What is Education Finance?

Education finance is a term used to describe the financial and in-kind resources available for education. The concept of education finance also addresses questions about how resources are allocated, used, and accounted for to achieve sustainable, quality education for all children and youth. 

In most countries where USAID works, funding for education comes from multiple sources, such as public funds from governments, private contributions from households, donor funding, and a blend of all these. The amount of funding from each source depends on the country context. For example, according to Our World in Data, in 2010, education accounted for about 8 percent of government spending in the Central African Republic, while it accounted for about 21 percent in Ghana. After governments, households are often the largest source of education financing. In Nepal, households contribute about 49 percent of total funding for education, while in Uganda, households contribute about 57 percent.  

A Deeper Dive into Education Finance
Most of the time, we think of public funding as money that national governments set aside for education. Yet, public funding may also be international, from donors and multilateral institutions. In most cases, public financing for education comes overwhelmingly from partner country governments. This money is collected through taxes. In theory, as countries develop, their ability to collect taxes also improves and there should be more money available to education. Unfortunately, this isn’t always the case due to competing spending priorities.

Private financing can also be domestic and international. While the private sector is frequently thought of as companies, foundations, and investors, private resources for education come overwhelmingly from individual households. Money sent from relatives working abroad, or remittances, contribute significantly. 

Blended finance refers to the strategic use of capital from public and philanthropic sources to mobilize private sector investment. Blended finance is critical to ensuring inclusive and quality education for all and promoting lifelong learning as outlined in the 2030 Agenda. 

Operationalizing Education Finance
As laid out in the U.S. Government Strategy for International Education, USAID’s goal is to achieve a world where education systems in partner countries enable all individuals to acquire the skills necessary to be productive members of society. When systems are strong, education programs are more strategic and have a lasting impact.

Financial sustainability and proper budgeting are key to strengthening education systems and creating sustainable, scalable programs. USAID can strengthen financial sustainability in different ways. One approach is to design projects or activities that are financed-focused or have finance-specific outputs. 

One example is the Liberia Domestic Resource Mobilization project where USAID piloted a 1 percent “tax” on funds earmarked for education projects and used this “tax” to provide technical help and support to the Liberian government’s efforts to increase domestic public resources. In this case, the finance-specific output is having the funding to boost domestic resources for education.

The other approach is to integrate finance into the larger goals and objectives of an education project or an activity to ensure sustainability after the activity ends. One example is the Tusome (Let’s Read in Kiswahili) program in Kenya, which is a partnership between USAID and the Government of Kenya (GoK) Ministry of Education (MoE). The program, which started seven years ago and is now in its final year, aims to improve literacy outcomes for more than 7.4 million students in grades 1 to 3 across Kenya and foster a reading culture in this school group. 

To ensure sustainability, Tusome’s funding, oversight, and implementation are transitioning to the GoK and local entities in this final year. Throughout the years, the Tusome team has developed a wide range of partnerships with institutions across Kenya who are playing a role in the implementation and are facilitating the transition to the post-USAID phase. More than 24 million English and Kiswahili textbooks, workbooks, and supplemental reading materials have been developed and distributed to pupils in grades 1 to 3. The GoK has already taken over this responsibility and is reaching all public primary schools and some low-cost private institutions.

Promoting Financial Sustainability
USAID is interested in education finance because it seeks to promote the sustainability of local education systems, both public and private. The two approaches described above can be blended or pursued individually. Regardless of the approach, USAID’s ultimate goal is to ensure that partner countries have enough resources and capacity to invest in their education systems so that all children and youth have access to quality education. 

An educated population will contribute to the economic progress of its nation and achieve a higher standard of living. Over the long term, this will enable countries to finance their own development and move from being the recipient of aid, to partners and to donors. 

Contact Education Finance expert Suezan Lee to learn more.