ghana
  • 60 percent of tertiary institutions in Brazil

A common characteristic of private higher-education provision is that tuition fees are the main source of revenue. Private institutions also serve both the rich and poor, which often includes second chance students who cannot gain admission to public universities. These institutions also exist in different forms, including franchises, school groups, sole proprietorships, for-profit companies, nonprofit institutions, and religious organizations. Some higher-education institutions may also offer a limited range of professional and practically oriented courses (e.g., accounting, management, English information technology), often using part-time staff (including trained professionals, practitioners, or professors from public institutions).

Student loan schemes are also emerging in places where positive regulatory conditions are in place for banks to provide for an individual student's access to credit. This is particularly the case at postsecondary levels, where private financial institutions can use students' increased expected earnings from their education as future collateral to provide individual credit.

Private Schools

Evidence shows that, in many cases, private schools can introduce and encourage better effectiveness in terms of education outcomes. A 2000 study by Arjun Bedi and Ashish Garg on the effectiveness of private versus public schooling in Indonesia showed a positive correlation between increased labor market earnings (as a proxy for more effective education) and private school attendance. Results from the Dominican Republic, the Philippines, Tanzania, and Thailand show evidence of better education results, at lower costs, for private schools–through better management practices, more efficient use of inputs, and the introduction of innovative cost-saving techniques. Likewise, two studies in India concluded that private initiatives provide better education at lower costs. The Fé y Alegria School network in Latin America is also known to provide more effective schooling than its public-sector counterparts; its per student costs are only 60 percent of those in the public sector; yet many of the schools achieve similar or better learning outcomes.

For-Profit and Nonprofit Institutions

Many countries regulate that private schools only be operated on a not-for-profit basis, while others are more liberal and allow for both nonprofit and for-profit institutions to operate and compete freely in the same markets. There has been an emergence of more for-profit institutions across the globe. Typically, but not always, they will serve urban-based middle-to upper-class families, and the tuition fees they charge can vary considerably. These schools are normally registered by public authorities, are subject to socially based regulatory requirements, and in some cases they receive public subsidies. Such is the case in many eastern European countries and South Africa, where subsidies are paid on a sliding scale based on the levels of tuition fees charged to students.

The main difference between the two categories of private schools is that nonprofit entities are not traditionally obliged to pay any taxes on surpluses they may generate, whereas for-profit entities are required to pay taxes on the profits they earn.

In countries where all private schools are required by regulation to be nonprofit entities, it is typical for investors to establish for-profit entities that can parent, or own, a school's physical assets and deliver essential services, usually on preferred commercial terms. While the education institution preserves its status by complying with the not-for-profit regulations, the parent entity can operate on a for-profit basis, selectively deriving income from the school's operations on favorable terms. Using these for-profit vehicles, proprietors are generally able to find more flexible mechanisms to minimize the tax impact on their earnings, and at the same time provide satisfactory social and financial returns to investors.

Public-Private Partnerships

Partnerships between the public sector and the private sector have provided a basis for positive collaboration between governments and private-sector interests. In some developed countries where effective decentralization has taken place (e.g., Chile, New Zealand), greater autonomy at the institution level has had a positive impact on institution efficiency and accountability. Depending on the degree of outsourcing in each case, traditional services such as teacher payroll, school transport, financial services, and professional development have been successfully outsourced to the private sector. In cases where sensitivity to privatization exists, governments are actively seeking ways to outsource the design, building, and management of selected facilities, while retaining the ownership and control of all academic operations.

Supply of Textbooks and Ancillary Services

Traditional private-sector supply of textbooks, curriculum, and other learning materials to both public and private schools has been in place for many years. Food service, catering, cleaning, and building and general maintenance services are also typically provided by the private sector.

Public Schools Managed by Private Companies

Private-sector management of publicly owned schools (e.g., in Chile and the United States) under contract to the state has begun to earn public acceptance. Although it is still too early to know whether delivery of curriculum and learning outcomes improve in these situations, professional staff and many of their school communities are known to be supportive of these initiatives, with communities having greater inputs into school operations and development. In 2001, the Edison Schools network in the United States consisted of 136 schools in 53 cities, covering 22 states and serving approximately 75,000 students. This meant that Edison Schools were servicing approximately one out of every 700 K–12 students.

Private Tutoring Services

Across the globe, private tutoring services have developed into a burgeoning industry. They thrive on supplementing the curriculum delivered in public institutions, are often highly skills-based in nature, and are sometimes staffed by teachers or subject specialists as a second job. In Asia alone there is more than U.S. $20 billion spent annually on English lessons.

Quality Reviews Accreditation and Inspections

Independent accreditation services for colleges and universities are the norm in the United States. There is also a growing interest in many countries for quality reviews of schools and tertiary institutions to be carried out by the private sector. Many U.S. agencies, for example, are providing accreditation and quality-assurance services internationally. In Oman, a private British group undertakes operational and quality reviews of public schools.

Education on Internet Portals

The private sector also plays an important role in education, improving access to new technologies through the development of resources and services that the public sector would find difficult to sustain. Private-sector interests will continue to dominate the development of information and communications technology (ICT) resources for the education sector throughout the world. Core curriculum materials and programs developed for use with ICT have, in a few cases, remained the preserve of public education. It is in the future interest of ICT development in education in both developed and developing countries that public-and private-sector education interests work in close partnership with private-sector ICT companies for the benefit of future education development. The private sector has the capability of making the significant investments required to keep pace with the continuous technological changes that are happening in the ICT sectors across the globe.

Education sites on the Internet can take on different forms of ownership. Private-sector sites and resources are common in the United States, India, Canada and elsewhere. In New Zealand, the development and management of the public education Internet portal was outsourced to the private sector. But in each case, consultation with the public sector regarding the linking of resources to the local curriculum was important.

Relevant use of the Internet will help democratize education, giving all students, even those in poor communities, access to global libraries and teachers around the world. A majority of the ICT resources developed to support electronic learning, or to add value to the delivery of curriculum into the classroom, have been developed by the private sector. Education authorities in both developed and developing countries do not have the capability of making the significant investments required to keep pace with the continuous technological changes that are happening in the ICT sectors.


BEDI, ARJUN S., and GARG, ASHISH. 2000. "The Effectiveness of Private Versus Public Schools: The Case of Indonesia." Journal of Development Economics 61 (2):463–494.

FULLER, BRUCE, and ELMORE, RICHARD F., eds. 1996. Who Chooses? Who Loses? Culture, Institutions, and the Unequal Effects of School Choice. New York: Teachers College Press.

HEYNEMAN, STEPHEN P. 2000. "Educational Qualifications: The Economic and Trade Issues." Assessment in Education: Principles, Policy, and Practice 7 (3):417–439 (special issue on "Globalization, Qualifications, and Livelihoods," ed. Angela Little).

HEYNEMAN, STEPHEN P. 2001. "The Growing International Market for Education Goods and Services." International Journal of Education Development 21:345–361.

INTERNATIONAL FINANCE CORPORATION. 2001. Investing in Private Education: IFC's Strategic Directions. Washington, DC: International Finance Corporation.

KINGDON, GEETA G. 1994. "An Economic Evaluation of Schools Management Types in Urban India: A Case Study of Uttar Pradesh." Ph.D diss., University of Oxford.

LOCKHEED, MARLAINE, and JIMENEZ, EMMANUEL. 1996. "Public and Private Schools Overseas: Contrasts in Organizations and Effectiveness." In Who Chooses? Who Loses? Culture, Institutions, and the Unequal Effects of School Choice, ed. Bruce Fuller and Richard F. Elmore. New York: Teachers College Press.

WORLD BANK. 2002. Tertiary Education: New Challenges. Washington, DC: Education Group, World Bank Human Development Network.


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