Thursday, April 29, 2010

The Cost of Higher Education

In the last 4 years, the tuition fees and other costs associated with institutions of higher learning have started shooting through the roof. For example, fees at IIM-Ahmedabad are now reportedly Rs.13.5 Lakhs for two years. I am not commenting about whether the fees charged today by IIM-A reflect the worth of the education or not (that is a separate point for another day). My intent here is to create consciousness of  the indirect, secondary impact of the fee-rise. The primary effect is on the students hoping to get or getting admission at IIM-A. The secondary effect affects the entire sector it operates in.

Fees charged by such iconic institutions are a little like the "Bank Rate" announced by the RBI: while nobody uses that as a benchmark, generally, fees charged by other institutions with lesser reputations tend to cluster around this figure, and use it as a justification. Some charge more (like the ISB) and most charge less, but not much less. Since the IIM-A has raised fees roughly three-fold (I stand to be corrected) in less than 5 years, institutions of much, much lesser repute (ranging from good, low profile institutions to fly-by-night operators with monstrous advertising budgets) have, in the same period, at least doubled their fees without in any way delivering anything substantially better to the student body. It would be fine if the earlier fees were so low that profitability was an issue. They never were. Higher education has become a business in which politicians have dabbled and entered in a big way. This itself is a sure sign  of how lucrative the business was. Now, they are rubbing their hands in glee: Along with a huge increase in the fees, there has most likely been a significant fall experienced in the cost of "managing the environment", what with the regulatore, the AICTE standing totally discredited today.

What's more, the other forces that could have drummed sense into this sector, like the raters, have themselves over the years, opened themselves to charges of being very pliable, though some of them are in all probability pillars of rectitude. Besides, in any case, rating methodology is itself open to question, with its predominant reliance on physical indicators like infrastructure, which is very easy to create and set up in sectors like Management Education -- no equipment, hospitals or labs are needed. Also,.many institutions have learnt many tricks to "game" these ratings. As a result, there is no way for the lay person to figure out which rater is the most honest, or which institution is the best value for money, or even which institution is exceptionally good. B-Schools, especially, have become marketing institutions at two ends -- to attract applicants and students at one end, and to attract employers and push their students into lucrative jobs at the other (which is already becoming too difficult for most institutions to guarantee, so they talk of maximum and average packages, while downplaying the percentage of placement.

Every student must today conduct a RoI exercise for whether it is worth doing an MBA or not. An important element in this RoI calculation has to be opportunity cost -- what you would earn if you were not to do your MBA. The purpose of this exercise is to recognize clearly that for the below-average or average student, today, even doing an MBA from a 50th or 100th rank B-School in most ranking lists, or worse, an unranked B-School, it will never be worthwhile in financial terms. Once this clarity is achieved, one can take a decision about whether it is worth ding an MBA for all the non-financial reasons, like status, prestige, etc.

1 comment:

  1. Interesting to see the mushrooming of colleges. TWO expenses in INdia if Parents changed their attitudes towards life. If a 22 year old were to take a loan and pay..he/she will get more 'price-worried' if not price-scared. If a 28 year old was to pay for his marriage - most of them will not be able to afford more than Rs. 2laks for the wedding.