[Viewpoint] Let's Change the Paradigm of University Finance

The results of this year's (2021 academic year) university entrance exams were shocking. Approximately 26,000 students were admitted through additional recruitment after failing to fill the quota, marking the largest number in 16 years since the 2005 academic year. Many universities failed to recruit enough students, leading to the resignation of several university presidents.

In particular, additional recruitment at non-metropolitan universities accounted for over 90% of the total. The saying "universities go bankrupt in the order that cherry blossoms bloom" is becoming a reality. Not only private universities but also regional national universities struggled to fill their quotas and conducted additional recruitment. The main reason is the decline in the school-age population.

The issue of student recruitment is directly linked to university finances. Most of the financial income of Korean universities depends on tuition fees paid by students. A shortage of students directly affects the financial income of universities.

According to the "2020 Private University Financial Statistics Yearbook" published by the Korea Private School Promotion Foundation, the financial scale of private universities in the 2019 fiscal year settlement was 48.8366 trillion won, an increase of 1.3041 trillion won (2.7%) compared to the previous year. Tuition income was 10.0426 trillion won (53.7%), showing the highest dependency rate, followed by government subsidies at 2.9026 trillion won (15.5%) and transfers at 1.0405 trillion won (7.5%). The dependency on national financial support slightly increased from 15.4% the previous year, and although tuition income slightly decreased from 54%, it still accounts for more than half.

In the case of American universities, state universities’ finances consist of 18.9% tuition fees, 42.1% government support, and 11.8% hospital income. Four-year private universities rely on 33.3% tuition fees, 14.9% government support, 10.7% donations, and 16.9% investment income. The proportion of tuition fees in American private universities’ finances is about 33%, significantly lower than Korea’s 53.7%. Yet, American universities’ competitiveness is not inferior to any universities worldwide. What is the reason?

Many American private universities earn substantial income through technology transfer and startups resulting from research outcomes. This is understandable given that investment income accounts for 16.9%. However, in Korea, such income is only about 1%. According to the "2020 Technology Transfer and Commercialization Survey Report" recently published by the Korea Intellectual Property Research Institute, the total R&D expenditure of public research institutes and universities in 2019 was 13.1 trillion won, while income from technology transfer was 141.8 billion won. The productivity (efficiency) of technology transfer was 1.7%, a slight increase from 1.3% in 2011, but still remains in the 1% range. Furthermore, quality faculty startups were minimal in 2019, with Seoul National University having 13, Sungkyunkwan University 10, and Hanyang University 7, which is negligible compared to the total number of faculty members.

To increase technology transfer and faculty startups and support university finances, university members must prioritize research and development aimed at commercialization or startups rather than research for research’s sake. The lack of completeness and commercial viability of developed technologies is also due to research being conducted solely for research purposes. Incentives are necessary to expand faculty and graduate student startups. Korea has few startups by graduate and undergraduate students because they are busy earning credits. In the U.S., graduate students start businesses with full support from their advisors. Through the graduate student startup support program I-Corps, graduate students cultivate entrepreneurship and receive support for pivoting their business models.

It is time to seek structural reforms in universities due to the decline in the school-age population and explore ways for universities to independently secure their finances. / Kim Kyunghwan, Dean of the Graduate School of Global Entrepreneurship, Sungkyunkwan University