This paper will explore the interrelationships between state financing of education, community schooling and the private costs of public education in order to understand the Nepali state’s commitment to a free and universal school education. In other words, it will focus on the dialectics of the community management of school education amidst the rhetoric of state financing of public education. Historically, the majority of public schools have been established and operated by communities, a trend that continues till date, albeit with some setbacks in the 1970s. At the same time, the state has increased its capability to support public education, through constitutional commitments to free basic (and secondary) education, and by implementing a number of large scale education reforms since the early 1990s. However, the state has been short of fully funding (and managing) public education, a phenomenon that is particular to the education sector. In such dualism, what does free education mean and how does this relate to the role of the state and the community in providing free education? The paper will derive from an ongoing research using a multi-method approach that includes a macro analysis of state financing of school education, coupled with case studies of various types of community schools (old vs new; successful vs not so successful in SLC; fully state subsidized vs partially subsidized, etc) to understand the dynamics of resource flows and usages associated with public education in Nepal.