Cost sharing in higher education - student loans, Microeconomics

Cost Sharing in Higher Education - Student Loans

The method is popular as it directly targets only those who are the recipients of the benefits of higher education.The method is however criticised for creating the following distortions. First of all, the method leads to promotion of those courses having a higher value in the employment market. Thus, although some of the courses may be important from a societal angle, the lack of employment prospects would make the financial institutions and the students desist from opting for the courses with less market value. Second, it is argued that the educational credit market in India is still not sufficiently developed for the system to work well. Also, as the recovery of loan is dependent on uncertain future employment prospects, it is felt that the banks may insist upon some collateral.

This would lead to a situation in which the benefits of the method would go to only those who are economically well-off (i.e. those who can meet collateral requirements) leaving out the aspirants from the weaker sections of the society. The method is thus pointed out to have adverse equity implications. The system of higher education is said to cover only a small per centage of the relevant age-group population. By some estimates, access to higher education in India is said to be no more than 6.9 per cent which the Tenth Plan was targeting to raise to 10 per cent by 2007. This proportion is very low when compared with the levels of some developed countries e.g. U.S. 59 per cent, Canada 54 per cent, Israel 30 per cent, U.K. 22 per cent. It is also argued that the benefits of higher educated persons would reach the community at large in which respect it is more like a ‘public good’. By these arguments, it is felt that even higher education, like in many developed countries should be totally funded by the government.

The long term needs of the economy are also considered to be properly met by this vision that the government alone can carry. The externalities of publicly financing higher education are said to be widely varied which includes improvements in health, reduction in population growth, reduction in poverty, improvement in income distribution, reduction in crime, rapid adoption of new technologies, strengthening of democracy, ensuring of civil liberties, etc. The benefits are said to include even technological externalities which are necessary for technical progress and economic growth and to arrest diminishing marginal returns in productivity. As education helps in the fulfilment of all these externalities, it is argued that the public funding of higher education would contribute to the welfare of all groups (i.e. privileged and under-privileged) and thereby the society as a whole. A brief review of policies pursued by other countries would therefore be helpful in getting a balanced view on the issue.

Posted Date: 12/17/2012 6:53:00 AM | Location : United States

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