Journal of Nursing Education

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Alternatives in Nursing Education Funding

Pamela Bayliss Webber, MSN, RN



Contracting between private educational institutions and state governments or agencies is developing as a cost-effective method for meeting nursing education demands in an era of scarce resources. This article explores relevant literature and current status of this type of contracting.



Contracting between private educational institutions and state governments or agencies is developing as a cost-effective method for meeting nursing education demands in an era of scarce resources. This article explores relevant literature and current status of this type of contracting.


Nursing literature has been saturated with suggestions of ways to ease the nursing shortage. The literature also has shown that in addition to having insufficient numbers of nurses, there is an uneven distribution of nurses toward urban and away from rural areas. Also, skill levels are often less than adequate for a particular region.

One possible solution currently receiving attention is increased collaboration between public and private sectors to meet regional education demands. There are over 1,600 private educational institutions in the United States, which comprise 55% of all colleges and universities (Education Commission of the States [ECS], 1990, p. 8). These institutions collectively serve over 2.6 million students. It is estimated that if the nation's public institutions were to assume responsibility for educating students now attending private colleges and universities, the taxpayer burden would exceed $12 billion annually (ECS, 1990, p. 10).

One mechanism of private-public collaboration is contracting between private colleges and universities and state governments or agencies (herein after referred to as contracting) to access needed quality programs, efficiently use available postsecondary educational resources, and minimize cost to the state.

With renewed interest in achieving efficiency, governments and higher education institutions are seeking alternative approaches to delivering higher education. Borrowing from the recent debate about the privatization of public services, the use of contracting in higher education is receiving increased attention (Ferris, 1991, p. 1).

Contracting with private colleges and universities, especially those in rural or underserved areas, could offer specific nursing programs to more people at less cost and, subsequently, if those people enter the work force within that same region, the impact on the numbers, skill level, and uneven distribution of nurses could be significant.

Review of the Literature


In the last decade, scarce resources have forced state governments to look for more cost-effective methods of responding to the educational needs of its citizens and have forced educational institutions to look for alternative ways of financing needed programs.

It is important to realize that the cost of providing a program is roughly the same in a private institution as in a public one. However, because private institutions do not receive subsidies from the state, they must charge higher tuition. Private institutions depend largely on tuition for about half of their revenue, compared to one fifth for state-subsidized public institutions. In addition, the high cost of need-based student aid is a major source of tuition increases at private institutions (ECS, 1990, p. 17).

In describing contracting, the Master Plan for Florida Postsecondary Education (Postsecondary Education Planning Commission [PEPCJ, 1982, p. 55) states that a contract does not have to support the program fully, but usually pays only the difference between private and public tuition. Funding can also be tied to a specific number of students to be served. This enables the state to take advantage of the substantial past investment made by the independent institution to develop the program and the fact that the full cost of the program will still be covered largely by nonstate sources. The plan also contends that contracting enables the state to respond promptly and effectively to an identified need and that the annual renewal condition of a contract allows the state to maintain flexibility in order to adjust level of service.

Education contracts that are currently supported and most likely to continue to receive public support are those that are economically driven, which means the outcomes of such programs support an economic need of the state. Examples of economically driven programs include medicine, dentistry, engineering, counseling, science, and nursing.

Historical aspects of contracting

Many states historically have used some form of collaboration with private institutions to meet education needs. Early arrangements were not based on contracts but were direct allocations from the state legislature.

This, at times, resulted in varying degrees of control of the institution by the state. A notable example of this type of arrangement occurs in Pennsylvania where, since the 18th century, the state has financially supported private education. Pennsylvania currently has an educational system with several categories of schools. These classifications include public, private, state-assisted, and staterelated schools. Public schools are those that are funded by the public and run by government employees. Private schools are those that are run completely by the private sector with no state involvement other than for accreditation purposes. State-assisted schools are those that are private in nature but where students receive tuition assistance from the commonwealth.

The category that most resembles contracting today is the state-related category. State-related schools are private schools that receive either general institutional support or specific program support but for which there is no practical participation in governance by the commonwealth. There are currently four state-related institutions in Pennsylvania. They are Lincoln University, Pennsylvania State University, Temple University, and the University of Pittsburgh. These state-related institutions are not contractual in nature, but they do establish successful precedents for contractual collaboration, especially in light of the significant amount of public funds successfully being used by these nationally known private schools. In a 1990 overview of the independent education sector, Dr. Francis Michilini, President of Pennsylvania's Commission for Independent Colleges and Universities (CICU), indicated (CICU, 1990) that over 220,000 citizens were attending publicly supported private educational institutions in Pennsylvania and that CICU institutions have an impact of over $7 billion on the Pennsylvania economy.

Contracting today

Contracting for academic programs is becoming more widespread. According to the ECS and the National Association of Independent Colleges and Universities (NAICU), 23 states currently practice some form of contracting. They are: Alabama, Arkansas, California, Florida, Georgia, Illinois, Indiana, Kansas, Louisiana, Tennessee, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey, New York, Ohio, Oregon, South Dakota, Vermont, Virginia, and Wisconsin.

The mechanism for implementing contracts varies from state to state, but most appear to channel contracts through their boards of higher education with either the board awarding and funding the contracts or making recommendations to the state legislature regarding contract approval or disapproval. Most state legislators also reserve the right to contract for programs that are not recommended through state educational agencies.

Actual funding is multiform and dependent on the desires of the state legislature and state agencies participating in the contracting process. Funding methods currently used include tuition assistance, faculty salary support, direct allocation to the institution, reimbursement of the difference between state and private tuition for specific academic programs, and funding of a predetermined number of tuition full-time equivalents (FTE) for specific programs. States participating in contracting also have ongoing review and evaluation processes in which contracting institutions must participate. This allows the state flexibility to adjust levels of service to reflect changing needs and to use alternate educational sources if necessary. Of course, private institutions are responsible for fulfilling all contractual agreements and for the fiscal accounting for all state funds.

States Active in Contracting

The state that has led the way for present-day contracting is Florida, which established its contracting policies in the early 1970s via legislative pathways. Florida began contracting to meet education voids by allowing its residents to attend selected private academic programs at state tuition rates. According to Florida's PEPC, funding for academic contract programs is one way the state of Florida ensures all postsecondary education resources are utilized to meet the education needs of a rapidly growing state. Academic program contracting is not primarily a form of assistance to independent institutions, but rather a means for the state to meet unfilled postsecondary education needs in a costeffective manner (PEPC, 1989, p. 4).

It was felt that the private sector offers a substantial measure of protection for and models of academic freedom and institutional autonomy not found in public systems, and that strong independent institutions are vital to an effective system of education after high school and to a balanced set of options for student and faculty (PEPC, 1988a, p. 55). Between 1975 and 1980, contracting in Florida was controlled by the Board of Regents. During this time only three contracting programs were recommended to the legislature for funding. In 1981 the Florida legislature transferred contracting authority from the Board of Regents to the State Board of Education (SBE). The SBE then created the PEPC, which had the responsibility of recommending contracting programs that were consistent with Floridas 1982 Master Plan for Postsecondary Education.

Florida now has two mechanisms for securing a contract. First, the contract proposal is submitted, usually by the private institution, to the PEPC. The PEPC then evaluates the proposal as to need, effectiveness, efficiency, and economy, and detercnines if the program is equal in quality to similar programs and facilities in the state system. The PEPC then makes recommendations to the Board of Regents, which reviews all of the material and advises the legislature regarding approval or denial. The second method of securing a contract is by direct appropriation by the Florida legislature without benefit of the review process.

According to a study of academic program contracts, the PEPC (1989) reported that by 1988, there had been 27 contracts initiated by the PEPC and the legislature and that they collectively accounted for over $20 million in state support. In 1988-1989, 14 contracts totaling over $9 million were funded. Twelve of the funded programs were approved based on recommendations from the PEPC and two were directly funded by the Florida legislature. Fifteen programs were recommended for rejection following review by the PEPC.

According to Jon Rogers, policy director for PEPC (personal communication, April 29, 1992), financial support for 16 approved contracts in 1991-1992 was over $3.5 million, with almost $5 million requested for 1993. Institutions approved for contracts included Barry University, Bethune-Cookman College, Edward Waters College, Florida Institute of Technology, Mt. Sinai Medical Center, Southeastern College of Osteopathic Medicine, and the University of Miami. Specific programs that were approved include nursing, engineering, science, computers, manufacturing, biomedicine, marine and atmospheric sciences, social work, and early childhood education. When state funding was originally implemented in Florida, the basis for reimbursement to a participating institution was the actual cost of the program as reported by that institution. When responsibility for contracting was transferred to the PEPC, decisions were made to define cost as the actual tuition FTE charged by the institution and to base reimbursement on FTE. The PEPC felt that this method had two advantages: (a) tuition rates are objective numbers that are documented in college catalogs, and (b) the focus of the aid would be on the student instead of the institution.

On-site visits are done annually to verify that no changes have occurred that would result in funding alterations. Additionally, each program is reviewed and evaluated every five years in order to ensure quality and continued service to the state.

Tennessee also practices contracting, and hike Florida, contracting is legislatively based and may be initiated by private institutions or the legislature, but may also be initiated by student or industry demand that clearly demonstrates economic ties. Once the contracting process is initiated, Tennessee's Higher Education Commission (HEC) analyzes the proposed contract in terms of need and cost-effectiveness. The only programs accepted are those where a need exists that is not being met and for which the cost is less than starting a new program or extending an existing program at an established public school.

According to the HEC (1990), Tennessee had academic contracts for the 1990-1991 fiscal year with Gupton, Meharry Medical College, Merryville College, and Vanderbilt for programs in nursing, medicine, dentistry, mortuary sciences, optometry, and sign language. The total appropriation per annum for these contracts is almost $1 million.

Tennessee also participates in a regional contract program administered by the Southern Regional Education Board (SREB) for the provision of medicine, dentistry, and optometry. Contracts between the SREB and private Tennessee institutions total over $1.3 million, which brings the total amount of contract support to approximately $2.3 million per year within that state.

In Indiana, contracting is being evaluated by the Commission for Higher Education (CHE), a legislative agency. According to Ken Sauer, assistant commissioner for CHE, Indiana is piloting one contract program in nursing at Valparaiso University (personal communication, April 29, 1992). Financial support for this contract is $85,000 per year through 1993. If successful, Indiana may begin funding additional programs.

Connecticut practiced contracting in the past but the contracting program was phased out in 1990-1991 as a result of "administrative and political problems" (Michael Gerber, personal communication, January 25, 1990). Connecticut now has a new type of program wherein contracts are developed with students who, in turn, could attend specific types of programs at the private or public institution of their choice in Connecticut. One of the areas selected for this type of individual contracting is nursing.

Contracting and Nursing Education

Recent literature has indicated that nursing education needs to look for alternative financial aid mechanisms to support their programs (Frank, 1990; Redman, Bednash, & Amos, 1990; Wakefield, 1990; Weisfeld & Amor, 1991). Contracting may be evolving as a way to help ease the nursing shortage and to relieve the negative influence on the economy of health care institutions and, ultimately, state economies.

Only Florida, Tennessee, and Indiana are identified by the ECS and the NAICU as being involved with nursing education contracts. In response to the demand for nurses, the University of Miami was awarded its first nursingspecific contract in 1979 for 60 FTE to provide support for RNa desiring to complete a bachelor's of science in nursing (BSN) degree through the RN-to-BSN accelerated track. A survey of RN-to-BSN program graduates from 1983 to 1987 (PEPC, 1989) shows approximately 90% of the respondents still actively involved in nursing, and of the 1987-1988 graduates, almost 100% of the respondents held nursing positions in south Florida.

In 1988, the five-year review of the program showed a decrease in enrollment and resulted in some funds being returned to the state. It is believed that the decreased enrollment resulted from the development of similar programs in both the public and private sectors within that same region. The PEPC recommended in September 1989 that the program be cut to 40 FTE, and then in 1990 recommended that funding be maintained at 40 FTE for 1991-1992. A major drawback to this type of program and one that may influence future funding is that while the RN-to-BSN program increases the skill level of nurses, it does not increase the number of nurses available for employment. According to a PEPC report (1988b) and a 1990 manpower survey conducted by the Florida Hospital Association (PEPC, 1990, p. 18), Florida needs an increased number of nurses.

The University of Miami also has had a contract for a master's of science in nursing (MSN) program since 1985 that was initiated in response to employers' requests for more highly prepared nurses. According to PEPC (1989, p. 18), the MSN program is designed for part-time and evening study and has produced over 200 master's prepared nurses. The majority of these nurses are employed as teachers, administrators, and clinical specialists in Florida. In 1985, based on an institutional report of expenses, program funding was cut to 31 FTE for the 1989-1990 fiscal year when the legislature calculated reimbursement on actual tuition rather than on institutional expenses. PEPC recommended that support be restored to 40 FTE for the 1991-1992 fiscal year because demand remains strong and enrollment is high.

In June 1988, the PEPC approved a 20-FTE contract for a BSN (accelerated option) at Barry University. The program is designed to increase the number of registered nurses by targeting as potential students those who already have baccalaureate degrees in other fields. The program is an intense one-year, 56-credit program that prepares students to take the registered nurse licensure exam. The PEPC report (1989, p. 24) indicated that there have been 46 graduates of this program, 31 of whom are still practicing in Florida. In recommending support for this program, PEPC indicated that "Hospital representatives and nursing faculty in Dade and Broward counties confirmed that high RN vacancy rates persist despite intense recruiting efforts by hospitals and other agencies employing nurses" (1989, p. 23).

The program has experienced tremendous growth, which PEPC attributes to the state contract. As a result, the university requested increased funding at 30 FTE for 1990-91, but PEPC recommended mamtaining funding at 20 FTE through 1992.

Other notable institutions that have contracted nursing programs include Valparaiso University in Indiana and Vanderbilt University in Tennessee.

Benefits and Risks of Contracting

Nursing education via contracting has several benefits, including increasing the number of nurses delivering health care in areas not adequately serviced by established public and private programs or where there is increased demand for health care, such as with the elderly and among rural populations. Need-based contracting may also facilitate less expensive, nursing-oriented health care alternatives for a public that has limited resources or limited health care options. One could even foresee the funding of an educational program specifically designed to prepare nurses in the establishment and management of nursing centers or alternative health care systems. Secondary gains of contracting may include the economic impact of contract programs on the community as well as the state, increased numbers of nursing preceptors and mentors, ongoing continuing education, and a stronger community relationship.

Contracting is not without risks, however. The most obvious risk to the educational institution is the loss of funding. Programs dependent on contracts that are consistently reviewed by state agencies and approved by a legislature with an ever-changing face and agenda are, at best, precarious. The regional nature of university systems makes it difficult for politicians to agree to a system that might reallocate resources away from institutions in their districts* (Ferris, 1991, p. 15). The potential loss of funding combined with the human and monetary resources already invested in the program by the institution creates a potential for a tremendous negative impact on the institution if state funding is stopped.

There is also the loss of flexibility. Programs that are tied to state funds are not as easily changed or revised as programs controlled by the private sector. This may delay an institution's response to changing needs because of the lengthy review process coupled with a legislature that is in session only periodically.

Another consideration is the potential negative impact on other programs within the institution. The equity of having different tuition rates for different programs at the same institution could result in decreased enrollment in other programs as well as student discontent.

There are also risks for the state. While contract programs are designed to meet public needs, there can be a significant delay before graduates enter the work force and their impact evaluated. There is the possibility that the contract program will not meet its designated goals, which would result in the loss of a great amount of time and resources. Enrollment and funding for established state programs may suffer if students find contract programs closer to home at the same or lower cost.

A concern for both the state and educational institution is the overlapping of the general philosophies of state and private education. The public's concept of what constitutes public and private education may change as a result. The movement of public schools toward privatization and private schools toward publicization could well be compromising the thing that makes each unique and therefore desirable to their markets. As Johnson (1990, p. 40) points out: "Direct contracting relationships will not be successful unless each party is willing to change its behavior." Private institutions will have to give up varying degrees of autonomy in the administration of contract programs, and the state will have to give up direct control of programs that it helps support.


It is hoped that this article will provide incentive for nursing education administrators to investigate contracting as a option for their programs. Contracting is not a novel approach, but simply an option that, if utilized more, might help limit education costs while meeting regional nursing needs. In light of nursing's expanding role in health care delivery, the extent to which contracting can be beneficial is limited only by the skill and creativeness of the parties involved.


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  • Education Commission of the States. (1990). The preservation of private colleges and universities. Denver, CO: Author.
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  • Frank, K.M. (1990). Funding for nursing education: Pass through or pass over? Nursing Economics, 3, 132.
  • Higher Education Commission. (1990). Operating and capítol - expenditure recommendations for 19901991. Nashville, TN: Author.
  • Johnson, J. (1990, May). Direct contracting: hospitals discover its risks and rewards. Hospitals, 40-45.
  • Postsecondary Education Planning Commission. (1982). The master plan for Florida's postsecondary education. Tallahassee, FL: Author.
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  • Weisfeld, M.E., & Amor, G.E. (1991). Toward a national policy for nursing. Nursing Outlook, 39(2), 73-76.


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