YES Global Institute Report on Creating a Credit Market for Higher Education

New Delhi: The Governments’ financial support is limited to one-third of the total expenditure on higher education, which mainly goes to the Central and state universities. The target of increasing the gross enrolment ratio from ~20%, to 30% by 2020 will therefore heavily depend on the proliferation and strength of private universities leveraging market capital to promote high quality education and which prepares the current and future generations of Indians for the highly competitive global economy.
These institutes heavily depend on students’ fees and other charges for financing teaching and research activities and there is a perceptible lack of quality beyond some islands of excellence. The need therefore is to encourage educational entrepreneurs and other investors to invest in education to generate the much required additional funds for quality education.
The YES Global Institute study on, “Developing a Credit Market for Higher Education” puts granular focus on the structural changes required in the higher education ecosystem and the ways and means to build a functional credit market for the sector.
The availability of fungible capital for credible private sector entities is critical for affecting a qualitative improvement in higher education and facilitating disruptive education models for the new age economy. The study also presents inputs in the form of research papers from eminent academicians and policy makers on a gamut of issues for creating an enabling ecosystem for higher education in the country.
Some of the elements of enabling the higher education system which are part of the study include changes in education loans policy from mortgage based to income based; enabling self funding of Universities through endowment funds; piloting demand side financing like vouchers; a refinance company for skill development; Individual Education Account; and review of ‘not-for-profit’ status of professional education.
Mr. Rana Kapoor, MD & CEO, YES BANK and Chairman, YES Global Institute, said, “A strong, self-sustainable and knowledge intensive global economy can only be built on the foundations of Quality manpower. YES Global Institute is proud to champion the cause of developing a functional credit market for the education sector in India. The availability of fungible capital for credible private sector entities is critical for affecting a qualitative improvement in higher education and facilitating disruptive education models for the new age economy.”

Ms. Preeti Sinha, Senior President and Global Convenor, YES Global Institute, said, “It is imperative that a country’s education system is in sync with the emerging global economic realities to prepare it for the coming opportunities and challenges. The vision of India becoming a global talent hub can only be actualized if India can make corresponding changes to its education system. It has to overcome the key challenges of low levels of employability, under-employment, research and entrepreneurship and take up a structured education vision and academic leadership to align to the emerging economic paradigm.

Major Recommendations from the Study, “Developing a Credit Market for Higher Education in India”
The current mechanism of a mixed public and private delivery of education services suffers from ‘market failures’, which is attributable to the lack of:

o Transparency and effective competition in management and financing of educational institutions; and,
o Institutional accountability in assuring acceptable level of quality of education and training, which in effect may not guarantee the future jobs and earning prospects

The YES Global Institute study proposes the following:

1. Income contingent loans policy needs to be designed with two purposes in mind: for those who wish to avoid up-front payments, they ensure that education can remain free during the period of study; and, entire amount of loans should be fully income contingent, rather than mortgage based. Enhancing existing students’ loans arrangements allows them to do so from the higher earnings they gain throughout their working life by virtue of having been to HEI.

2. Infrastructure’ Status to Education, Skill and Health: Education and skills should be added to the list of “Infrastructure Status” which shall open up avenues like tax free bonds, enhanced tax benefits and ECBs

3. Public Private Partnership (PPP) Model Template for education sector: going by the experience of roads, the government needs to create a template for PPP in education. Various ad-hoc micro scale models in existence in various states needs to be studied to evolve a nationally workable and scalable PPP model.

4. Allowing and encouraging Universities to alternative sources of funding through endowment funds, short and long term funding and allowing flexibility to Universities in exploring various investment avenues.

5. Demand side financing: the existing schemes on skills financing should be supplemented by demand side financing instruments like skill vouchers. Among the myriad skill development schemes, demand side financing in the form of skills vouchers shall enable the freedom of choice to the end user to choose between both the provider and the kind of skilling.

6. Centralised Fund for Skill Development: A new entity for centralised fund mobilization vis., “Education & Skill Development Finance Corporation (ESDFC)”, could be created for catering to the capital expenses of educational and skill development institutes. This shall act as an umbrella body with a number of functions including formulating an eligibility criteria for educational and skill development institutes etc.; formulate parameters to decide on which projects are to be funded and; which kinds of capital expenses are to be funded including funding of operating expenses if any.

7. Refinance Company for Skill Development to improve upon the current mechanism of credit guarantee funds to mitigate risks of education sector lenders and enhance the availability of capital to this funds starved sector

8. Education to be included in allowed “Pattern of Investment” by IRDA, PFRDA etc. to open up funds availability through insurance and pension funds (EPFO, NPS) into avenues like education bonds

9. Creation of IEA (Individual Education Account): Similar to IRA (Individual Retirement Account) of US we should have an account for education. Following can be its features:
o Tax Deduction on depositing of amount
o Withdrawal to be used only for the purpose of education of account holder
o Withdrawal for any other purpose to be taxed in the year of withdrawal
o Structure similar to PPF can be used for administration and investing

10. Increase in Deduction under Section 80E: Currently only deduction of interest is allowed under Section 80E of the Income Tax Act. Deduction of Principal Loan Repayment should also be allowed as a deduction under section 80E as is currently permitted for home loan repayments u/s 80C of the Income Tax Act

11. Review ‘not-for-profit’ tag to all education: Finally, the private sector institutions, which are allowed to operate on ‘not-for-profit’ basis, are generating huge revenues without caring for the quality concerns. As the large segment of higher education is considered economic investment, rather than social service, the educational entrepreneurs and other investors may be allowed to invest in education ‘for-profit’ so as to attract additional funds for quality education. Unfair practices should be prohibited through appropriate legal and administrative handles.