The Hindu Business Line : Financing higher education

FINANCING of professional higher education (comprising modern and Indian system medicine, and engineering courses) has caught the attention of all stakeholders: Central and State governments, students and parents, private management, and financial institutions.

The reason is simple. Professional higher education has become unaffordable for poor and meritorious students because of steep increase in fees. This is a negative fallout of judicial decisions on freeing both admission and fee fixation from the controls of the Central and State governments since October 2002.

Multiplicity of admission tests by governments and consortium of management of private unaided colleges (which do not receive any form of grants-in-aid from a State government) have added both resource and non-resource private costs to students. Frequent changes in the ratio of allotment of seats between the Government and private management have brought uncertainty to assessing the financial requirements by the stakeholders.

A Central legislation on professional education is being publicly debated to end all this confusion and uncertainties in admissions, and to ensure affordability of professional higher education. The Central Government seems to have given a positive consideration for the debates including in Karnataka.

Instruments of financing

Three instruments of financing the fee may be considered. Each is associated with a stakeholder in the system of professional higher education.

First, cent per cent subsidy by the State government. This is possible if public expenditure on education is increased to 6 per cent of State income. For instance, the Karnataka Government's total expenditure on general, technical, medical and agricultural education in 2002-03 was Rs 372395.83 lakh or 3.71 per cent of the State income (or Net State Domestic Product at factor cost and at current prices). Instead, if 6 per cent of the State income were to be spent on education, the net resources available would have been higher. Allocation of these resources to different types of education, in proportion of their share in total education expenditure, would have provided about Rs 7890 lakh for subsidy to students in the medical stream.

The number of students allocable through the State (Karnataka) Government's Common Entrance Test to private unaided medical, dental and Indian system of medical colleges was equal to or less than 3500 in 2004-05. The per student availability of public subsidy would have been a minimum of Rs 2.25 lakh and, hence, the entire cost of all students would have been financed by subsidy from the State's budgetary resources.

This implicitly assumes that the subsidy is financed by a combination of measures, such as a higher general taxation, a new education cess, switching expenditure from non-education to education sectors, and/or improvements in efficiency and effectiveness in expenditure within and outside the education sector.

Second, cent per cent financing of education by students themselves or by their parents. This is practical for those who pay the fee from own resources, or those who borrow from a financial institution. At present, no collateral or guarantee is required for an education loan up to Rs.4.5 lakh from a commercial bank. This borrowing is guided by long-term returns to investment on education. In a way, slow and low returns to investment may discourage loan-financed education among students with poor economic background.

Third, extra fee collectable from management quota students. In practice, no limit is fixed on the fee for students under the management quota. Certainly, the extra fee income is usable for college development purposes. In addition, a part of the extra fee income may be used for cost sharing with students, as a form of cross-subsidisation within the college.

Implications for a Central legislation

Escalation of cost is inevitable in an inflation-driven economy, and for competitive provisioning of quality of education services in a world of global trading and privatisation of education services in India. Any judicial or administered attempt to reduce this cost to ensure affordability shall be counterproductive on the supply side of quality professional higher education. Rather, the approach should be towards cost-sharing to ensure access and affordability from the demand side. This will not burden any single stakeholder with financing of total cost of professional education.

A Central legislation on professional education should have three provisions on financing of professional higher education. First, allow the Fee Fixation Committee to recommend a cost-based fee structure in each State. Second, ensure that the public expenditure on education is at least 6 per cent of the national/State income. Third, provide a uniform framework for cost-sharing between the Government, students/parents, and private management. These provisions must be enforceable in all institutions in the country.

Thus, a Central legislation with explicit cost-sharing mechanism shall be valuable to regain the lost opportunities in the past.

(The author is with the Institute for Social and Economic Change, Bangalore.)

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