Free tuition law threatens private colleges, national innovation

By Francis Allan L. Angelo

A landmark law designed to make college education accessible to all Filipinos is now threatening the financial stability of the very institutions that form the backbone of the country’s academic landscape.

The Universal Access to Quality Tertiary Education Act, or Republic Act 10931, has had the unintended consequence of pushing private higher education institutions (HEIs) toward a financial cliff, according to new research from the Philippine Institute for Development Studies (PIDS).

This free tuition law, while lauded for increasing enrollment in public universities, has created a critical imbalance that experts warn could undermine the nation’s long-term economic and innovation goals.

The findings were detailed in two comprehensive PIDS studies and discussed by experts during a public webinar, painting a stark picture of a sector in distress.

ENROLLMENT SHIFT

The core of the problem lies in a dramatic shift in student enrollment patterns since the law’s implementation in 2017.

PIDS Senior Research Fellow Dr. Connie Bayudan-Dacuycuy presented data showing a stark divergence in growth between public and private institutions.

“From 2009 to 2019, enrollment in public HEIs grew by 4% annually, while private HEIs saw a meager 0.8% increase,” Bayudan-Dacuycuy stated.

This trend has steadily eroded the dominance of the private sector in higher education.

“The share of private HEIs declined from 79% in 2009 to 72% in 2019,” she noted.

The free tuition offering at state universities and colleges (SUCs) has effectively redirected a significant flow of students away from private schools, which rely almost entirely on tuition fees for their operational survival.

This has triggered a crisis for many private institutions, especially the smaller ones.

University of Makati President Elyxzur Ramos highlighted the severity of the situation.

“Close to 200 private HEIs have already closed down, and about 53% of institutions in the country enroll fewer than 1,000 students,” Ramos revealed.

He then posed a critical question reflecting the sector’s precarity.

“How can these schools survive financially if they rely solely on tuition fees?”

The financial pressure is immense, as operating costs, particularly salaries and wages which constitute 40% to 93% of total expenditures, continue to rise with inflation.

This leaves private HEIs in a difficult position, unable to compete with free public education without compromising their own quality or financial health.

PRECARIOUS POSITION

The financial strain is not limited to private institutions, as local universities and colleges (LUCs) face their own unique set of vulnerabilities.

These institutions, funded by their host local government units (LGUs), are subject to the volatile nature of local politics.

“Every three years, local elections bring new leadership,” Ramos explained.

“If a new mayor is not aligned with the previous administration, support for LUCs may vanish,” he warned.

This lack of stability is compounded by a lack of autonomy.

Many LUCs do not have financial management systems separate from their LGUs, which prevents them from receiving grants or building endowment funds to secure their future.

Ironically, the free tuition law has, in some cases, prompted LGUs to withdraw their support.

Some local governments have reclassified their LUCs as “local economic enterprises,” expecting them to generate their own revenue despite having severely limited resources.

This places LUCs in a precarious position, dependent on political goodwill and lacking the institutional mechanisms to achieve long-term financial sustainability.

BARRIERS TO INNOVATION ECONOMY

Beyond the immediate financial crisis, the research reveals deeper, structural problems that hinder HEIs from fulfilling their role as engines of national innovation.

The Philippines has ambitions to become an innovation-driven economy, yet the very institutions tasked with generating knowledge face significant institutional hurdles.

PIDS Senior Research Fellow Dr. Francis Mark Quimba, who led a study on agribusiness innovation, pointed out these systemic roadblocks.

While HEIs are positioned as “knowledge-sharers, conveners, innovators, and trainers,” institutional barriers prevent them from delivering on this potential, Quimba said.

He identified two of the most significant impediments.

“Rigid procurement laws hinder HEIs from engaging with industry partners, and civil service rules discourage faculty from external collaboration,” Quimba stated.

The country’s procurement laws, for instance, often involve long, bureaucratic processes that are misaligned with the fast-paced needs of the private sector, making industry-academe partnerships difficult to initiate and sustain.

Similarly, civil service regulations can limit the ability of faculty at state universities to earn additional income from collaborative projects, disincentivizing them from engaging with industry.

These barriers mean that valuable research often remains within the university, failing to translate into commercial products, new technologies, or improved industrial processes.

STUDENT-CENTERED SOLUTION

To address the growing crisis, the PIDS researchers proposed a fundamental shift in how the government subsidizes higher education.

The experts advocate moving away from the current model of institution-based subsidies toward a student-centered approach.

Bayudan-Dacuycuy suggested replacing the blanket free tuition policy with a more targeted and equitable system.

“The government could implement a voucher system, allowing qualified students to choose their schools and programs,” she proposed.

Such a system would provide financial aid directly to students based on need, empowering them to enroll in either a public or private institution that best fits their career goals.

This would level the playing field and foster healthy competition, pushing all HEIs to improve their quality to attract students.

“It would enhance complementarity between public and private HEIs and address perceptions of policy bias favoring public institutions,” Bayudan-Dacuycuy added.

This model, she argued, would ensure that public funds are used more efficiently while preserving the diversity and strength of the entire higher education sector.

GOVERNANCE, POLICY REFORM

Alongside subsidy reform, experts are calling for critical legislative action to protect vulnerable institutions and create a more coherent national strategy for higher education.

For the politically sensitive LUCs, a long-term solution is needed to insulate them from political turnover.

Ramos championed this cause, calling for the passage of a specific law to grant them stability.

He urged lawmakers to pass “an LUC Governance Act to provide fiscal autonomy and ensure continuity of support.”

Such a law would give LUCs the legal and financial independence needed to engage in long-term planning and resource generation, free from the discretion of local chief executives.

At the national level, there is a need for a more unified vision for the sector.

Yuko Lisette Domingo, Chief Economic Development Specialist at the Department of Economy, Planning, and Development (DEPDev), endorsed the PIDS recommendations, emphasizing their alignment with the nation’s development agenda.

“Many of the recommendations align with strategies in the Philippine Development Plan,” Domingo said.

However, she stressed that more was needed to translate plans into reality.

“Yet, we need a comprehensive roadmap for the higher education sector and a culture of foresight among leaders in government and HEIs,” Domingo asserted.

This includes strategies like strengthening regional university systems to distribute academic excellence more evenly and promoting transnational education to attract international students, partnerships, and funding.

 

AGRIBUSINESS INNOVATION

The PIDS research also zoomed in on a specific sector where HEIs could play a transformative role: agribusiness in Central Visayas.

The region is an economic powerhouse, and agribusiness is identified as a key industry for future growth, food security, and poverty reduction.

However, the region’s agribusiness innovation ecosystem (AIE) is still in its early stages, described by stakeholders as “nascent to mid-level, but growing.”

Quimba’s study found that HEIs in Central Visayas primarily act as knowledge sharers, conveners, innovators, and trainers.

They conduct research, connect stakeholders through networks and fabrication laboratories (FabLabs), develop new agricultural technologies, and train the next generation of agri-entrepreneurs.

For example, HEIs provide crucial R&D for local industries, such as creating materials libraries for the region’s prominent furniture sector or transferring new farming technologies to rural communities.

Despite these contributions, their role in directly funding innovation remains limited, and collaboration with the private sector is often described as “moderate.”

This gap is caused by misaligned research priorities, a lack of industry awareness about university capabilities, and the same structural barriers hindering innovation at the national level.

Neil Andrew Menjares, Chief Economic Development Specialist for DEPDev in Region 7, acknowledged the challenge of bridging this gap.

“Moving research from development to utilization remains a hurdle, not just in agriculture but across sectors,” Menjares said.

PLANNING A SUSTAINABLE FUTURE

To build a resilient and innovative higher education sector, the PIDS reports outline a clear and comprehensive set of actionable recommendations for both the government and the HEIs themselves.

For Government and Policymakers:

1. Shift to Student-Centric Subsidies: Replace the free tuition law with a national voucher system or socialized tuition fees to empower students, promote fair competition, and ensure efficient use of public funds.
2. Enact an LUC Governance Act: Pass a law to grant fiscal autonomy and operational stability to Local Universities and Colleges, protecting them from political disruptions and enabling long-term development.
3. Streamline Restrictive Laws: Review and reform rigid procurement and civil service rules that prevent HEIs from engaging in agile collaborations with industry and undertaking entrepreneurial ventures.
4. Incentivize Private Donations: Harmonize tax regulations to provide full tax deductibility for donations to both public and private HEIs, encouraging more private sector support for education.
5. Support Digital Transformation: Provide financial and technical assistance to help HEIs, particularly those in underserved areas, digitize their operations, from enrollment and tuition collection to the delivery of flexible online learning.
6. Establish Collaboration Platforms: Create regional and national platforms and networks to connect HEIs, government agencies, and industry players, facilitating knowledge sharing and joint projects, especially in priority sectors like agribusiness.

For Higher Education Institutions:

1. Cultivate Foresight: Adopt a culture of long-term strategic planning to anticipate and adapt to changes in student demand, labor market needs, and technological advancements.
2. Go Global: Actively participate in transnational education initiatives to enhance program quality, build international partnerships, and attract foreign students and funding.
3. Create Educational Pathways: Establish pathway systems between different types of HEIs, such as allowing certificate programs at LUCs to be credited towards a full degree at an SUC, making education more accessible and affordable.
4. Develop Clear Intellectual Property Policies: Formulate robust IP policies that protect innovations generated by faculty and students, clarify ownership, and provide clear incentives for commercialization.
5. Redefine Faculty Success: Modify faculty promotion criteria to recognize and reward practical, industry-focused work—such as technology transfer, community extension, and collaborative research—alongside traditional academic publications.
6. Build Innovation Hubs: Establish on-campus innovation hubs and business incubators to provide mentorship, facilities, and a collaborative environment for aspiring entrepreneurs among students and faculty.
7. Improve Communication: Proactively market research capabilities, innovations, and available technologies to the private sector and the public through unified databases, research fairs, and stronger industry liaison offices.

Without implementing these strategic and structural reforms, experts warn that the Philippines risks weakening the very system it relies on to educate its youth and power its long-term ambition of becoming a prosperous, knowledge-based economy by 2040.

The financial sustainability of higher education is not merely an administrative issue, Bayudan-Dacuycuy concluded.

“Financial sustainability is critical for the survival of HEIs, yet it is rarely addressed in national documents.”