Public funding of higher education is financed through the state budget and it is necessary to alocate the obtained resources efficiently and effectively. Three approaches to assessment of the effectiveness of higher education institutions are the statistical approach, the Stochastic Frontier Estimation, and the Data Envelopment Analysis. In Croatia, there is an inefficiency of public expenditures on higher education, considering surplus teachers. Croatian higher education institutions are mostly financed from public funds, just as the most European universities. In addition to the budget, there are private sources of funding, which include tuitions and sources from third parties, but they are much less represented. Four models for higher education funding are the incremental (historical) funding model, the lump-sum funding, the line-item funding, and the linear model. Higher education can be divided into undergraduate and graduate studies, and higher education institutions in Croatia are public universities, polytechnics and colleges. For the European higher education system is in common the signing of the Bologna Declaration and the creation of an unique system for international student mobility. For all European countries, there is a positive trend in the number of enrolled and graduated students.