Weeding out insolvent schools

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Weeding out insolvent schools

The structural weakness of private universities comes from their poor financial base. They inevitably have to rely on student tuition fees due to insufficient - even zero - funding from university foundations. Under a law on private universities, school foundations are required to spend 80 percent of their profit on university operations.

But last year’s financial report on earnings and reinvestments of 153 private universities showed that they rarely obeyed the law. Some 20 university foundations have not handed even one won to their universities.

At the moment, four out of every 10 private universities have trouble filling their classrooms. Without students - their primary financial source - these universities would have to seek ways to economize at the expense of education quality. Beset by financial woes, schools cannot afford to invest in teaching staff. Both poor quality and low competitiveness eventually lead to more difficulties in recruiting students.

School foundations and universities must work together to find ways to end such a vicious cycle. The foundations should withdraw their investments in real estate assets and instead put them in cashable assets to raise returns of their wealth and fund their universities. By doing so, they could escape the suspicion that they only care about real estate speculation. They should also increase donations to their schools.

Meanwhile, the government must change how it funds public universities. Indiscreet appropriation only helps low-quality schools survive.

Of the 23 universities in financial trouble, 18 received a combined public funding of 19.4 billion won ($17.4 million) for three years from 2007. The government set aside about 5 trillion won to subsidize universities, which is among the lowest among countries in the Organization of Economic Cooperation and Development members. It cannot afford to spend more on substandard universities.

Moreover, financially stricken universities must be allowed to shut down.

The National Assembly should pass pending bills on speeding up restructuring of private schools. The laws allow school founders to redeem some of their assets placed in universities.

Regulations are also needed to force universities to close when that fail to fill half their quotas on new students for two consecutive years. Without weeding out insolvent schools, you can’t talk about competitiveness.
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