A Fiscal Reality Check: Examining the Financial Health of South Korean's Higher Education Institutions

• In Event: Equality and Equity in Higher Education

Proposal

1. Objective
In the rapidly evolving higher education landscape of South Korea, where private universities dominate, and tuition fees serve as the primary revenue source, financial sustainability has emerged as a critical concern. South Korea's higher education system, characterized by high enrollment rates and a strong emphasis on private institutions, faces significant challenges due to its reliance on tuition income. The declining birth rate and the resulting enrollment cliff further exacerbate these challenges, particularly for institutions in non-capital regions. This context underscores the urgent need for strategic financial planning and diversification to ensure higher education institutions' long-term stability and sustainability nationwide.
This study aims to analyze the financial health of 151 private universities in South Korea, focusing on the diversification of income streams over the five-year period from 2017 to 2021. To achieve this goal, we set two research questions.
First, what is the financial diversification level in South Korean private universities?
Second, how different is the financial diversification level according to the location?

2. Theoretical Framework
This study utilizes Pfeffer and Salancik's Resource Dependency Theory from 1978, updated in 2015, to explore the importance of income diversification for the financial sustainability of South Korean private universities. The theories suggest that organizations can survive by securing and managing critical resources and maintaining strong relationships with resource providers (Froelich, 1999; Greening & Gray, 1994; Hodge & Piccolo, 2005; Pfeffer & Salancik, 1978; Salancik, 2006). This framework is particularly relevant in examining how universities dependent on fluctuating government support can maintain stability through diverse income streams.
Resource Dependency Theories emphasize diversification as essential for organizational independence, especially as state funding declines. Higher education institutions are encouraged to develop non-governmental revenue sources (Wangenge-Ouma, 2011). Previous applications of RDT in studies of non-profits, which share similar idealistic goals with educational institutions, support its applicability in analyzing the resource strategies of South Korean universities (Webb, 2015).

3. Data and Method
The data was sourced from the Korea Advancing Schools Foundation, a reliable repository of financial information, including university budgets, settlements, and other relevant financial data. The sample size of 151 universities was selected after excluding six institutions with missing data, ensuring a comprehensive analysis of the remaining universities.
To assess the extent of revenue diversification among South Korean private universities, the Herfindahl-Hirschman Index (HHI) was employed. The HHI, a widely recognized measure of income concentration and financial sustainability, was originally developed to evaluate business concentration but is well-suited for analyzing financial diversity in educational institutions. In this study, the HHI was calculated in both aggregated and disaggregated forms. The aggregated approach considered four primary income streams: Tuition fee income, Government transfer and endowment income, Education-related administrative fee income, and Non-educational income. The disaggregated approach further subdivided these streams into 14 specific income sources, providing a more detailed analysis of the income structures.
Following the calculation of HHI scores, an independent t-test was conducted to examine financial disparities between universities located in capital versus non-capital areas. This statistical method was used to determine whether there was a significant difference in the HHI scores based on geographical location.

4. Results
The study reveals that the financial health of South Korean private universities is marked by moderate financial diversity, with HHI scores predominantly ranging between 0.4 and 0.6. In addition, the t-test results revealed that private universities in capital regions (Seoul, Incheon, and Gyeonggi-do) had a higher mean HHI score by 0.04 compared to those in non-capital regions, indicating weaker financial diversification in capital-area institutions (t[149] = 2.35, p = .02). Despite their access to a larger pool of resources and higher tuition fees, capital-area universities exhibit weaker financial diversification than their non-capital counterparts. This suggests that while capital-area universities benefit from high demand and substantial financial resources, they may also be more dependent on tuition income than previously assumed.

5. Significance
This study provides critical insights into the financial sustainability of South Korean private universities, particularly in light of the declining birth rate and the resultant enrollment cliff. The over-reliance on tuition fees as the primary income source poses a significant risk, especially for capital-area institutions, underscoring the need for strategic income diversification to ensure the long-term stability of the higher education sector.
As digital transformation reshapes the global higher education landscape, financial sustainability becomes crucial for institutions to invest in digital infrastructure, integrate technology-enhanced learning, and develop student digital skills programs. Universities with more diversified revenue streams will likely be better positioned to adopt advanced digital tools, enhance digital literacy, and prepare students for a tech-driven future. This makes financial diversification a survival strategy and a key factor in improving access to digital education and supporting long-term educational innovation.
For university administrators, the findings indicate the necessity of exploring alternative revenue streams, such as expanding partnerships with industries, enhancing alumni engagement for donations, and developing programs that attract a broader spectrum of students, including those interested in acquiring digital skills and lifelong learning opportunities. This strategic shift is crucial for reducing dependence on tuition income and fostering financial resilience while keeping pace with the increasing demand for digital competencies in higher education.
For policymakers, this research underscores the importance of creating an enabling environment that supports income diversification, digital transformation, and equitable resource distribution across capital and non-capital regions. Fostering closer collaborations between universities and the private sector, particularly in non-capital areas, could generate new revenue streams and support the development of digital programs that enhance students' employability and adaptability in a rapidly evolving workforce.
This study contributes to the broader discourse on higher education finance and digital skills integration, offering actionable recommendations that can inform policy development and institutional strategies in South Korea and other countries with similar demographic and socio-historical contexts. The findings are particularly relevant to global discussions on higher education participation, digital transformation, and sustainability, making it a valuable addition to the dialogue at the CIES conference.

Authors

• Thong Trinh, UNIVERSITY OF CALIFORNIA - BERKELEY

• Haeryun Kim, University of Illinois Urbana-Champaign

• Jeongsan Hwang, University of Illinois Urbana-Champaign