Self Financing Courses in Higher Education--Pricing and Quality Issues

Self Financing Courses in Higher Education

1. Self-fino nced Cou rses-
Economic Sustoinobility
& lnclusive Growth
' Edited by
Dr. SukamalDatta
'm

2. 94
Self-financed
Courses
in
India
-
Ec
o
n
o
m
i
c
S
u
s
I
a
i
n
a
b
i
I
i
r"v-
&
I
n
c
I
u
s
iv
e
G
rou'
t
h
American
Workforce
November
2005.
National
Centre
on
Education
and
the
Economy
(NCEE).
Johnstone
Bruce
(2006)
Financing
Higher
Education:
Cost-Sharing
in
International
Perspective.
Boston
College,
CIHE,
March,
2006.
Sudhanshu
K.
Mishra,
On
Self-Financing
of
Institutions
of
Higher
Learning
in
India,
Working
paper,
NEHU
Economics
working
paper,
October
3,2003.
95
Self-Financing
Courses
in
Higher
Education
Pricing
and
Quality
Issues
Subir
Maitra
AssociateProfessor
of
Economics
Heramba
Chandra
College
(University
of
Calcutta)
Abstract
Self-financing
courses
are
the
need
of
the
hour,
not
only
to
meet
the
requirement
of
educated
labour
force
for
attaining
higher
growth
in
the
economy
but
also
toreap
the
benefits
of
"demographic
dividend".
In
India,
the
prices
of
these
courses
vary
widely;
so
do
their
quality.The
presence
of
informational
asymmetry'
makes
it
more
difficult
to
ascertain
quality.
This
informational
asymmetry
alsoactsasa
boonto
privateproviders.
Promotion
of
competition
by
way
of
giving
a
'level
playing
field'
to
all
providers
may
improve
quality
of
seltfinancing
courses.
Providing
incentives
to
the
service
providers
to
improve
upon
quality
may
not
work
if
the
institutes
have
little
interest
in
maximizing
its
reputation
or
prestige.
If
an
institute
prefers
to
stay
at
low
level
equilibrium
with
sole
objective
of
maximizing
its
profit
or
suqplus,
market-based
regulation
system
with
focus
on
incentive
'and
quality
may
not
work
at
all.
Section
I:
Introtuction
Higher
education
holds
the
key
not
only
to
"knowledge
creation"
but
also
tomeeting
the
labour
supply
requirements
of
an
eeonomy
for
faster
growth.r
In
a
knowledge
driven
society,
higher
education
is
crucial
for
determining
the
competitive
edge
of
an
economy
in
the
global
market
as
it
fosters
innovation
and
development
and
dissemination
of
technologt'.ln
case
of
India,
higher
education
has
become
utmost
essential
also
for
reaping
the
benefits
of
what
has
been
tenned
as
"demographic
dividend".
Higher
education
is
said
to
improve
functional
ability
and
effrciency
of
an
individual.
It
makes
an
individual
'employable'
by
the
industry
or
capable
of
launching
a
technology-driven
'start-up'.

3. 96
Self-financed
Courses
in
India
-
Economic
Su,stainabilin,
&
Inclusive
Growth
largersize
of
educated
'employable'
Iabour
force
is
essential
if
we
ars
to
attain
higher
econornic
growth.
For
this
huge
expansion
of
higher
education
sector
is
necessary.
Adequate
provision
of
state
finance
is
arguably
the
best
option
for
developing
the
higher
education
sector.
But
given
the
size
of
fund
requirement
for
expansion
of
higher
education,
it
is
most
unlikely
that
state
would
be
able
to
finance
the
entire
exercise.
Despite
recent
increases
in
budgetary
allocation
for
higher
education,
exploring
alternative
sources
of
financing
higher
education
remains
quite
important.
Private
funding
is
necessary
so
is
charging
of
fees
to
students
for
higher
education
courses.
The
opening
ofnew
courses
under
self-
financing
mode
has
nowadays
beccme
a
policy
option
out
of
this
necessity.
This
paper
makes
a
brief
review
ofthe
globally
ongoing
debate
on
financing
of
higher
education
institutions
befbre
focusing
on
the
Indian
scenario.
Thc
issues
relating
to
pricing
and
quality
of
self-financing
courses
have
been
discussed.
In
the
concluding
section,
the
role
of
the
regulator
in
maintaining
the
quality
of
these
courses
have
also
been
touched
upon.
This
paper
also
suggests
some
policy
measures.
The
paper
is
divided
into
seven
sections.
Insection
I,
an
introduction
to
the
subjectis
given.
Section
II
focusses
on
the
global
debate
on
the
issue:
'Who
will
pay
for
higher
education?'
Section
lll
presents
an
account
of
the
h
i
ghereducation
scenario
i
nlndia.
SectionlVanalyses
the
system
of
pricing
of
self-financing
courses
in
India
while
Section
Vmakes
diagrammatic
presentation
of
the
pricing
mechanism.
Section
Vlraises
various
issues
relating
to
the
quality
of
self-financing
courses.
Section
VII
concludes
this
paper
by
highlighting
the
role
of
the
regulator
in
maintaining
quality
of
self-financing
courses
and
making
some
policy
suggestions.
Section
[I:
Who
will
pay
for
higher
education?
-The
debate
One
of
the
most
debatable
issues
of
the
2lst
century
worldwide
is
concerned
with
the
question:
'Who
will
pay
for
higher
education?'
In
the
dominant
neoliberal
ideology,
higher
education
is
viewed
as
essentially
a
private,
individualised
commodity
and
students
should
bear
more
of
the
costs
(Economist,
)1
zAAq.
The
World
Bank
has
adopted
an
approach
for
higher
education,
founded
on
the
salrle
principle-
The
Bank
in
its
approach
has
put
emphasis
on
(i)
recovery
of
public
cost
of
higher
education;
(ii)
promotion
of
education
loans
through
the
development
of
a
credit
market
with
selective
scholarships,
especially
in
higher
education;
and
(iii)
decentralisation
of
the
management
of
public
education
and
encourage
the
expansion
of
non-goyernment
and
cornmunity
supported
institutions-
Thus,
charging
user
fees
with
a
view
to
recovering
the
public
cost
of
higher
education
has
been
stressed
upon
even
by
the
World
Bank'
The
three
main
sources
of
funding
for
higher
education
institutions
are
governments,
students
and
households,
and
other
private
entities.
Government
fesources
include
operational
grants
(for
both
teaching
and
research),
capital
investment
and
research
granrs
paid
directly
to
institutions-
Student
payments
include
tuition
fees
and
charges
for
ancillary
services.
Other
private
payments
and
resources
include
private
donations
and
gifts'
and
payments
for
consulting
patents,
and
other
senrices.
Tilak
and
Rani
(2003)
argued
that
given
the
increasing
importance
of
higher
education,
the
state
should
continue
to
take
a
major
responsibility
of
financing
the
universities.
All
other
sources
of
finances,
including
fees,
should
be
viewed
only
as
peripheral
ones,
supplementing
public
expenditures.
Section
III
:
Higher
edueation
scenario
in
India
Higher
education
institutions
in
India
include
universities,
colleges
and
other
institutions.
These
institutions
can
be
broadly
classified
by
three
attributes:
(i)
Degree-granting
power;
(ii)
Legislative
origin;
(iii)
Fundings.
Universities
can
award
degees
in
India.
Universities
can
be
unitary,
with
a
single
or
multiple
campuses,
without
any
colleges
affiliated
to
it.
Rest
of
the
universities
are
of
affiliating-type.
These
universities
also
offer
degrees
to
their
own
students
as
well
as
to
the
students
of
the
colleges
affiliated
to
them.
[n
terms
of
legis]ative
origin,
uriversities
could
be
central
universities,
state
universities
and
deemed
universities.
Universities
established
by
an
act
of
the
Parliament
are
called
central
universities,
by
an
act
of
the
state
legislatures

4. 98
Self-financed
Ccturses
in
India
-
Economic
Sustainability
&
lnclusiye
Growth
are
known
as
state
universities.
Institutions
rvhich
are
granted
the
'deemed-to-be'
universities
status
by
the
central
government
are
knorvn
as
deemed
universities.
On
the
basis
of
funding,
higher
education
institutions
are
broadly
classified
as
Public
institutions
or
Private
institutions.
Public
institutions
include
both
government
institutions
and
aided
institutions,
whose
major
source
oi
fund
is
the
government,
both
the
central
and
the
state.
Private
unaided
institutions,
however,
sustain
primarily
on
the
fees
charged
to
their
students.
These
institutions
are
all'not-for-profrt'
institutions.
Section
fV:
Self-Financing
Programmes
in
India:
The
issue
of
pricing
The
programmes
which
are
financed
by
charging
user
fees
from
the
students
are
known
as
self-financing
programrnes.
The
govemment
subsidy
is
normally
not
available
for
running
such
self-
financingprogrammes.
However,
there
are
wide
variations
in
thepricing
cf
self-financing
programrnes
in
trndia
depending
on
the
nature
of
the
institutions
offering
them.Private
universities.
which
enjoys
greater
flexibility
to
introduce
its
own
programmes
and
admit
students,
charge
higher
fees
tomeet
the
cost
of
the
educational
programmes.
Private
deemed
universities
also
can
introduce
their
own
programmes.
admit
studsnts
and
charge
fees
to
meet
the
cost
of
theeducational
prograrnme.
However,
for
private
deemed
universities,
fees
charged
are
subject
to
the
approval
from
the
state
level
committees.
Both
these
types
of
universities
need
to
recover
the
capital
aswell
as
revenue
expenditure
from
the
user-fees
levied
upon
students.
There
is
noeffective
regulatory
control
on
the
admission
and
fees
in
the
private
universitiesa.
The
colleges
affiliated
to
state
universities
offer
courses
in
both
general
and
professional
disciplines.
These
colleges
are
of
three
types:
government
colleges,
privatelv
managed
but
government-aidedcolleges
and
privately
managed
but
non-
governrnent-aided
colleges.
Most
of
the
regular
programmes
offered
by
the
fbrmer
two
types
of
colleges
are
subsidized
by
the
government.These
colleges
can
introduce
any
programme
after
the
approval
of
the
affiliating
universities
but
can
charge
fbes,
as
x)
rJecided
by
the
government.
These
institutions
are
allowed
to
introduce
seltfi
nancing
progrcmmes.
Sincethese
institutions
have
ready
infrastl-ucture,
they
can
charge
user-fees
only
to
recover
the
recurring
expenditure.
Private
colleges
not
receiving
any
government-aid
can
charge
user-fees
to
cover
capital
as
well
as
the
revenue
cost
fromthe
stgdents.
All
the
programmes
delivered
are
self-financing
by
nature
in
privatecolleges
-
general
as
well
as
professional.
Thus,
the
pricing
of
self-financing
courses
has
two
distinct
patterns
in
India
:
firstly,
the
government
colleges
and
the
aided
colleges
under
the
supervision
and
control
of
the
afliliating
universities
are
allowed
to
charge
fees
just
sufficient
to
recover
the
revenue
expenditure.
Secondly,
the
private
universities,
private
deemed
universities
and
private
non-aided
colleges
affiliated
to
the
state
as
well
as
the
private
universities
can
charge
feesto
recoYer
both
capital
as
well
as
revenue
expenditures.Forsome
of
the
self-
financing
professional
courses
such
as
engineering
and
medical,
howeveq
regulatory
authorities
frx
the
fees.
For
the
rest,
there
is
no
effective
regulation
andmonitoring
of
fees.
Even
so,
they
cannot
raise
their
fees
to
any
levelbecause
of
trwo
reasons:
Firstly,
by
fixing
higher
fees,
they
may
lose
their
prospective
buyers
(students).
Secondly
and
the
most
imporlantly,educational
institutes
in
India
are
not
allowed
to
make
'profit'
by
fixing
higher
fees'
What
they
can
make
is
a
'reasonable
surplus'-
ln
the
famous
Pai
Foundation
case,
the
apex
court
has
allowed
educational
institutes
to
make
'reasonable
surplus'
but
the
reasonable
surplus
eamed
by
such
institutions
can
only
be
utilised
for
the
purpose
of
education,
i.e.
for
the
expansion
and
augmentation
of
education
and
not
for
any
other
purpose.The
reasonable
surplus
should
ordinarily
vary
from
6Yo
to
l5oh.
Section
Y:
Demand,
Suppty
and
Pricing
of
Self-financing
courses
We
can
analyse
the
issues
relating
to
the
pricing
of
self-
financing
courses
in
higher
education
with
the
help
of
demand
and
supply.
We
classify
courses
in
two
categories:
Subsidized
coursQs
and
Self-financing
courses.
In
Figure:
1,
the
market
of
subsidized

5. r
t00
Self-financed
(-ourses
in
India
_
Econontic
Sustainobilit-v
&
Inclusive
Growth
l0l
If,
however.
the
price
(fee)
is
fixed
abovo
,
say
at
,
then
an
excess
supply
Eu
wiltr
be
created
and
some
of
the
seats
of
self-
financing
coursei
will
not
be
tilled
up.
This
rnay
cause
closure
of
some
of
the
institutions
offering
selGfinanced
courses-
courses
in
higher
education
is
shown.
These
courses
taught
in
the
public
institutions
are
subsidized
courses.
Since
the
number
of
public
institutions
is
fixed
in
the
short-run,
the
suppry
of
such
course
(in
terms
of
total
nurnber
of
students
to
be
admitted)
is
given.
Therefore,
the
supply
curve
of
subsidised
courses
(SC)
is
vertic.al-S...
The
demand
curve
of
such
courses
is
highly
elastic.
This
is
because
most
of
the
'buyers'
of
subsidised
corrses
co*e
from
the
poor
or
middle
crass
famiries
whose
demands
are
price-
sensitive.
The
course
fees
are
fixed
by
the
governrnent
at
u
to*
Ievel
P..,
which
is
substantiaily
rower
tharrper
unit
cost
of
the
course
'!'_
!"-Pr.)
is
the
per
unit
government
subsidy
for
the
course
which
is
paid
to
the
public
institutions
offering
the
course.
As
the
demand
of
subsidised
course
exceeds
its
suppry;
a
section
of
the
students
would
not
get
admitted,
as
shown
by
qQ,.
If
this
section
of
the
students
is
to
be
accomodated,
the
capacity
of
the
public
institutions
to
accommodate
students
has
to
be
increased.
This
means
the
vertical
s,ppry
cu*,e
is
to
be
shifted
rightrvard
to
51..
For
this
new
public
investment
in
higher
edrcation
is
necessary.
But
given
the
size
of
fund
requirement
for
expansion
of
higher
education,
it
is
most
unrikery
that
state
wourd
be
able
to
finance
the
entire
exercise.
Then,
the
option
is
to
open
self_
financing
courses
either
in
pubtic
institu;ions
or
under
private
initiatives.
Figure:
2
shows
this.
since,
'c'
is
the
per
unit
cost
of
higher
education,
for
a
price
d"
c,
the
serf-financing
"ou."",
wourd
not
be
offered
and
the
suppry
wourd
be
zero.
As
the
price
Iever
rises,
self-financing
courses
would
be
started
in
ihe
pubric
institutions.
New
private
institutions
would
also
be
set
up
to
oflbr
self-financing
courses-
Thus
the
suppry
curve
is
positively
sroped
as
shown
in
Figure:2.
The
demand
curve
of
such
course
is
Ds,..
If
the
price
(fee)
is
decided
by
the
market,
the
equiribrium
prici^(fee)
will
be
Pr...
In
this
case,
institute
offering
such
course
will
enjoy
a
per
unit
surplus
of
(-
c).
If
the
regulating
authority
fixes
a
price
(lee)
for
self-financing
courses
at
a
level
below
,
say
at
,
then
there
will
appear
an
excess
demand
ED.
rf
the
number
of
institutions
offering
self-financed
courses
inlreases,
the
suppry
curve
will
shift
rightrvard
to
.
This
will
eliminate
excess
demana.
{
Iuit
sutrsidr
Psc
o
Figure
1:
Market
of
Subsidized
Courses
q
4t
Excess
tlcrnalxl
f
Psrc
I
nrr
'rullu.
{
o"clv
Figure
2:
Market
of
self-financed
Courses
Section
VI:
Issues
relating
to
quality
of
self-financing
courses
There
has
been
an
explosion
of
self-financing
institutions
in
India
since
1991
offering
courses
in
engineering,
medicine,

6. t02
Self-financed
Courses
in
India
-
Econarnic
Sustainabiliry
&
Int'lusiv'e
Growth
pharmacS
architecture.
management,
law,
media,
fashion.
journalism,
tourism
etc.The
fastest
grorvth
has
taken
place
in
engineering,
with
the
number
of
AICTE-approved
engineering
colleges
increasing
frorn
309
in
1990
to
3389
in
2015.
The
number
of
institutions
offering
management
courses
has
also
boomed.
lhis
rather
unusual
growth
in
higher
education,
primarily
due
to
private
participation,
raises
several
questions
about
its
propriety.
In
India,
where
education
is
a
not-for-profit
sector,
the
proliferation
of
private
universities
and
institutes
is
quite
intriguing.
If
private
operators
cannot
make
profit,
what
are
they
working
for?
Is
it
pure
philanthropy?
Research
has
revealed
the
ulterior
motives
of
many,
if
not
the
most,
of
the
operators.
They
are
"not-for-prof,rt'
de-jure,
but
are
'for-profit'
de-facto"
They
siphon
off
funds
in
lieu
of
profit.
This
has
damaging
impact
on
quality.
As
employability
is
linked
with
the
quality
of
rnost
of
the
self-financed
courses,
the
employability
of
students
graduating
from
these
institutions
suffer
due
to
this.
However,
due
to
the
presence
of
asymmetric
information,
which
has
been
confirmed
by
a
survey
amongst
students
by
this
author.
a
prospective
student
often
makes
wrong
decisions
about
course
and
institute.
The
unscrupulous
operators
also
take
advantage
of
the
asymmetric
information
and
provide
their
students
with
technical
education
of
such
quality
which
is
much
poorer
than
what
they
promised
to
deliver.
A
layer
of
asymmetric
information
seems
also
to
exist
between
the
institute
and
its
regulators,
due
to
which
regulators
often
fail
to
realise
about
the
quality
of
education.
When
higher
education
is
treated
more
as
a
commercial
venture
for
making
money,
unscrupulous
entrepreneurs
are
sure
to
take
advantage
of
this
situation
to
make
maximum
profits.
They
would
take
recourse
to
siphoning
off
funds
under
different
heads
which
would
apparently
look
like
valid
expenses.
They
would
also
nurture
various
malpractices
in
relation
to
payment
of
rent,
salaries,
non-existent
facilities
etc.
Many
of
such
cost-cutting
exercises
would
affect
quality
of
education.
The
majority
of
graduates
from
these
institutes
will
come
out
as
'unemployable'
and
their
so-called
'degrees'
just
won't
have
the
right
fundamental
education
behind
them'.
There
are
some
exceptions
as
r,l,ell.
The
r0l
institutes
r,vhielr
atre
rnore
concerned
about
their
reputation
would
not
g0
firr
rnaxirnurn
Prc'fits.
Section
VII:
Conclusion
and
Policy
Suggestions
Gtrobally"
thcre
has
occurred
an
ideological
shift
towards
the
market
as
a
cgordinating
mechanism
in
higher
education.
Today
in
many
countries,
including
lndia,
higher
education
increasingly
functions
in
quasi-markets,
where
governments
(through
some
regulators)
play
an
important
guiding
and
facilitating
role.
The
state
as
a'market
engineer'is
central
to
the
notion
of
market
govemance5.
This
concept
refers
to
the
use
of
the
market
mechanism
of
supply
and
<lernand
in
govemance
processes.
In
this
governance
mode,
government
interventions
are
focused
on
the
shaping
of
a
level
playing
field,
which
facilitates
self-regulation
(Jongbloed
2003;
de
Boer
et
al.
2008)"
Devising
an
appropriate
incentive
scheme
for
qualitative
development
of
higher
education
is
of
vital
importance
in
this
system.
Although
quality
is
observable
for
experience
good
(service)
like
higher
education,
it
is
not
verifiable.
If
the
quality
is
verifiaLrle,
its
level
can
be
costlessly
described
ex
ante
in
a
contract
and
ascertained
ex
post
by
a
court.
When
quality
is
unverifiable,
tlre
regulator
rnust
recreate
the
incentives
of
an
unregulated
institution
to
provide
quality:
(i)
it
must
reward
the
regulated
institute
on
the
basis
of
output;
(ii)
the
possibility
of
non-renewal
of
a
regulatory
license,
of
deregulatign
or
of
missing
future
output-contingent
rewards'
ln
case
of
experience
good
like
higher
education,
incentives
to
supply
quality
and
those
to
reduce
cost
are
inherently
in
conflict,
at
least
in
the
short
run.Such
incentive
schemes
may
not,
however,
work
if
higher
education
institutes
have
little
interest
in
maximizing
its
reputation
or
prestige.
If
a
higher
education
institute
prefers
to
stay
at
low
level
equilibrium
with
sole
objective
of
maximizing
its
profit
or
surplus,
market-based
regulation
system
with
focus
on
incentive
and
quality
may
not
work
at
all.
Regulators
will
face
both
adverse
selection
and
moral
hazards
problems
while
dealing
with
such
institutes.
By
developing
a
ranking
system
of
institutes,
the
regulators
may
be
partly
successful
in
sensitizing
some
institutes,

7. 104
Self-linanced
Coarses
in
India
-
'
Economic
Sustainabilily
&
Inclusive
Growth
but
majority
of
institutes
may
remain
neutral.
some
of
them
may
prefer
exiting
to
going.through
the
elaborate
process
of
evaluation
and
ranking
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