High Cost of Quality Education and Who Pays for It

As we all know, fees in IITs has been increased to Rs 2 Lac/year, though the committee had recommended a fee of Rs 3 Lac/year. Even at Rs 3 Lac, the fee would have covered perhaps about half of the actual cost per student of running an IIT.

Education loans

Education loans 

High quality higher education is actually expensive. Let us understand why it is so. In most  areas that change rapidly, like engineering and sciences, high quality education is only possible in institutes that have a strong focus on research. The reason is simple – without engagement in research, the faculty is likely to get outdated, leading to  its education becoming outdated. This correlation can be empirically observed as well – across the world the best places for technical education are also the Institutions that are ranked the highest in research.

With new pay scales of 7th pay commission, the direct overall cost per faculty will average more than Rs 20 Lac per year in Institutes like IITs.  As in such research focused institutions the student-to-faculty ratio may be about 10:1 or lesser for BTech students (the overall ratio will be much higher as such institutes have a high number of PG students who pay minimal fee).  This means, just to cover the cost of faculty, the fee will need to be about Rs 2 Lac per year per student. And in a research focused institution, as it has to invest in labs, library, travel support, PG programs, etc. the cost of faculty is around 1/3rd of the total expenditure. This means that the overall cost of education per BTech student is about Rs 6 Lac per year.

(It should be noted that in many private colleges which only focus on teaching, the costs are significantly lower. Their average cost per faculty is less than half of an IIT, the BTech student-faculty ratio is twice or more, and as they do not invest in research their faculty costs are two-thirds or more of the expenses. These translate to the cost per student of Rs 75K per year.)

The burning question of current times is who pays for this high cost of high quality higher education. A few decades ago, globally it was accepted that higher education is public good – i.e. it is in the interest of the society/nation to have people go for higher education and that the society will benefit from more people with higher education. With this understanding that higher education is public good, world over, including India, higher education was highly subsidized by the Government.

Today the scenario is different. Higher education is increasingly being seen as private good, i.e. the individuals who get higher education are the largest beneficiaries of it. This empirically also holds – people with higher education generally earn more, and people who get high quality education from top institutions often earn substantially more. If higher education is private good, then it  follows that the individual should pay its cost, at least most of it. Due to this, government subsidy for higher education has been reducing in many developed countries like US (where most state universities have seen a steady decline in government support), UK (where fee were raised substantially, despite hue and cry, a few years ago), Australia, etc.

This argument that quality higher education is a private good and hence should be paid for by the beneficiary is slowly coming to India also. But in India, as higher education is the ticket to individual upward mobility, it is imperative  that this opportunity is not denied to those who cannot afford to pay the cost. Therefore, there is a need for models for financing so as to ensure that access to higher education is available to all, yet the individuals who benefit the most pay for it, when possible.

Clearly subsidy is not the answer for providing access, as it subsidizes costs for all, even for those who can easily afford it, from public funds. Also, as gross enrollment ratio increases, and the demands on Government funds increase for other public goods and services, it will become increasingly harder for the Government to afford or justify subsidy of higher education.

One possibility is that student pays, but easy access to education loans is available. Education loans are already widely available in India, and some Governments like the Delhi Government, have made the access to these loans even easier by becoming the guarantor for such loans.

However, education loans are still expensive and not all students can afford it, particularly if the job prospects after education are not very bright, as is often the case. Recently, my colleague and friend M. Balakrishnan and I wrote an opinion piece in Indian Express on an alternative to education loans for paying for the high cost which is fairer in many ways. In the proposed scheme, a part of the fee for the student is deferred, and the student pays for it after he/she graduates, with the condition that the payment is limited to some percentage of his/her salary for a few years. This innovative scheme reduces the need for loan, and converts it to payment

which is done after the student is in employment and the amount is dependent on the paying capacity of the student.

There is still need in the country for schemes to ensure that access is not denied, while not subsidizing education for all. Towards this, there is a strong argument to support income-linked fee-waivers, in which students whose families can afford, pay the full fee, while partial fee waivers are given to students whose families cannot afford the high cost. (In US this approach is often referred to as “need blind” admissions.)  Implementing such schemes is becoming far more feasible now with better reporting and tracking of incomes and linking of assets with Aadhaar, PAN, etc

IIIT-Delhi has been operating such a scheme for many years. While the fee has been kept close to actual cost as the Institute has to become self-sustaining on operational expenses. for ensuring access to its high quality education, IIIT-Delhi has income-linked partial-fee waiver scheme which provides for 100%, 50%, and 25% waiver for students from families with different levels of income. Recently, the Government of Delhi has agreed to cover this subsidy, allowing the Institute to widen this program and continue it. This innovative model, now backed with Government support, provides a good balance between charging the real cost of education and ensuring access to all.

I believe there is need to evolve more innovative methods to ensure access to all, while minimizing subsidy where not needed.

Source: https://educationloansinindia.wordpress.com/2016/05/09/high-cost-of-quality-education-and-who-pays-for-it/