Thursday, July 21, 2011

How do we price higher education?

I continue with the theme of pricing of higher education on which I had a couple of posts earlier. We need to ask ourselves: why do fees in higher education keep rising at a rate ahead of inflation in many countries? In b-schools in India, for instance, fees have doubled or tripled since 2007.

It turns out that the explanation is a straightforward one: institutions of higher education keep raising their fees because there are enough people out there willing to pay these. There is a mismatch between supply and demand and supply is not easily created because it takes years for a new institution to establish its reputation. In these conditions, universities and colleges get away with anything - if they are free to do so- and have no incentives to reduce costs or improve efficiency.

That must also explain why the production technology has not changed one bit in higher education for several centuries now- it's still the teacher using chalk and blackboard or, at best, slides and power point presentations. Quality is seen as a function of keeping the student-teacher ratio as low as possible.

The only way in which fees will be contained is if institutions are run by the state and are duly subsidised. If we leave it to the private sector, we must expect fees to escalate. We have to choose between the US model where private institutions are entirely free to set fees and the German model where the accent is on modest fees or free tuition and universal access. I argue in my recent ET column, Soaring costs of higher education, that the latter would be preferable in Indian conditions.


Anonymous said...

Agree again. German model is more appropriate for our country at this point of time where the inequality between rich & poor is widening and management talent is asymmetrically distributed.

PPP model should be the answer for medium term future.

Anonymous said...

great (a little dated though) article by Jerry Rao....any comments Sir? (with NRN joining the chorus recently...)

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Tarun Kumar said...

you are right... you can also find latest Higher Education alerts online.

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