Present scenario – Student takes a study loan at say 7% from
a bank to study in a top MBA college. College claims that average package after
a degree is say 16 lpa. And course fee is 21 lakhs per year.
Student takes the plunge hoping of a bright future, i.e
earning at least 16 lps so can repay loan in say 5 years. Now some mathematics:
Student pays bank in 5 years - 30 lakhs (approx) [assuming
that he pays in total at the end, in reality the repaid amount will be lower
than this]. Problem occurs when market conditions are adverse and the student
is not able to get a job that pays so much – he/she is stuck really badly.
College has got its fees but student has not got a job. Indirectly that affects
the college in a way that less people think of enrolling next year plus a media
and public resentment against justification of such high course fees. College
also feels bad (at least some people in the system) that they took so much fees
but could not help the student get the foothold in society that he/she aspired,
based on the claims made. Some moral guilt gets in.
One way to do away with this guilt as well as create goodwill
in market about the college PLUS bring about cohesion among college
administration and students in terms of job hunting PLUS enable the college to
earn more and engage better with alumni is to have a deferred fees mechanism.
In this scheme – a student pays 0 fees to study but signs an
agreement that he/she has to pay 50% is/her post tax salary to college for next
4 years.
How it helps college?
If we assume the average claimed package of the college, say
16 lps, then post tax say the person earns 12 lakhs he pays 6 lakhs in 1st
year. If we assume this person has meager 10% hike every year then:
|
Year
|
Salary
|
Contribution (approx)
|
|
1st
|
16 lakhs
|
6 lakhs
|
|
2nd
|
17.6 lakhs
|
7 lakhs
|
|
3rd
|
19.36 lakhs
|
8 lakhs
|
|
4rth
|
21.2 lakhs
|
8.5 lakhs
|
Total contribution would be 29.5 lakhs. Now assuming the
college had collected 21 lakhs upfront and put 20 lakhs out of that in a 9%
return yielding fund, return after 5 years (1 year study + these 4 years) would
have been 31 lakhs (approx). So return is not much less in terms of money but
the comfort it gives to students and the image this projects of the college would
justify this approach. You can imagine how much more students would aspire to
study in this college and how much more respect the college would earn across
the academic fraternity. It would differentiate this college from rest of all
other colleges who just claims good job/salary figures to raise fees and make more
money, who seems more like a business than an education institution.
Plus the alumni engagement it would create would be wow.
There can be an option for a lifetime contribution of say 1000/ year from the
student. No one would mind paying this to a college which has so much
confidence in its curriculum, its selection process and its knowledge base that
it is allowing selected bright students to study for free.
This will also remove the bias that some faculty have that
students earn so much while they get less – since now they know that more the
student earns more will be the return to the college.
Very broadly speaking it is like trading – where instead of
investing in stocks, you are investing in talent and have the confidence on
your capability that return will be more.
Why would the student
opt for this?
You might think the student would pay less to bank if he/she
takes a loan and so why opt for this and pay more to college. But my theory is
they would do it, because this approach takes care of another risk which the
bank does not AND that is the risk that the college absorbs. The risk is of
adverse market conditions such that there might not be any jobs or very low
paying jobs after passing out. Worst case scenario is a student earns say 5
lakhs for the next 4 years and so pays 2x4 = 8 laksh to college, so college
loses 13 lakhs. But I think it is worth the risk.
A loan is a compulsion but a
repayment to alma mater is a super good feeling.
Ofcourse – there might be people who might think of misusing
this option, so this offer should not be rolled out indiscriminately but rather
very selectively, after some interview.
To ease the impact of contribution from student if college
can open a trust or something which enables tax exemption on the paid amount
then still better.
Most data presented
above are approximations, intent was to pass the point rather than show exact
numbers. If you think this is something that would be good to roll out then you
can get the exact calculations done OR I would love to do that if asked.
