Pricing Engineering Education

Economic Times has had an excellent article on 4th March by V Raghunatahn, titled Pricing Engineering Education.

He argues that the fees approved by the state governments do not even cover faculty salaries, if the educational institutions have to follow all AICTE guidelines, and offer 6th pay commission mandated salaries. He does not show complete maths, so I thought of doing it myself.

AICTE requires a faculty to student ratio of 1:15. AICTE also requires that professor to Assoc. Professor to Assistant Professor ratio be at least 1:2:4. That is, you could have more senior persons if you want, but you cannot have all fresh graduates as teachers.

What this means is that for 105 students, there should be a minimum of one professor, two associate professors, and four assistant professors, with minimum qualifications that AICTE has specified. Given that even the worst government college is offering 6th pay commission salaries now (in most states, the few remaining states are expected to pay arrears), the private colleges, if they want to recruit faculty with similar quality as the worst government colleges, will have to pay the 6th pay commission salaries.

The minimum salary of a professor today is about Rs. 12 lakhs per annum. The minimum salary of an Associate Professor is about Rs. 10 lakhs per annum. And the minimum salary of an Assistant Professor is about Rs. 7 lakhs per annum. (I am including basic, grade pay, dearness allowance, transport allowance, HRA, and pensionary contributions, though governments also give other benefits such as LTC, Medical, Earned leave, Sabbatical, gratuity, extra opportunity for consultancy, telephone re-imbursement, school fee support for kids, and so on.)

So, for 105 students, the bare minimum salary outgo on faculty has to be 12 + 10 * 2 + 7 *4 = 60 lakhs. Considering that at least some professor (who will be Director, Dean, Heads, etc.) will be paid more, and everyone has to be given some increment every year, etc., it is reasonable to assume that at least 70 lakhs will be spent on faculty salaries alone, if all AICTE norms are followed and the salary levels are same as the worst government colleges.

Of course, in an engineering college, typically the faculty salary is about 1/3rd of the total cost, which includes salaries of technical staff, administrative staff, outsourced staff for mundane things, labs, and the basic infrastructure itself (assuming that the loans for the basic infrastructure has to be paid through tuition).

So the minimum cost of engineering education has to be around Rs. 2.0 lakhs per annum with any reasonable quality. Out of this, you can expect the promoters to do a little bit of subsidizing by way of creating an endowment, gifting some money in the beginning for land and initial buildings, etc. Over a period of time, some revenue can be generated by generating a surplus from hostels, guest house, and some commercial activities on campus. But, anyone charging you less than Rs. 1.5 lakhs is either a great philanthropist, or is reducing quality tremendously. And if someone is giving you quality of a decent NIT, the cost has to be no less than Rs. 2.5 lakhs. Some good institutes are able to charge less since the promoters have left an endowment, or have donated money to pay for the entire capital cost, or they have some other program where the regulation is weak and therefore there the surplus is very large, or they have an active alumni donation program, etc.

When state governments insist that one can only charge Rs. 40K to Rs. 70K per annum, they are essentially saying that they are not bothered about quality, and they don't care about AICTE norms. Is there any wonder that most graduates of these colleges get very low paying jobs.

I am very curious to know how do fee committees in the states come up with numbers like Rs. 40,000 per year, or even Rs. 70,000 per year as tuition of engineering colleges in their state.

The reader will obviously ask, if the cost is so high, and tuition is so low, then why is there a long queue of promoters interested in opening colleges. That is a legitimate question, and one has to see the real operations of these colleges. They depend on a large number of ad hoc teachers whom they will pay as little as Rs. 1 lakh per year. Typically, these are those poor quality undergraduates who were deemed unfit for any kind of job by industry. Also, no college maintains faculty, or any other resource to the level that AICTE expects. And when a team goes to colleges for inspection, one either brings in resources that day, or the team members knowing the real state of fee regulation ignore the shortcomings, and the whole charade continues.

Serious quality players do not want to enter the education sector, since the only way to operate in this sector is by violating guidelines, and then paying bribes to avoid being caught. They will enter only as university since the fee regulation is not as yet applicable to universities.

I wonder how this system has continued for couple of decades, when anyone could do these numbers on the back of the envelope.