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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.

1 comment:

Amarjeet Singh said...

I think one needs a whole lot of financial innovation beyond the few traditional ways you mentioned to be added to the bucket for long term sustainable impact. A few examples:
1. Allow these institutions to tap into their alumni who may be making reasonable amount. Allow for a fund to be created where people can put in small amounts which is exempted from income tax and promises reasonable returns (say 6%,which is still higher than what fixed deposits will give you after tax liability). Part of this fund can be invested into bonds giving around 8-10% interest so that the difference in interest results in corpus getting created in long term.
2. Allow very generous rules for faculty and students to take up entrepreneurship. Support them in return for the equity which can make large chunks in long term.
3. Allow for creation of creative debt funds which can give loan for education by being a bit more creative.
4. Make it mandatory for government events to happen in these institutions when there is summer/winter break to monetise the fixed assets and make more money as side income which can subsidise the education cost.
5. Bring down the 5 lakh cost using technology. Why can't we have many more students enrolled (maybe even 5-10x the capacity) who only have access to online teaching resources and maybe very infrequent doubt clearing sessions and exams on campus.
5. Start executive education and charge more to subsidies other education - many on job executives need skill upliftment for which they may be willing to pay as well.