Arriving at a good school fee
Quality schools deserve a price premium and so the best way is to leave the pricing to the market forces
Price regulation is required if there is a monopoly, as it leads to price gouging. But private education is very competitive and parents have umpteen choices. As mentioned earlier, the E&Y report of March 2014 states that 25 percent of all schools in India are under private management, summing up to 338,000 private schools in 2011-12. In this concluding part, we look at the factors that decide fee and how to create a system that benefits all stakeholders.
Fee Factors
The cost per child depends on many factors with batch size and school infrastructure being the two biggest elements. A school with only 20 students per class will cost twice as a class with 40 students. Size determines teacher’s attention. In a large class, the teacher has no time for each student and tends to focus on the bright kids. So, parents with children, who are laggards need to put them in schools with smaller batch size so that they get attention and pick up.
Expensive schools insist on a small batch to give every child a chance. So, the school fee is determined by its cost structure and pricing philosophy. But schools must spell out their fee structure before the parents commit. And if the parents still want to pay, why should others object?
Parents’ Point
A few parents of children in private schools agree that they made a choice after receiving full information about the fee structure. But their main concern is fee increase. A child admitted to Class 1 will be in the same school till Class 10. Changing schools in the middle due to fee reasons is a challenge because the child will suffer. More importantly, good schools discourage admissions into Class 2 to 9.
So, the parents demand schools to spell out the annual fee increase at the time of admission. They expect the schools at least to not increase the fee disproportionately and without justification. The second issue is the value they get for the fee they had paid already. If the school is not delivering value, why should parents agree to a price increase? But how does one calculate the value you get in school education? In my view, most parents see value with the school as long as their child is doing well.
However, determining value at the time of admission is complex. Parents mostly rely on the information from other parents. And this information is incomplete or biased. The admission process is also opaque. The parents are put to stress till the last minute and they succumb to pressure. They want admission at any cost. Once their children are admitted, the ball game changes!
So one of the solutions we need is mobility across schools. The government should encourage creation of a portability platform where parents wanting to swap their children’s school can connect and the schools should encourage this. This will put the school managements under notice.
Regulating Fee Hike
According to GO 91 of 2009, every school must submit its audited accounts and propose the annual fee for the next year based on the operating cost structure to the District Fee Regulatory Committee. There are many models for fixing the annual fee. The most popular model seems to be the cost plus model, which calculates two types of expenditure – capital expenditure and operating expenditure.
Capital expenditure includes investment in infra and operating expenditure includes all annual costs. The cost structure items will also vary from school to school. The capital cost recovery related items like depreciation and interest on loans will come down with time. Costs like salaries go up every year. So, the total cost will have to be calculated from year to year.
Auditing Costs
But even if each school audits its costs and submits a price to the District Fee Regulatory Committee, how will this Committee approve and on what guidelines? If they insist on disallowing some costs or capping some costs, it becomes a matter of debate and litigation. The government is used to the NGO model – total cost plus an administrative charge – which is totally unacceptable in an entrepreneurship model. For investment to come in, the equity returns have to be attractive.
Each entrepreneur needs freedom to differentiate from other schools, which means that the cost structure will change from school to school. Quality schools deserve a price premium. One single cost structure, determined by a third party is a strict ‘no-no’ for private investments if new schools will have to be funded.
So, the best way is to leave the pricing to the market forces. Each school must share the pricing and inform the parents about automatic price increase year after year, right at the time of admission. The items of cost that are part of the automatic price increase will have to be spelt out by the school. Parents can calculate the future annual fee and take a call.
Regulate Beyond Normal
If the school wants a price increase beyond the automatic price increase, they need to submit their cost increase data to the District Fee Regulatory Committee, after publishing the data on their websites. Only the data on the cost items unplanned need to be submitted. The DFRC will intervene only if it feels that the price increase is unreasonable.
School portability, where students mutually exchange their school through an online portal, will put the schools in check. This online portal will also enable the former students to share the reasons for their exit and this will again put a lot of pressure on school managements to be reasonable.
