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Saturday, May 19, 2018

When is Fee Hike Justified?

We keep hearing about the students and parents protesting against fee hike at schools and colleges. Are all fee hikes unjustified and must be opposed.

In many cases, the fee hikes are necessary, but there is no communication from the administration explaining it, and hence the students and parents get upset. Fee hike should be explained in terms of institutional finances, and I believe most opposition would go away. But, of course, there are times when some institutes try to be unfair and that is why they don't explain the hike properly.

The most common charge by students is that they are not improving service, but charging more. This argument is usually bogus. An increase in fee which is commensurate with increase in expenditure can only result in current level of service. Only if the increase is substantially higher than the increase in input costs can the question of improved services be raised.

The second most common charge is: The inflation was 6-7% but you are increasing the fee by 12%. One really needs to look at all costs and all revenues to decide whether a fee hike is justified or not. Let me give an extreme example. In a government college, say, 99 rupees out of 100 spent come as a grant from the government, and one rupee as tuition. At the end of a year with say 8% inflation, the cost would have risen to 108, but if he government grant remains 99, the fee will have to be increase from 1 to 9, an 800% increase without any new and improved facilities, or some services would have to be curtailed.

While this was an extreme example, the point is that a university may have multiple revenue streams, and if some revenue stream doesn't grow at the rate of expenditure, then some other revenue stream will have to increase faster. For example, if you were dependent on philanthropic funds, and they don't grow as much, tuition may have to go up faster.

Also, there can be some sudden increase in expenses beyond rate of inflation, like the 7th pay commission award. Your faculty costs are going very high. So you will have to increase the fee appropriately.

When does a fee hike become unjustified? In the following situations.

If the fee hike is resulting in significant revenue surplus. A bit of surplus is ok, since there are many uncertainties in running any entity. But a large surplus is an indicator that you want current students to pay for future improvements or worse, there may even be a doubt that the institute will find a way to take this surplus out in some way or the other.

The other thing to check will be whether there is cross subsidy. If my fees is going up and my program is making profit, there is an explanation needed for why the other programs shouldn't pay more, reducing my fee.

The controversial part is when the students/parents think there is inefficiency in running the institution and if certain costs are controlled, their fee need not be hiked by as much. My own take is that if tuition is the only or primary revenue stream, then it is the responsibility of the administration to convince students that their fee is being spent efficiently. However, if students are paying only a fraction of the costs, they would have less say in determining what is useful and what is wasteful expense.

The most problematic cost is the cost of building new infrastructure. The problem here is that any building that you are constructing is likely to last 60-70 years, but if you take a bank loan for a shorter duration (say, 15 years), then you are loading all the costs to a few batches. This is fine if the growth rate is small. After all, current batches are paying very little for the infrastructure they are using. So some payment for future infrastructure is fine. But if the growth rate is high then asking a few batches a very substantial amount to take care of bank loans is certainly problematic.

Lastly, consider a situation in which there is a genuine reason for fee hike. The administration has done its best to control costs. They have worked hard to maintain all revenue streams to the extent possible, and yet there is a shortfall in the budget. Even in this situation, there is a need to cap the fee hike to a reasonable number. When someone joins as a student, one should have some idea about the total cost of education. When I am told the first year fee (and other expenses like hostel/mess), my expectation is that the costs will rise roughly at the rate of inflation. So, if the inflation is 6-7%, may be the costs will increase at 8-10%. If once in a rare while, the fee has to go up by another couple of points, I will understand. But anything more than that is a problem because I hadn't planned for it. To take care of sudden increase in input costs (like 7th pay commission) or sudden reduction in some revenue stream, instead of high increase in tuition, the institutions should depend on its surplus. As mentioned above, a small surplus every year is acceptable if it is properly invested and used only for the institution in due course. And may be the new batches can be asked to pay more. This will ensure that everyone who joins can have a reasonable plan for their educational expenses.

To conclude, the issue of fee hike should be handled by engaging with those who are going to be affected by it, and sharing as much information about the reasons for fee hike as possible. Try to limit the hike to little more than inflation every year, and the new batches can have higher cost, if there is a need to increase revenues further.


Friday, May 18, 2018

Ensuring Access to Quality Education

Yesterday, I wrote a blog, which was inspired by the new "Study in India" program, but the primary conclusion was that unless we can find a way to provide financial weak students access to quality (read, costly) education in private institutions, politics of the country would not allow setting up of a lot of high quality institutions. And unless we have lots of such institutions all over the country, we can forget about attracting foreign students or even retaining those who can afford to go abroad.

Since then, I have received several emails and even phone calls asking me for my ideas on how this could be done. And hence, this blog article. I am clearly going out of my area of expertise, just thinking aloud and hoping that my readers would present alternatives.

Instead of working in abstract, let us work with specific numbers. Numbers are not important but aid in understanding. Let us assume that quality education, including lodging and boarding will cost about Rs. 5 lakh per year (roughly the cost of studying in BITS Pilani, one of the finest institutions in private sector today). How can we structure our regulations and financial support to ensure that anyone can attend this college.

Till a decade or two ago, loans guaranteed by the government was a popular option. But slowly with high rate of loan default in US and now the rate creeping up in India as well, this is no longer considered as a viable option. Typical arguments against it are that it discourages students to take up low paying careers like higher education, NGO, etc., and also, if the student is unable to find a well paying job, a significant part of the income may be going to repay the loan, causing stress and eventually loan default.

How about a voucher system. The government gives a fixed subsidy to the college per student. The cost of education for the student will reduce by that much amount. Clearly, the government does not have enough money to pay a significant part or all of Rs. 5 lakh per student per year.

How about cross subsidies within a college. Those who can afford pay a higher tuition (even higher than the per capita cost of education), and the savings from these students are used to provide financial support to students from weaker background. The problem here is that it is unfair to ask for tuition substantially higher than cost, and hence this will work only if most students are from well to do families and only a few are from weaker backgrounds.

Philanthropic funds are another option to provide financial support. This is only in nascent stage in India and very little money is donated to educational institutions. And hence we cannot depend on it to provide significant support to a large number of students.

When I go through these options, it is clear that none of them will work in isolation. But I believe that we can combine all of them to enable access to quality education.

One of the problems that we face in any such discussion is how do we know who needs financial support. A large number of students can submit false income certificates. A whole lot of poor are unable to get admission to quality institutions simply because they did not have access to good schooling earlier. So the real number of financially weak students could be quite manageable, but if we base our support on self declared income, the numbers swell and make any scheme nonviable. We need to solve this issue as well.

Now, first the voucher scheme. I suggest that we identify good students and good institutes in some simple ways and support all good students joining any good institute. For example, we could say top 2% of all boards will be supported, along with top 10% of students giving JEE, NEET, CLAT, etc. So we identify a few exams, and students performing well in them are considered good.(We could provide support to some groups like SC/ST at lower cutoffs.) Similarly, we could identify quality institutions based on accreditation data, and on so many rankings that are going around these days.

Overall I am suggesting that we select 2-3 lakh students for this voucher, and voucher could be worth around Rs 2 lakh per year. This is an expenditure of about Rs. 5,000 crores for one batch, and in steady state when some of the students are doing a 3-year course and some are doing a 4-year course, the annual expenditure on this will be between 15,000 to 20,000 crores, something that can be managed, I believe in the budget. (We could insist that state governments pay a part of it to reduce burden on central government.). Note that the expenditure will be less since there aren't 2.5 lakh seats (per year) in all the quality institutions put together. Also, for government institutes (which the majority of these students are going anyway), this budget is anyway being spent even today. So the net increase in expenditure is only a fraction of the numbers above.

We could have variants of this proposal - may be one voucher is given to every good student, but another voucher is given to only needy students. May be the budget can come partly from central government and partly from state government.

We could then have loans for a much smaller amount than 5 lakhs per year. A student could take a loan of may be Rs. 2 lakhs per year or even less. On top of reduced loan, we need to have repayment models which are different from EMI. US has largely shifted to income based repayments (though amounts may be still large for some people) and if the loan is not fully repaid in 15-20 years, the rest is forgiven. It is not a life long liability. We could do better and link repayment to income tax. We could require that anyone taking a loan must provide a PAN number, and when you compute your income tax a certain fraction of that is added to your liability. We could even think of taxation kind of model. If you took a certain amount of loan, you will pay a certain fraction of your income tax for so many years, irrespective of whether you have repaid your loans or not. So some people may end up paying a lot more, and some people may end up paying much less. But the bottom line is that due to the voucher above, the loan that a student is saddled with is much less and if we can link repayment with income, it will become much more manageable.

Next, we could encourage philanthropic contributions to educational institutions. There are many things that government can do for this. One, there is a confusion in the tax code whether all universities are eligible for 100% tax deduction of donations to them. Donations to some get 50% tax deduction, and to some others, there is 100% tax deduction. We must make it uniform, 100% tax deduction. Second, we could allow a grant from CSR funds of profit making companies to the educational institutions. Currently, I am told that there are some confusions/restrictions. One way we can encourage individuals to donate to universities is if companies can make a matching contribution from their CSR funds to the same university.

And finally, we could insist that any quality institute who participates in the voucher program of the government will have to provide financial support to say 25% of its students to the extent of Rs. 1 lakh, either through cross subsidy or by raising philanthropic funds. This is, of course, based on the assumption that no more than 25% of the batch would need to have complete 5 lakh support. I am assuming that others who need to pay only 1 lakh of rupees in our example here will indeed be able to spend that kind of money in a year.

In order to identify those who need this support, an institute may look at information beyond the income certificate. They may look at markers of expenditure as well as wealth, which are more difficult to hide. For example, IIIT Delhi looks at the tuition a student had paid in 12th class. In interviewing students for determining their status, we look at what kind of smartphone s/he has, whether the parents own a house, car, AC, etc. Income may be easier to hide but these other parameters are more difficult.

If this scheme can work for all quality institutions, states would be much more amenable to not have tuition control on at least such institutions. Once the tuition control goes away, we are likely to have more quality institutions come up in the country (we will have to increase the accreditation capacity to ensure that one gets the tag of quality institution only if they actually deserve it). Hopefully, once we have many more quality institutions, we will not need to have any tuition control since students won't join poor quality institutions then.

To conclude, what is being suggested here is that the government provides some subsidy (voucher) for good/needy students studying in quality institutions, and leverage participation in voucher scheme to require the institute to provide some subsidy to the needy (through cross subsidy and/or philanthropic funds). As a result the dependence on loans reduce and the student is not burdened with heavy repayment after her education. Even that repayment can be linked to income and those who are not having a good income can get waiver from repayments. Of course, it increases government's investment in higher education, but not so much as it would have to do, if it were to depend primarily on public institutions to provide quality.

Thursday, May 17, 2018

Study in India

Recently, the Government has launched a Study in India initiative. Under this initiative, a web portal has been created to give all relevant information to any potential foreign student. The government is offering fee waivers to many foreign students. This is one of the rare activities of the government, where four different ministries are working together - Ministry of Human Resource Development, Ministry of External Affairs, Ministry of Home Affairs and Ministry of Commerce and Industry. There is focus on 30 countries in Asia and Africa where a lot of outreach will be attempted. All CFTIs have been told that they can have 15 percent super-numerary seats for foreign nationals. The goal is to increase the number of foreign students in India from around 45,000 now to 2,00,000 in 2023.

There is no doubt that having more foreign students in our universities is desirable. Diversity in the classroom is good for learning. In due course, it may become financially profit making for our poor institutions. And, of course, it enhances soft power of the nation. But the question is whether it will work.

There have been a lot of discussions on social media as to why foreign students don't come to India. A lot of reasons have been provided:

They don't know enough about our programs, which universities are good, how to apply and so on. Well, if lack of information was the primary issue then this new initiative will certainly help. But is that one of the main reasons.

They hear biased news about the country. How women are unsafe. How foreigners, particularly from Africa, are discriminated, attacked, etc. All such news are amplified and a wrong impression of security has been created. Well, the new program can do very little to correct that impression.

The image of the country as a difficult place to live in. Harsh weather. Difficult to negotiate house rentals. Difficult to travel around. And so on.

We can keep debating these reasons, and would never reach a conclusion. But if we really want to understand why foreigners don't want to study in India, the easiest way to find out is to understand why Indians don't want to study in India. Yes, a very large number of Indians go abroad to study. And I bet they don't do so only because they think that international exposure will help their careers. (If that was all, then we should be seeing a lot of people going abroad for a semester or two.)

While we have only 45,000 foreign students in India, more than 5.5 lakh Indians are studying abroad as per a Lok Sabha answer by the Government in August, 2017. Instead of 1.5 lakh foreigners, can we have a goal to attract 1.5 lakh of these back to Indian universities by 2023. I am convinced that if we can attract Indians to Indian universities, foreigners will also get attracted.

So, why do Indians go abroad. They do, because there aren't many good institutions in India. And therefore, those who didn't get admission to any of the few good quality institutions and could afford to study abroad, leave India. If we want to have 2 lakh foreigners, and if we assume that on an average our best institutions will have 5 percent foreign students within the next 5 years, it means that we must have good institutions with 40 lakh Indian students in them. The entire IIT system is only 75,000 students (and I have no hope of IIT system having 5% foreign students within 5 years).

And the reason for not having good enough institutions in India is very obvious. Quality requires resources. In India, government invests heavily only in a few institutions, and most states have tuition control on private universities. We must find a solution to this problem: How to provide students with weak financial background access to good quality education. Today, she has no such access, because there is no (or very little) good quality education. And our public policy has consistently preferred access over quality. Can we find a mechanism by which a poor can get access to quality. This could be by way of allowing high tuition but supporting financially weak students through a variety of means. By government chipping in through some schemes of scholarships for poor. With banks giving easy education loans. By encouraging philanthropic funds to flow into education through which the institutions can provide financial support. It will have to be a combination of all of these. And if we can allow quality institutions to exist on Indian soil, we will not only save huge amount of foreign exchange that we spend on educating lakhs of our youth abroad, but will also be able to attract foreign students to such institutions.

And when we talk of quality of education, it is not just about attracting good faculty and having good infrastructure, but also having a good student experience. Do we have enough freedom on our campuses. Do we have enough flexibility in our academic processes. And when you consider some of these issues, unfortunately even the best in India (like IIT system) do not compete well with even the ordinary outside. There are about 100,000 alumni of IIT system outside India. How many of them are able to convince their own sons or daughters to spend just one semester under Study Abroad program in an IIT. Certainly, in these cases, the issue is not lack of information but actually having the information that their alma mater does not compare well with the options that their wards have.

Of course, it is not my point that the "Study in India" initiative is bad. We must attract as many foreign students as our current quality of education providers can do. Advertising our strengths, pushing public institutions to admit more foreign students, providing tuition waivers, easing visa and other hurdles will increase that number, but to reach 2 lakh and beyond, we will need to improve the quality of our education offerings.