Private School Fees Are Not the Problem

Many state governments have placed price caps on private schools to make them more affordable. This will, like all price caps, hurt those whom it is supposed to help.

The fee cap on private schools across various states in the country has led to a chaotic situation for many private schools who are unable to meet this criterion and are threatening to close down the schools.

Price caps on school fees in various states such as Rajasthan (2013), Gujarat (2017), Maharashtra (2011), Tamil Nadu (2009), Karnataka (2017) and others were introduced as a reaction to the demands of some parents against large private schools with relatively higher school fees. Associations of private schools in all these have been protesting these Acts before and after their implementation. They have sought help from the judiciary, individually and as groups, to ease this situation. The majority of these legislations have been stayed and are pending final adjudication.

The imposition of fee regulation on private schools can be understood to be a reaction to the demands of some parents against large private schools charging high fees for their services. This can also be seen as a direct result of the assumption that these are the only types of private schools that exist, which is not the case.

School Fee Regulation in Gujarat: The Story So Far

The Gujarat Self Financed Schools (Regulation of Fees) Act was passed in the state assembly on April 20, 2017. Subsequently, its rules were notified on April 25, 2017.

The Act specifies an upper limit of private school education at Rs 15,000 per year for Pre-Primary and Primary schools, Rs 25,000 for Secondary and Higher Secondary Schools (General Stream) and Rs 30,000 for Higher Secondary Schools (Science Stream). That comes to monthly fees of Rs 1250 for Pre-Primary and Primary Schools, Rs 2083 for secondary and higher secondary schools, and Rs 2500 for higher secondary (science stream).

The Act was introduced by the government with an aim to control the “exorbitant fees” charged by private schools “in the absence of a clear law” regarding it. The Act directs that those private schools that are charging more than the specified limit must submit the proposal for approval and fixation of fee to the Fee Regulatory Committee (FRC) in accordance with provisions of the Act. The Act provides for establishment of four such committees in with their headquarters in Ahmedabad, Vadodara, Surat and Rajkot.

On a case-by-case basis, the schools that seek to hike their fees do so by approaching the FRC before which it will have to justify the increase. The FRC has been given powers to verify the justifications offered by private schools for the fees being charged by them.

In its verdict on December 27, 2017, the Gujarat HC declared the state government’s law to regulate fees as constitutionally valid, and that private schools can’t engage in “profiteering”, but “reasonable surplus” is allowed. The HC ruled that the state legislature was competent and had the authority to form laws for state boards, the CBSE and ICSE. The HC rejected the contention of the CBSE and ICSE schools, among others, which had argued that the state government could not regulate them. Financed Schools had filed an appeal in the Supreme Court, challenging the High Court’s order upholding the constitutional validity of the Act.

On January 15, 2018, the Supreme Court (SC) ordered that no coercive action should be taken against schools that have not yet submitted their fee proposals before the FRC.

In February, the SC ruled that schools will now collect only provisional fees till the matter is finally settled. On April 25, 2018 the SC directed schools and the state government to come up with a new formula to determine fees that is inclusive of all curricular expenses with reasonable surplus, and submit it by June 17.

In an earlier landmark judgment in the TMA Pai case, the Supreme Court established that while private schools had the broad autonomy to fix their admission policy and fee structure, profiteering was disallowed and private schools could only make a ‘reasonable surplus’. In various other rulings over the years, the Supreme Court has taken the line that profiteering from education is undesirable but profits are permissible as long as they are not excessive. 

Problems with the Gujarat Self- Financed Schools (Regulation of Fees) Act, 2017

Under Section 3(1) of the Act, the Fee Regulatory Committee (FRC) will be constituted “for the purpose of determination of the fee for admission to any standard or course of study in self-financed schools”. Thus, the mandate of the FRC is to demand ‘cost-related’ data from schools to determine fees, if the cost is beyond the fee cap. The government of Gujarat issued Rules and Order on the Act on April 25, 2017. Under Section 3(1) of the Act, the rule and order document demands schools to provide information on details of teaching staff, including  their name, designation, qualification, total experience and their PAN number (Annexure II- Part II).

School authorities fear that this might result in “poaching” of teachers, if the data becomes public. A lot of information sought in Form II  is a mandate of the respective board the private schools are affiliated to. Each board already regularly seeks data from its affiliated schools, conducts inspections, monitors exam results, conducts training programmes for teachers, etc.

Section 13 of the Act reads: “The government shall regulate the maintenance of accounts by the self financed schools in such manner as prescribed.” This  is also feared to serve as a gateway for huge bureaucratic interference in administration of private schools.

Further, insulation of the Committee or its members, government or any official authority or person empowered to perform functions under the Act from legal suit, prosecution and other legal proceedings (Section 18), gives them immense power and creates a scope for rent-seeking.

In an interview with the chairperson of a private school in Ahmedabad, he revealed that his school gets more than 100 calls a year from Ministers and bureaucrats from as far as Delhi to influence admission of one or the other child. His apprehension is that the Act might open the door for more such bureaucratic intrusion in school administration. He is also of the opinion that 80% of what the government has asked in Form II of rules and orders  is beyond what they have a right to ask.

The act denounces “profiteering” by private schools.  However, with this rhetoric, the state gives itself an opportunity to dictate terms to private schools and demand crucial information of their day-to-day functioning.

Economics of private schooling

The building block of economics is the determination of market prices through the dynamic interaction of supply and demand. Prices are influenced both by the supply of products from sellers and by the demand for products by buyers. The point at which the demand and supply intersect is the equilibrium price. At this point, buyers’ demand for a good and sellers’ supply of goods is in equilibrium.

When government adopts a price control, it defines the market price of a product and forces all or a large percentage of transactions to take place at that price instead of at the natural price that comes about through the interaction between supply and demand

While consumers are always seeking lower costs in any economy, the problem with the welfare state is that in its attempts to help the poor, it reduces costs at the expense of the producers. While this artificial reduction of price may be seen as a positive impact by the consumers in the short term, in the long run the effects could be ineffective for them as well.

The rise in private schooling fee is a reality. A major reason of the same is that supply of these schools are not able to meet the high demand. In an ideal competitive scenario there will be schools available at each level of price demand.

Private schools generate demand due to a variety of reasons from better learning outcomes, greater accessibility and English medium instruction to provision of extracurricular activities. There has been a steady increase in the fraction of parents abandoning free government schools in favor of fee-charging private schools.

Geeta Kingdon Gandhi in her 2017 research paper “The Private Schooling Phenomenon in India: A Review”, analyses raw DISE data on 20 major states of India to show that over the four-year period 2010–11 to 2014–15, despite the modest increase in the number of government schools, the total enrolment in government schools over this period actually fell by 11.1 7 million (1 crore 11 lakh) students. Total enrollment in private schools (aided and unaided) rose by 16 million (1 crore 60 lakh) students, over the same 4 year period. In Gujarat specifically, the share of private unaided school enrollment has also been on a rise.

While the overall enrolment in private unaided schools is increasing every year, the total number of private unaided schools are not increasing at the same rate. In Gujarat, the total number of private unaided secondary schools actually came down from 41.22% in 2012–13 to 37.48% in 2015–16. Private unaided higher secondary schools also came down from 55.26% in 2012–13 to 45.96% in 2015–16 in Gujarat.

This could be a result of the increased administrative responsibilities under RTE and revision of teacher salaries (7th Pay Commission), which have resulted in the overall price of private education to go up.

In this context, parents (consumers) want the fees (price) to be lowered because the low supply lets schools charge more making it unaffordable for many. Or simply put, the supply does not meet the demand.

With the setting of the price ceiling, there will be more demand for private schools (with lowered fees). Where the ceilings are much lower than the level at which schools can break even, many will close down, leaving parents with even lesser options of private schools to choose from, thereby further driving up the fee charged for private education.

The money that parents save through the ceiling will be offset with more competition amongst the consumers (parents), possibly resulting in higher chances of admission donations.

Setting price caps will also create entry barriers and disincentivise new ‘edupreneurs’, who wouldn’t be willing to start schools that are not profitable, leading to a gradual fall in supply. Producers who see no chance of increasing prices end up having to cut costs, are unable to function efficiently thereby losing the incentive to perform better.

While an effective price cap may lower the highest prices, it will also reduce competition in the market. Reduction of competition will affect quality of the good provided. The regulation of fees therefore has the unintended consequence of lowering the standards of private schools, by diminishing the competition in the market. There is also a possibility of private schools deciding to increase their teacher-pupil ratio considerably or reduce the quality of services in some ways, to stay within the price ceiling.

While FRC does allow higher prices if justified, most private schools would try to keep the prices low and cut down services/quality than invite the higher administrative burden of coming under the purview of the Act.

A study carried out by Karthik Muralidharan of the University of California, San Diego and World Bank’s Venkatesh Sundararaman released a paper, titled ‘The aggregate effect of school choice: evidence from a two-stage experiment in India’, that highlighted that the average cost per student in private schools in Andhra Pradesh was only one-third of the per-child spending in government schools. Thus, even though private schools were not more “effective” in improving learning outcomes in the main subjects of Maths and Telugu, they were evidently more “productive” than government schools, delivering similar outcomes at a much lower cost per student.

Other unintended consequences of the price cap include: a) No incentives to improve school infrastructure, teaching standards or learning outcomes which could lead to a decline of overall education standard in the state; (b) Less risk-taking, hence less innovations in pedagogy and experimental learning methods; c) Co-curriculars and physical education/sports facilities could be the first sufferer of a price cap.

To expect schools to provide quality education, well-paid qualified teachers, low student-teacher ratio, sports facilities, performing arts facilities, well-equipped libraries and science labs – all below the price ceiling could be economically unviable.

Once this entire scenario is understood, the regulation of fees seems puzzling, especially considering that private education across the world is autonomous and independent, while in India attempts are made to rein in the sector.

Alternate Solutions

There is a clear shift of the social welfare function of the state on the private players. Government schools already exist in large numbers but people are choosing to send their children to private schools instead. Therefore, it is safe to assume that private schools are ‘perceived’ to be better when it comes to learning outcomes.

According to the Annual Status of Education Report (ASER) 2016 data, up to 80% of private schools in India are ‘low’ fee schools when benchmarked against per capita and daily wagers’ income. The vast majority of private schools charge very little and function in disadvantaged areas, already bearing the weight of extra compliance costs under the RTE. Hence, the complaints against unreasonably high fees charged by private schools are relevant for only a small section of private schools.

Undoubtedly, private school fees have been on a rise. To keep private school education affordable and accessible, the government should figure out why costs are increasing, and fix the underlying problems.

As it is, private unaided schools are already burdened with a plethora of taxes. This includes commercial tax for electricity/water, property tax, permit for school buses, RTE, Reservation, Lease, salaries as per 7th Pay Commission etc. Additionally, over-regulations such as regulation from education department, regulation from CBSE/ICSE/other affiliated boards, regulation from child protection commission and NGOs, regulation from Income Tax department, regulation from fee commissions, regulations from the courts etc. have already overburdened private unaided schools.

The way forward is to ease the many regulations and taxes already imposed on private schools to promote entry, competition and innovation in private schooling. This could bring down the fee eventually.

In conclusion, what the parents should ideally be demanding is an improvement the standards of infrastructure, teaching and learning quality of government schools — because well, that’s an individual’s right which the state ought to ensure through establishment of high quality schools. But to coerce and threaten the private players to carry out the welfare function on state’s behalf is a bad policy move.


About the author

Nidhi Tambi

Nidhi Tambi is a SOAS postgraduate in Development Studies, a former LAMP fellow and a student of Takshashila's Post-Graduate Programme in Public Policy.