Human capital theory and the financing of higher education in Oman

The current and future level of demand for higher education in Oman far outweighs the ability of the economy to satisfy it under current financing arrangements. Oman's economy is based on oil and thus there is no guarantee that it will be able to sustain the current level of resourcing for higher education in the future. About half of the population is under the age of 15 and therefore future demand is likely to grow rapidly and the option of buying higher education abroad becomes less attractive in these circumstances. The economy needs an educated workforce in order to grow and to maintain its position in the modem world, not least if it is to cease to rely on expatriate professionals and to expand education in general. Reliance on foreign governments for higher education leaves Oman vulnerable to foreign education policies and to the vagaries of the foreign exchange markets. The Omani Government has responded to these problems by founding the first university in Oman and by encouraging private higher education. However, thought also needs to be given to the nature of funding arrangements. The main aim of this research is to review alternative funding mechanisms for the future development of higher education by evaluating and analyzing social and private rates of return to investment. The study is based on the human capital concept which views education as a form of economic investment. The main motive assumed for public and private investments is the expectation of higher returns (benefits). Cost-benefit and rates of return analysis are used in order to achieve an efficient utilization of resources. To achieve maximum benefits it is also necessary for the system to be equitable, i.e. to maximize access to higher education irrespective of income and social class. The results indicate that the public cost of higher education in Oman is much higher than the cost to the individual. This is explained by the fact that most of the direct cost in public higher education (the Sultan Qaboos University) is fully subsidized by the Government, and that individual students do not incur any direct cost. Consequently, the estimates of public rates of return to investment are low in comparison to the private rates. Accordingly, the allocation of additional public resources for higher education is not justified economically, and a form of private (contribution) towards the cost of education is required to reduce public cost and improve social rates of return. A practical mechanism to enable individual students to contribute towards the cost of their education without affecting their access to higher education has to be established. After analyzing and evaluating several policy instruments, it was found that the most appropriate mechanism of funding would be to recover the cost of education by deducting from the individual's income after graduation and during the first twenty years of employment. This might be seen as a first step towards a graduate income tax method of funding. It is emphasized that the funding of higher education is a complex business which is not susceptible to solution by using a single policy instrument. The present analysis should be seen as a first step towards achieving a different approach to the funding of higher education in Oman.