IIM Fee Hike: Will More Fall into The Trap of Education Loans?

Fee-hikes in institutions leaves most middle-class eligible aspirants with the only option of an education loan.

(Photo Arnica Kala/The Quint)

The idea to build Indian Institute of Management (IIM) was initiated by Pandit Jawahar Lal Nehru on the recommendation of the Planning Commission in 1960. Subsequently, IIM-Calcutta and IIM-Ahmedabad were established in 1961 with support from Ford Foundation, Indian industry, and Harvard Business School.

This follows the emergence of other IIMs, totalling 20 in number today – with six legacy IIMs and 14 new IIMs formed after 2007.

The establishment of IIMs aimed to produce the human capital quipped with managerial and decision-making skills required for growing industrialisation in the country.

Requirement of such managerial skills took a catbird seat, especially post 1991, when investment and privatisation buttressed the emergence of giant corporates in the liberalised Indian economy.

The Older, the Costlier?

Given their role in nation-building, IIMs were declared 'institutions of national importance' by the Ministry of Education after passage of IIM Act 2017.

IIM Act 2017 also awarded autonomy to the IIMs for fee regulations apart from selection and removal of the chairperson and director, student intake, and institute expansion. With this autonomy of IIMs, government and bureaucracy have no intervention in the day-to-day and even strategic operations of IIM.

Exercising the power of autonomy, during mid-2020, about half of the IIMs increased their fees for two-year full-time MBA course, from an already high level.

The IIMs with significant fee increase include old (Lucknow, Calcutta and Bangalore) as well as new IIMs (Jammu, Tiruchirappalli, Sirmaur, Nagpur, Udaipur, Rohtak). The fee increase ranges between 3% (Rohtak) and 36% (Lucknow), averaging 13%.

There already exists a difference in fee structure between old and new IIMs, which is further widened due to the current fee hike. With the fee hike in 2020 for the academic year 2020-2022, the average fee in old IIMs is 20.7 lakh rupees, whereas that in new IIMs is 13.7 lakh rupees.

Fee Hike During COVID Worse for the Poor

The management of these premier institutions attributes fees restructuring to prevailing inflation and the associated cost of faculty and infrastructures.

However, as such, no quantitative assessment is provided to justify this argument. Lack of accountability due to the absence of government intervention leads to more questions than answers.

On the other hand, the management institutions under the ambit of UGC and AICTE, are restricted to amend or rather increase their fee structures. In its notification dated 1 May 2020, AICTE had asked the B-schools offering AICTE approved PGDM programs not to increase either admission or tuition fee for the academic session 2020-21 for existing as well as new students.

These two contrasting stories – fee hike in unregulated IIMs and no fee hike in regulated institutions – elucidate a grave concern.

Did the autonomy play a significant role in incentivising the IIMs to hike the fee?

Fee hike in premier management institutions inches the hump of a hurdle for eligible aspirants to acquire managerial skills. This issue is more aggravating due to the coinciding period of fee hike and economic recession cased by COVID-19 pandemic.

When pandemic has taken a toll on life, livelihood and individual's income, increased fees in management education has further repelled the aspirants' dream from the door of premier institutions.

Collectively, the present scenario compromises the very fundamental objective of education in the nation that aims to provide affordable education to the prospective and existing workforce in nation-building.

The Relation Between Fees & Packages

Looking from the benefit point of view, the premier management institutions are well-known to provide heavy weight offer letters from corporate giants.

These high placement packages and white-collar job profiles are the primary catalyst for competition among the management aspirants and even professionals to get into premier IIMs.

The more packages are offered in IIM, the more is the competition, and hence higher is the demand. Does this higher demand translate into higher price – fee – following the fundamentals principle of economics?

In other words, it is worth investigating the relationship between placement package and fees of IIMs. To this end, we collated average package and fees of all twenty IIMs for the latest year 2020 and performed a linear regression analysis.

A significant cyclical relationship between IIMs' fees and package offered is discovered. This implies that IIM offering a higher salary with lucrative job opportunity is likely to charge more than other IIMs.

In the empirical analysis, top IIMs (as per National Institutional Ranking Framework, NIRF), IIM-Ahmedabad, IIM-Bangalore and IIM Calcutta – turned out to be the outliers.

They offer extremely high package (average Rs 26.8 LPA) and hence charge inordinately high fees (average Rs 23 Lakh) as compared to other IIMs. In contrast, the new IIMs manage to offer relatively less placement package and cost less.

Visible Hand to Regulate Fees Needed?

This exercise construes that salary package offered by IIMs is the major driver of fee structure, more than cost structures. This resembles typical pricing structure of a market commodity wherein supply-demand dynamics in a market decides the product price.

Education is not a market commodity meant to meet an individual's demand and therefore cannot be left unregulated especially in terms of pricing or fees structure. Education serves a larger purpose of social upliftment and nation-building through generating trained and equipped human capital.

An inflated fee in premier management institutions leaves most middle-class eligible aspirants with the only option of an education loan to fund their dreams. Increasing fees of IIMs drive up loan requirement significantly.

Education loan, despite serves a boon for borrower students, poses a demonic challenge of repayment on stipulated period. As a burden, it travels with students during the study and after the study, as well. Some of the unpaid loans on time also result in bad debts and spoil the balance sheet of financial institutions.

Moreover, the managerially-trained brains coming out with the burden of liabilities experience constrained freedom and lack of creative thinking and hence thwart the productivity and overall value addition in the economy.

This is high time for policymakers to critically observe the amendment in the fee structure of India’s premier management institutions of national interest. An ordinate hike in fee of professional courses will thwart aspirants to fulfill their dreams of acquiring managerial skills and the prestigious professional position.

In the long run, this will pose an issue of lack of a skilled pool of managerial workforce and decline of productivity in the economy. Education loans may not be the solution for students to cushion the jolt of fee hike.

With an already existing burden of loan liabilities on their shoulder, it is difficult to shoulder another responsibility of nation-building. Policymakers must take steps forward to reign such an unregulated fee hike in premier institutions, keeping in mind the following question: How the objective of strengthening the human capital with managerial skills and its affordability marry each other?

(Swapnil Soni and Ganesaraman K are senior research fellows at Department of Management Studies of Indian Institute of Science, Bengaluru. This is an opinion piece, and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)