June 2014 Policy Brief 89223 Tertiary Education in Indonesia: Directions for Policy Policy should seek to create opportunities for high school graduates to invest in their skills through some form of Tertiary Education. Indonesia has made notable progress in raising attainment levels in primary and secondary school. More than 1 million additional students graduated high school in 2012 when compared with 1999, and graduation rates are expected to increase further. Major efforts are being made throughout the system to improve learning outcomes and ensure graduates have more knowledge and better skills. This progress at primary and secondary school creates more demand for tertiary education (TE). Most students (88 percent in a recent survey1) profess a desire to continue studying after high school. Indonesia’s TE system, however, is not well prepared to help create relevant, high-quality opportunities for this growing pool of high school graduates. Wages for those with TE are high and have remained so even as more and more workers enter the labor market with at least some TE. TE is a good investment in Indonesia, even when one attends a TE institution (TEI) of perceived low quality. Empirical analyses of labor markets do not support the anecdotes about large numbers of unemployed and underpaid workers with TE. This fact is a main general conclusion that should shape the direction of TE policy in Indonesia. However, the current existence of positive returns to TE to date is no guarantee of future positive returns. In fact, trends for increasing skill demands in labor markets will put pressure on TEIs and graduates to offer more and better skills to employers. The government should seek to formulate and implement policies that can raise skill levels and relevance before labor markets get saturated with workers with current skill levels and before returns decline. The paper’s general conclusion is that TE is a good investment — for individuals and for the economy as a whole. This is true even at the current levels of quality and relevance of TEIs. The paper suggests that five important Policy Directions should follow from this conclusion. Indonesia has actively debated and implemented TE reform since at least the mid-1990s. It has experimented with numerous new or adapted policies to increase the quality, responsiveness, and accountability of its universities. Greater institutional autonomy and increased use of competitive funding mechanisms for resource 1 Myriad. (2013). Improving Access and Equity to Indonesian Higher Education for Candidates from Economically Disadvantaged Backgrouds. 2 Policy Brief allocation have been the cornerstones of the reform efforts. A “New Paradigm” was promoted under which the strongest and most academically advanced institutions were granted increasing authority to manage their own affairs and in return were to be held accountable for producing superior results. As the flagship institutions progress, autonomy would be widened and conceded to additional institutions. Bold pilot initiatives were implemented and a great deal of experimentation took place. Lessons from pilots and experimentation paved the way for a new legal framework. Law 9/2009 created a new legal framework that provided the basis for a vast expansion of institutional autonomy. Regrettably for the advancement of the reforms, the constitutionality of this law was successfully challenged in court and it was repealed in 2010. However, new legislation from 2012 re-established most of the new legal framework. Resistance to Law 12/2012 has been less intense than it was to Law 2009 and calls for repeal have been fewer and less vociferous. The Ministry of Education and Culture is preparing the regulations under which the law will be implemented. The benefits of the new framework are largely still to come and depend on successful implementation of the law. Four leading universities whose autonomy was nullified by Law 2009’s repeal have had it restored. Other universities await this privilege, and the TE community as a whole expects that expanded powers and more liberal rules about the use of funds will make all TEIs more effective and efficient. This important debate has centered on improving the quality and efficiency of TEIs, especially universities. An important, realistic assumption is that increased freedom for TEIs will translate into higher quality and more relevant education for TE students and to more efficient use of resources by TEIs. Although there are legitimate implementation concerns related to inefficient funding mechanisms, complicated and opaque budgeting processes, insufficient quality assurance systems, civil service requirements for teachers, etc., increased autonomy can and should remain a key part of overall policy. But this debate leaves several important issues in TE policy unaddressed. It looks primarily at the experiences of those who are in the TE system; it does not focus on aspirants who seek to attend but cannot. In effect, the debate tends to center on the needs and actions of TEIs, not on the needs of students and aspiring students. This policy note seeks to change the perspective of the policy debate toward the needs of aspiring and actual TE students. It intends to use a new lens to view the adequacy of TE policy. It starts from the assumption that TE policy should seek to create relevant, affordable opportunities for all high school graduates. It endeavors to pay as much attention to the people being left out of TE unfairly as to the experiences of those who already attend TEIs. In addition, the paper seeks to use the best available data to support its conclusions. Data on TE in Indonesia is scarce and sometimes of poor quality. Nevertheless, policies can only be effective if they address the real issues and constraints of the sector (as revealed by data and accurate analysis). The general findings and the five policy directions are therefore underpinned by what the authors believe is the best available evidence. With respect to the value of TE as an investment, the evidence shows a doubling of the number of workers with TE in the labor forces between 2001 and 2010. Despite this vast increase in supply, wages for public- sector workers with TE have remained stable, and wages for private-sector workers with TE have increased. This inelasticity of demand for workers with TE strongly suggests that employers value their skills, even when those skills are gained at TEIs of mediocre or low quality. Various other indicators from labor force surveys, such as the labor force participation rate and the skills-demands of growing employment sectors, further support the value of TE. The fact that current TE graduates can earn well does not lessen the need for improvements to the quality and relevance of TE. The more skills and knowledge can be gained through TE, the more and the longer it will support high wages and good jobs for those who have it. Each of the main policy directions in this note is associated with a key finding and supporting evidence. Tertiary Education in Indonesia: 3 Directions for Policy Exhibit 1. High School Graduates and TE Enrollment, 1999-2012 6.000.000 5.500.000 5.000.000 4.500.000 4.000.000 3.500.000 3.000.000 2.500.000 2.000.000 1.500.000 1.000.000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 HS Graduates TE Enrollment Predicted Source: Statistik Pendidikan, MOEC, with authors’ calculations High school graduation rates have increased more than TE enrollment rates Finding One between 1999 and 2012 (see Exhibit 1). What looks like a large expansion is actually a smaller share of a larger group of high school graduates continuing Increased high school on to TE. More than eight out of ten high school students express a desire to graduation rates are continue to TE, but only about three in ten are able to enroll (Myriad, 2013). driving increased demand for TE. This trend Further increases in the annual cohorts for high school graduates are will continue for years to expected, and these will further raise the demand for TE. The fact that 12 come and define the type years of schooling is now mandatory is likely to increase demand for TE of TE most needed. significantly, mostly among “new” high school graduates from the lower three income quintiles. The TE system will likely need to double in size again — to about 10 million students — before enrollment stabilizes. Most marginal entrants will be “first generation” students: that is, the first from their families to attend TE. These aspirants will generally lack the preparation to succeed in traditional university studies and many will seek skills that lead more quickly and directly to better jobs. Indonesia achieved near universal coverage in primary school several years ago and continues to increase the numbers of students who finish the basic education cycle. Current data show more than 2.5 million students receiving high school diplomas each year. In academic year 2000 to 2001, 1.6 million students graduated from high school. Exhibit 2. Compound Annual Growth Rates for Various Indicators, 1999-2012 Compound Annual Growth Rate TE Age Group (19-23-year olds) .07% TE Enrollment 3.92% Cohort of High School Graduates 4.82% Source: Statistik Pendidikan, MOEC, with authors’ calculations Policy Direction One: Government policy should facilitate further expansion of the TE sector while improving quality and relevance at every level. Policies should not just expand enrollment, but should create conditions that promote a greater range of high quality providers, degree options, and affordability levels. 4 Policy Brief Indonesia achieved near universal coverage in primary school in 2009 and continues to increase the number of students finishing basic education. Both high school graduation rates and tertiary enrollment rates are likely continue to rise. 75 percent of TE students are from families in the upper two income Finding Two quintiles (see Exhibit 3). Many high school graduates from families in the lowest three income quintiles can neither earn a spot at a public university Students from families in nor afford one at a private institution (Exhibit 4). Government scholarships the bottom 40 percent of are scarce—they cover only five percent of enrollment—and are given only the income distribution to the most academically gifted needy students. No financial assistance is represent only 10 percent available for the vast majority of TE aspirants. Thus, although Law 12/2012 of TE enrollment. includes a provision that mandates that 20 percent of TEI enrollees be students from disadvantaged backgrounds, the government’s Bidik Misi scholarship program is not, in its current form, able to help large numbers of poor students attend and complete TE degrees. Commitment to raising enrollment levels among poorer students will require policies that more comprehensively assess the financial needs of aspiring students and provide a range of tools and options to help them attend TEIs. This begins with the prioritization of financial need over academic merit and the acknowledgement that helping the most academically capable among the poor is not a sufficient ambition for policy. Exhibit 3. Gross Tertiary Enrollment by Quintile, 2012 Quintile % of age cohort enrolled2 Share of enrollment3 2012 enrollment head count Q1 4.23% 3.3% 172,040 Q2 8.80% 6.9% 358,402 Q3 18.07% 14.1% 735,779 Q4 31.42% 24.5% 1,279,257 Q5 65.68% 51.2% 2,673,956 Total 100.0% 5,219,434 Source: MOEC 2 The numbers in this column represent student enrollment coming from certain quintile as percentage of a particular population, in this case, age cohort of 19-23. For instance, 1.57% in Quintile 1 by definition: 1.57 % of all population of age cohort 19-23 is enrolled in TEIs. 3 The numbers in this column represent student enrollment coming from certain quintile as percentage of total TE students enrolled. For instance, 1.99% in Quintile 1 by definition: 1.99% of all students enrolled in TEIs are coming from Quintile 1. Tertiary Education in Indonesia: 5 Directions for Policy Exhibit 4. TE Enrollment by Consumption Quintile, 2012 2.200.000 50% 2.000.000 Public TEI Enrolled Total 45% 1.800.000 Private TEI Enrolled Total 40% 1.600.000 35% 1.400.000 30% 1.200.000 25% 1.000.000 20% 800.000 15% 600.000 400.000 10% 200.000 5% 0 0% Poorest Q-2 Q-3 Q-4 Richest Source: SUSENAS, Indonesia Policy Direction Two: The government should adopt a comprehensive financial aid policy that supports its goals for equity (i.e., increasing the enrollment and graduation rates of students from disadvantaged backgrounds). The new system should offer assistance to all financially needy TE students and provide the basis for increasing enrollment among students from the bottom two income quintiles. In many countries, coverage and graduation rates are the cornerstone of TE policies. Importance lies in the commitment to help all those who want to further invest in their skills to do so well and cost-effectively. 6 Policy Brief Those who stop learning at the conclusion of high school generally face a more difficult future than those who continue schooling. Quality and relevance are perennial concern in TE. Students, parents, Finding Three employers, policymakers, and TE professors, instructors, and administrators want the education provided to be high quality. They also want it to be Quality and relevance relevant and to provide knowledge and skills that will allow students to need to increase succeed as graduates, especially in their work lives. throughout the system, and the definition and Concern for quality needs to be operationalized with an awareness that understanding of these no valid and reliable objective measures of quality currently exist. Quality terms must change and must be gauged by proxies. This is a challenge, but it is one that many TE broaden as this happens. systems have met successfully. One of the most effective ways to improve TE quality is to increase the quantity and quality of advanced degree holders. As especially PhDs compete for academic positions, students benefit from better quality instructors. Many countries whose TE systems are maturing will not manage to equal mature TE systems when holding a PhD becomes a de facto pre-requisite for employment in a university. Exhibit 5 shows that Indonesia has been moving in the right direction with increasing share of post-graduate teaching force. The main policy question with respect quality and relevance is: what is meant by these terms? Increasingly, the answer is based on the value that the education can add to any given student’s skills, knowledge, and capabilities. Schools add value by carefully defining their target student population and then meticulously satisfying its needs. Schools that do this well are said to be fit for their purpose, and “fitness-for-purpose” is the preferred definition of quality and relevance for modern TE systems. The concept of “value” in tertiary education is emerging as a concept closely linked to “fitness-for-purpose.” Value is usually defined in terms of institutional performance on key indicators comparable across institutions. The main indicators of value are dropout and completion rates, time-to-degree, labor market success of graduates (time-to-first-job and salary), and total degree cost. Regardless of the discipline or program area, TEI performance can be compared using these criteria. Defining quality as the highest levels of academic rigor is now obsolete as a policy tool. Rigor is important throughout the system, but academic rigor is usually strongly associated with selectivity of students. Selectivity is appropriate for elite and flagship institutions, but is not a feature of TE systems that should be generalized. Among its many drawbacks, defining quality as academic rigor tends to favor the upper echelons of the socio- economic strata, especially those in which people can afford high quality basic education. The government has progressed in strengthening its accreditation system. Higher Education Law 12/2012 regulated that all TEIs have to receive valid accreditation by 2015. New ministerial regulations are still under debate on the specifics of establishing an independent accreditation body, which focuses on accrediting Tertiary Education in Indonesia: 7 Directions for Policy Exhibit 5. Highest Degree of the TE Institution teaching force, 2004-20104 1 100% 6.794 7.138 12.257 13.181 12.608 9.969 16.523 90% 80% 40.097 68.280 69.627 87.336 93.725 60.524 70% 84.330 60% S3 (Ph.D.) 50% S2 (Post Graduate) 40% 108.222 S1 (Undergraduate) 30% 92.046 95.736 126.201 135.445 77.809 20% 60.774 <=Dipl.-4 (Below Undergraduate) 10% 0% 1.084 875 5.291 6.369 3.364 -- 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2011/2012 Source: Statistik Pendidikan MOEC, Indonesia 4 Data present the numbers of full-time lecturers only and for both private and public institutions study programs only. TEI accreditation will become BAN-PT’s only responsibility, and the government should consider creating a separate accreditation system for non-university TEIs. This move in the direction of institutional accreditation could potentially advance an important goal for Indonesia TE: to use “generic” and cross-cutting measures of quality and relevance that gauge institutional performance. This would balance and partially replace program accreditation, which by nature is concerned with the adequacy of the given content of a given program. Most high school graduates and TE aspirants will not benefit from institutional selectivity. Nonetheless, families and future students still often define success as acceptance to and graduation from a traditional university. High-quality university education is an important part of the Indonesian TE system, but it does not provide the best opportunities for the average high school graduate. Non-university programs with study and degree options that are more closely linked to better employment should be considered “high-quality” if they increase an individual’s job and career prospects. Excellence and “fitness-for-purpose” at all levels—from universities to community college—should underpin a new understanding of quality and relevance. Policy Direction Three: “Fitness-for-purpose”—a TEI’s ability to respond to the needs of its students—should strongly complement or replace academic rigor as the main definition of quality in TE. Quality and relevance should be promoted in a wider range of disciplines and subjects aimed at the ability levels and aspirations of the typical high school graduate, not the most academically gifted one. Community colleges, short degree programs, and studies related to graduates’ near-term success in job markets should get preference for government financing and other policies that facilitate their creation 8 Policy Brief A good cornerstone of policy is a reasonable target for coverage which makes the pool of formal learners large and the pool of those who will not go beyond high school smaller Public TEIs are treated like government agencies rather than educational Finding Four institutions. Faculty and staff are civil servants whose career advancement is based on their length of service rather than on their effectiveness as Greater autonomy should teachers and researchers. Budgets are inflexibly set at micro-levels with be provided throughout essentially no regard for the purposes to be achieved and no flexibility the financing and to respond to changing circumstances. Private TEIs have somewhat regulatory framework. greater freedom but also face autonomy constraints as a result of the public financing that they receive. Lack of autonomy for use of resources, academic policy, and staff management prevents TEIs from offering high-quality learning opportunities for students. Resource savings generated by improved frameworks can and should be used to promote equity through student financial assistance. In 2002, Indonesia made a strong, clear commitment to education by passing a constitutional amendment mandating that at least 20 percent of the total government budget be allocated to education. As shown in Exhibit 6, the government has succeeded in meeting the demands of this “20 percent rule” since 2009. Moreover, whereas funding for most levels of Indonesian public education comes from multiple levels of the government, universities and other TEIs receive virtually all of their public money from the central (national) government. As such, almost all of the public financing that TEIs receive is subject to the strictest regulation and control; they do not have the option of achieving more financial flexibility through the use of district and regional funding streams. To bring the country’s financing system in line with international best practices. As a start, the Indonesian government would do well to consider carefully the example offered by New Zealand’s TE Commission and transfer more money via block grants that can be used at TEIs’ individual discretion to consider ways to maximize the flexibility of the proposed unit cost fund system included in Law 12/2012. The operational details of this part of the law could either add to or detract from the important freedom of institutions to use funds Exhibit 6. Education Expenditures in Indonesia Year Total Education TE Expenditure (% TE Expenditure (% of Expenditure (% of Gov. of Total Education Gov. Budget) Budget) Expenditure) 2007 18.8% 4.9% 0.92% 2008 15.6% 8.5% 1.33% 2009 22.2% 10.7% 2.38% 2010 21.6% 12.1% 2.61% 2011 20.6% 13.4% 2.76% Source: MOF Tertiary Education in Indonesia: 9 Directions for Policy with reasonable discretion. More generally, the Government should consider how it might advance the types of recommendations that Singapore University Autonomy, Governance and Funding Steering Committee (UAGFSC) published as goals for increasing autonomy with accountability (see Box 1). Box 1. Goals for increasing autonomy with accountability Singapore released its preliminary report for publicly funded universities in January 2005 with four key recommendations that outlined the ideal relationship between the government and higher education. 1. Give public universities greater flexibility in decisions related to internal governance, budget utilizations, tuition fees, and admission requirements in order to pursue their own independent strategies for maximum benefit to their stakeholders. 2. Continue government support for the universities, but foster a greater sense of self-ownership and independence, which will allow for achieving excellence so that university stakeholders—council members, management, faculty, students, and alumni—are encouraged to have a more active role in shaping the future of the universities. 3. Ensure that the universities’ missions continue to align with national strategy by making them accountable for using public funds. The appointment of council members by the ministry of education allows for such monitoring, in addition to a quality assurance framework and a policy and performance agreement between the ministry and the universities. 4. While committed to being the principal source of funds, the government is providing incentives to universities to seek other sources by matching any funds raised privately. The government funding is on a fungible basis to allow universities greater autonomy to maximize value. At the same time, access to universities remains affordable and merit-based with various plans for the financially needy. Source: Maroun, N., Samman, H., Moujaes, C. N., & Abouchakra, R. (2008). How to Succeed at Education Reform: The Case for Saudi Arabia and the Broader GCC Region. http://www.boozallen.com/media/file/How_to_Succeed_at_Education_Reform.pdf Policy Direction Four: TEIs can only respond to student demand and need if they have the abilities and incentives to make key decisions for themselves. The most important among these decisions regards the autonomous but accountable use of resources. Providing greater autonomy for institutions is a necessary step to promoting the needed responsiveness within the TE system. Exhibit 7. Summarizing four main information subsystems on tertiary education in Colombia Information system Features  Comprehensive; includes data on all TE programs and TEIs on Colombia’s Register of Qualified Programs The National System  Collects and organizes information about institutions, programs, faculty and on Higher Education staff, students and their well-being, graduates, research, internationalization, Information infrastructure, finances, applicants’ standardized test scores, tuition and fees, and financial aid and loans The Higher Education  Tool for monitoring and analyzing TEI dropout rates Institutions Dropout  Features statistics about total enrollment and graduation rates. Prevention and Analysis  Integrates information on student characteristics from other data sources to System increase depth and usefulness  Focuses on information about TE graduates’ average earnings from 2001 to the The Labor Market present Observatory for Education  Tracks the percentage of degree holders (by type of degree, discipline, institution, and geographic location) active in the labor market  Records program accreditation status The Higher Education Quality  Allows TEIs to track and fulfill accreditation requirements Assurance Information  Shows updates on institutional characteristics and legal statuses system  Provides accreditation information directly to prospective students Source: World Bank, 2012 10 Policy Brief Policies that improve quality and relevance take time to develop and implement. The government is well served to move quickly to improve quality and relevance to avoid a future drop in returns and a stalling of the efficiency and productivity gains associated with greater skills. TE students fare well in job markets, but many are swayed by anecdotes of Finding Five graduate unemployment or the perceived security of a public-sector job. To make better decisions about whether and what to study, they require Students and policymakers more high-quality information. Information on financial aid availability lack information about the and options, labor market returns to skills, and returns to education for TE system. holders of different types of degrees will help to promote good decision- making. Knowing the likely future labor market value of the degree is only one area in which an aspiring student requires knowledge. To make wise decisions, an aspiring student will also seek to learn about a given institution’s quality, through such measures as dropout and completion rates, time-to-degree, labor market success of graduates (time-to-first-job and salary), and total degree cost. Aspiring students will also want to know whether prospective programs are accredited as well as the outcomes of any quality assurance processes. In addition, policymakers need more information to understand the characteristics of the system and the impact and effectiveness of policies. Currently, the quality of information on enrollment, student characteristics, progression and time to degree, how students pay for school, and employment outcomes is sub-optimal. Empirical studies of the impact of policies would be desirable but are impossible to conduct using existing data. Policy Direction Five: Improve vastly the quality of information and data on the TE system and disseminate it (especially to aspiring students) to promote informed decision-making. Tertiary Education in Indonesia: 11 Directions for Policy As parts of its support for the Indonesian Tertiary Education, DFAT (Department of Foreign Affairs and Trade, previously known as AusAID) through the World Bank has funded studies to support the Directorate General for Higher Education’s strategic planning and provide on-demand policy recommendations. The findings, interpretations and conclusions expressed in this publication does not necessarily reflect the views of the Government of Indonesia and the Government of Australia. Human Development Sector World Bank Office Jakarta Indonesia Stock Exchange Building, Tower 2, 12th Floor Jl. Jenderal Sudirman Kav. 52 – 53 Phone: (021) 5299 3000, Fax: (021) 5299 3111 www.worldbank.org/id/education