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Reinforcing education sector through fee financing

Reinforcing education sector through fee financing
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By CNBCTV18.com Contributor Jul 27, 2021 2:03:18 PM IST (Updated)

Since educational institutions are seen as sacred places, they cannot be seen or accepted as businesses making money.

Education in India is seen among the noblest sectors and public service. Teachers are placed much higher in society due to the impact they bring on the present and future, and educational institutions are seen as sacred places. On one hand, this notion has brought great respect to the sector and those working in it; on the other, it has also given rise to a problem.

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Since educational institutions are seen as sacred places, they cannot be seen or accepted as businesses making money. Even the law in the country prevents schools from operating for profit. A sharp contrast to the above statement will be felt if one takes the opinion of parents whose kids are studying in schools, especially private schools. Parents feel that schools charge an exorbitant amount of money and fill their own pockets. This contrast is perhaps unique to the Indian education system. The system is suffering because it is not allowed to make profits and the users are suffering due to perceived high costs.
The problem is not new
The Indian education sector was already facing multiple challenges and the advent of the Covid-19 pandemic made it even worse. Millions of people suffered job and income losses during the pandemic followed by the subsequent lockdowns. They were faced with the choice between survival and educating their kids. The choice was obvious. Many students dropped out or are on the verge of dropping out of the formal education sector due to the financial crises faced by their families.
During the lockdown, the education system tried to salvage itself by starting online classes to ensure learning continuity. Due to the low internet data rates and high smartphone penetration, a lot of students were able to attend these classes. Many parents, however, didn’t see any utility of these classes and argued that the schools should not charge the fees for the lockdown period. The counterargument was that if schools will not charge the fees, their entire economic activity at schools will cease as they will not be able to pay salaries to teachers and support staff. When the government ruled that fees cannot be waived, the parents were caught in the situation of the devil and the deep sea.
The solution has arrived
To help parents get out of this situation, fee financing has emerged as the most viable option. Fee financing refers to an impact investing arrangement where the finance company pays the tuition fees to the institution and the parents can repay the finance company at a later stage in easy installments. Generally, the finance company pays the entire session’s fees upfront and the repayment is done in the form of no-cost EMIs. Conventional banks or NBFCs can also finance fees, however, there are costs like processing fees and rate of interest involved. Also, extensive paper works and the question of the creditworthiness of the applicant make the process complicated.
Fee financing creates a win-win situation for both sides, the institutes, and the students. In a country like India, where millions of students drop out of schools every year due to financial reasons, an easy financing option was always needed. The Covid-19 pandemic has only emphasized on what was already known to the entire education sector. With fee financing options in place, the parents are not forced to compromise with the education of their wards even in case of reduction or complete loss of income. It also does not put any extra burden of processing charges or high rates of interest on them. Therefore it becomes an easy choice. The educational institutions receive the entire session’s fees upfront. Empowered with capital in hand, the institutions can plan the sessions better and invest in the infrastructure.
It is said that the educational institutions only recover 1 dollar for every 1.5 dollars they spend on education. This essentially makes them loss-making entities. This might be worse in India’s case. This results in a serious financial crunch in the Indian education sector. The education ecosystem also suffers from considerable dropout rates and disparities in standards from location to location. The arrival of Covid-19 magnified all these problems multiple times. By pumping affordable capital into the education system, fee financing will minimize the drop-out rate of the students, boost investments in modern infrastructure and help standardize education across the country. It is high time that the education sector, society, and the government formally and sincerely acknowledge fee financing as a force to revolutionize and strengthen the sector not only in near future but also in the long run.
The author, Sunit Gajbhiye, is Co-Founder and CBO at Financepeer. The views expressed are personal
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