How To Reduce The Cost Of Education And Ease The Burden Of Student Loans

Incentivise investment in education.

12/09/2016 1:06 PM IST | Updated 12/09/2016 1:07 PM IST
Representative image.

The New Education Policy (NEP) sets itself a grandiose objective of increasing public spending on education, from the current 3.5% of GDP to 6% of GDP. While this would be the best possible move, it may not be practical for a country like India.

In fact, the policy draft also acknowledges the importance of investing in public institutions. The policy acknowledges that "Education, in Indian context, should be considered a public good and there is a need for greater public investment in the sector" and goes on to aim for a 6% of GDP spending on education.

As a country, we can either wait for the 6% to happen or start giving out fiscal incentives so as to reduce the cost of education. Budgetary allocation is extremely difficult, especially at a time when the spends seem to be reducing in real terms.

It is time the government uses its fiscal powers to:

  • Incentivise investment in education.
  • Allow for tax exemptions to help saving for education expenses.
  • Give tax exemptions to reduce the cost of education.
  • Allow tax exemptions for alumni donations to educational institutions.

Till date, the government has rarely used its fiscal powers for the benefit of education. The following measures may possibly be taken, amongst many others:

  • To pay a fee of Rs 1 million, parents have to earn Rs 1.5 million and the government collects Rs 0.5 million as taxes. Shouldn't such savings be tax deductible as an expense, especially because education is a fundamental right?
  • We give tax concessions on principal and interest repayments to buy a home. Why not a similar treatment on education fees? Isn't investing in our children a bigger investment than investing in homes? The current exemptions are woefully inadequate, especially at the higher education levels.
  • We created specialised lending institutions for industry, housing, infrastructure, and so on. Why not for education, to set the rules of the game, to give additional thrust and provide direction?
  • We created tax free bonds/securities that bring down the cost of funds for industry/infrastructure and so on. Why not for education? Can't we think of a Tax Free Systematic investment plan that allow parents to save for their children's education and make it a tax-free instrument?
  • Why should anyone make money on lending for education? Can't they charge us just the inter-bank rate? Can't government give interest concessions by subsidising some part of the interest? Can there be any tax exemptions for banks' lending on education loans? Can't the interest get indexed to inflation so that there is no real interest but only inflation-indexed repayment?
  • Corporates get a Corporate debt restructuring package after they turn sick. Interest waivers, interest reductions, moratoriums are showered in them. On the other hand, students get their parents' only home auctioned when they can't pay due to the lack of employment. No interest waivers, no concessions, not even a discussion. Why the discrimination? The education that promised an occupation failed them because the economy failed them (like in the case of corporates). Isn't that the case?
  • Why can't we fix the maximum EMI that a student can pay out of his total income? Inability to pay because of low or no income is a valid excuse. At least, he us not a wilful defaulter. In most other countries, an employee is prohibited from paying beyond a certain percentage of his income against education loan. It protects the student against no/low income and high EMIs. Don't students taking loans also enjoy Right to Life?
  • Right to Occupation and Right to Livelihood are in the Directive Principles of State Policy. Isn't it better that government empowers it's citizens with requisite skills than subsidising them with ill-conceived job schemes and freebies? Isn't it better that we provide them a capacity to earn than giving monthly alms?
  • The NEP acknowledges the role of alumni donations. Can we have a 200% deduction from total income in calculating taxable income on such donations to encourage alumni to give more donations? We give 100% deduction even for political donations.

The biggest cost of education providers is the corruption they are subjected to. At every level, there are obstructions — from seat allocation, to fees fixation, to yearly inspection, to yearly approvals instead of five-year approvals, to environmental approvals — everything has a cost. The day the government reduces these layers, approves an institution for a minimum of five years and inspects only after-complaints by students, the cost of education will come down.

While awaiting the stated objective of 6% of GDP spend on education, it is time the government moves to reduce the burden on its people to achieve what essentially is a fundamental right and should have been funded by the government.

This is the eighth part of a series of articles on the New Education Policy.

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