The Issue of IIMs’ Fee Hikes

There has been a lot of stuff that has been said on subject of the IIMs’ fee hikes, stuff from all shades of political hues and every colour in the ideological spectrum. The hikes will be good, but my reason is different altogether. It’s not because we, taxpayers, won’t be paying for the education, or the IIMs will no longer will have to cross-subsidise their flagship programmes by running many exec-ed programmes.

It’s just that the fee hike will be great for the student’s academic life in the long run.

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Everybody who has been through the IIT-IIM system will know, exactly what percentage of the time during the course, is spent in academic pursuit. It’s pretty easy to guess. Just look at the average number of quality academic papers, articles or cases or even work that is produced by the average IIT/REC/DCE/IIM grad’s academic life. If you still haven’t got it, it’s abysmally low.

This is not to blame anybody, but that’s just the way the system is. Once you get into any of the premier institutes, you are part of a club with lifetime membership, and benefits accruing to you for free. You are assured a job, no matter what, and the brand helps you out in your professional career, notwithstanding you do something real stupid. Like they say, a Harvard graduate is never unemployed.

Like in the previous post, there isn’t any real incentive for any IIM graduate to perform well during the course, apart from the bare minimum. Like the proverbial IAS officer, the IIM graduate is set for life, and doesn’t need to worry about much, except for economy-wide downturns.

This is not so true in lesser-known colleges, where if you don’t perform and are not part of the top few, you will never get the chance to go to a better university or get a coveted job. Hence, in a rational environment, it is expected that such “disadvantaged” students will work harder than the privileged ones.

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Narendar Pani, in the Economic Times column where they “face-off” people having opposite views, mentioned that the IIM’s have a very short-sighted view of things when they increased the fees. It is interesting to note that he is introduced as a teacher at the National Institute of Advanced Studies in Bangalore, because he is also an editor at the Economic Times, which means since he is the editor, his opinions are ex-officio that of the paper as well. Not that the views were controversial or anything.

It is also interesting to note, while they have clearly mentioned in an italicised disclaimer for the other person who supported the tax-hikes, that the views expressed in that piece were personal, no such disclaimer was printed for the other article. Clearly, ET was careful enough to prevent any legal or ethical mishap, but for those in the know, it seems pretty obvious, what’s going on.

I may be wide off-the-mark as well, in which case, I apologise. But it does smell fishy.

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Dear reader, who is frustrated over the meaningless digression, let’s move rapidly to the point of this post. By increasing the tuition fees, they have ensured that a larger number of students will apply for loans or financial assistance of no small size. Right now, for a student who had taken an educational loan of Rs. 4 lakhs from SBI, at an interest rate of 9.5%, will have to pay roughly Rs. 8000 for 7 years to pay back the loan. For the higher fees, it will be much more.

With this fee hike, the amount that has to be paid back every year more than doubles. For some more than triple. Which means, IIM grads will feel a little more scared about their repayment capability. The financial assistance scheme could also include something to do with grades: meaning that the dole-out becomes a loan, if the grades dip below a certain level. Being scared about the future equals to working harder at academics. Voila!

Something like PE funda: they load you with debt, to get you scared about your repaying capability. That fear gets you working at maximum efficiency.

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For this to successfully work, one needs to address two things:

  1. The students know what they have to repay on a monthly basis, very clearly. Otherwise, if they remain ignorant of the whole thing, till the moment they have to pay up, it doesn’t help at all does it.
  2. It is an open secret that a significant proportion of the educational loans from IIM grads are not paid up. For this to work again, the possibility of pain must be real, in the sense, it must be made sure that the grads pay up after graduating. If the student doesn’t intend paying the loan, why should he even care? (And this after the loans that are taken are below prime lending rate.)

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By the way, I should make it clear, that I don’t really have an opinion on whether the fee-hikes are justified or not, because I don’t know the maths involved. At the moment, I find the justification hard to understand that though the corpus for scholarship can be increased manifold, the IIMs will find it difficult to manage the costs if they don’t increase the fees. Why can’t they meet the costs from the newly-enlarged corpus? As I said, I don’t have access to the financial details (but I do know vaguely that the IIMs are in for long-term problems for financing at the moment.) I repeat again [sic], I really don’t know what the situation is. 🙂

By the way, the idea of government subsidising college education, is a great one. There are a lot of developed countries that do it, which is one of the major reasons some Indians migrate there. It is a great idea, because spending on education is not an expense, but an investment, no matter what the conditions or priorities may be. Maybe the government should spend more on primary education, but if it is not, and is instead spending it on college education, it can’t really do much more harm than some super-dud infrastructure project, can it?

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