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Maximum Tuition Fee Limit Regulation That Backfires

In advocating for equal access to quality education in Kathmandu valley, Ministry of Education (MoE) has recently devised the regulation to set maximum limit on the tuition fees of private and boarding schools based on official categorization of the schools and the grade standards they conduct. While the maximum tuition fees limit per student studying at 9th and 10th standard for grade-A school is set at NRs 3,600, the tuition fee limit is set varying for other schools belonging to different category for the grade standards they conduct.

Given that the appeal for this price/tuition fee control is justifiable in order to make sure that quality education as a fundamental need of the society is affordable to all income holders, the side-effect of such restrain regulation that distort the balancing mechanism of the market is unfathomable and historically observed. Simply take the cliché case of maximum rent price regulation practiced in different cities of the world that brought the entire tenancy housing market into dire straits. New York City stays as a classic example whereby setting maximum rent price below the usual market price at tenancy housing market not only disturbed the incentive to supply enough apartment to meet the growing demand for it, but it also resulted to degradation of housing quality as house-owners could not afford to upgrade and maintain the housing standard while depending on below feasibility rent revenue. Alas, it led the city to only offer the fiasco of inadequate-barely livable residential housing thanks to rent price control legislation.

Importantly, it is necessary to recognize that the disastrous unintended consequence of rent price control has less if any to do with the unique characteristics of the housing industry of a particular city, but more if not all to do with distortion of the governing market fundamental (i.e., price) that allows the supplier of a particular commodity to supply it in a particular quantity and in quality as demanded by the market.  Similarly, in implicating the distortion of same market fundamental or price in the private education market in Kathmandu, the exact same horrendous consequences are likely to be observed.

At first and foremost, when private schools are forced to depend on limited tuition fees set by the maximum limit regulation, they are also forced to invest limitedly on infrastructure maintenance, upgrade, and in adopting innovative education practice in order to break-even. And, if the legislation prescribed tuition fees or the revenue is below what the market would offer, investment on increasing the education related infrastructure and the quality of the education will also be below the pace of what price liberalized private school market would have offered. And henceforth, the quality of the private education system is more likely to be compromised.

Likewise, the ability to charge below-feasibility maximum tuition fees as per the regulation shall also discourage new investment in private schools enough to meet the demand growth of private education possibly triggered by the guardians who are encouraged to transfer their children from public schools. A research from Samriddhi Foundation clearly states that cost structure and initial investment outlay for opening schools with infrastructure required for meeting Grade-C category cannot be feasibly fulfilled by the maximum tuition fee limit set for them. Therefore, a rational investor willing to make profit will not have incentive to establish schools of such category in order to meet the growing demand of private school education. Given the widening gap in supply and demand of private school education as the consequence of this regulation, the motive of this very regulation to make private school education affordable to normal people can instead backfire. With virtually no growth in number of private schools in compared to demand for it, the supply-shortage will rather create an underground economy whereby people with better connections and willing to pay more money off the table are more likely to get their children admitted at private schools while the marginal ones are left out.

This directive on setting maximum limit of tuition fees can be a costly constraint on growth of private educational institutes of Nepal. The directive meant for ensuring quality education to all at affordable prices, in itself can be a major factor hindering the growth of educational sectors. There are numerous reforms required in Nepal regarding its quality of education. In current scenario, the government must instead focus on improving the quality of public schools and not on decreasing competitiveness among private schools affecting its quality and lowering the possibility of low income household children to get a quality education.

 

Ayushma Maharjan

About Ayushma Maharjan

Ayushma is working as an intern in the research department of Samriddhi Foundation.

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Private Schools for the Poor

The Government of Nepal (GoN) allocated Rs 86.03 billion as education budget for the fiscal year 2014/15 (13.91% of the total budget.) Let’s try to put that into perspective. According to the article “SLC Results: Failure of the system,” Rs. 10,000 is spent per child per year on a public school. In the meantime, concerns over teaching and learning methodology, attendance of teachers, the school’s accountability towards the children and their parents, (all of which ultimately affect the quality of education) are being raised in the public domain.

Recent inspections performed at some public schools of Kathmandu and Lalitpur show that there are some public schools that have almost no students. Harsha Lower Secondary School located at Gagalphedi, Kathmandu has altogether 15 students and 4 teachers; 2 more teachers are being recruited on contractual basis. Chalantar Secondary School, Kathmandu and Lubhu Secondary School, Lalitpur have similar problems. Instances like these have directly increased the cost of running public schools. On the other hand, these numbers also indicate that people have been opting for private schools operating in their communities.

The academic study performed by Santwona Memorial Academy reveals that there are public schools in Nepal which operate at Rs 7000-9000 per student in a year. The same study also talks of low cost private schools which operate at just Rs. 4500-5000 per student in a year. So clearly, there are private schools that are much cheaper than government funded public schools. While there are private schools that cost as much as 20-25 thousand per year or even beyond, it does not take understanding of rocket science to realize that for these poor people, these outlier private schools are not the real alternatives anyway. Despite no financial assistance from government, the private schools operating from the fees collected from students are conveying better quality of education. In the last 3 years (2014, 2013 and 2012 respectively,) the success rate of the SLC (grade 10 examinations) for privately run schools has been 93%, 80% and 84% while it has only managed to be 28%, 30% and 33% for publicly run schools. This trend bears great significance to Nepalese parents who consider school’s SLC success rate as a proxy for the quality of education.

Now, if the government is really giving out funds to educate children, it is high time that they allow the parents to choose where they want their children to get educated as well. Thus, instead of funding schools which directly increase the cost per student, the government should go for a better alternative – the Voucher System. Giving out the voucher can be a marvelous scheme for the welfare of poor which could possibly guarantee the right to education for the poor. Such system gives freedom for educating children in the school they wish to study. People become more rational while choosing the school. They send their children to the best school as per their compatibility. Therefore, based on the findings of the research (aforementioned) and considering performance of public schools, a better quality can be ensured with lesser fees through voucher system. This is how children will acquire quality education, transforming them into literate, well-informed and capable human resources that can pull themselves out of the poverty trap.

Sushil Lamichhane

About Sushil Lamichhane

Sushil Lamichhane, a student of Economics works under Research Department at Samriddhi, The Prosperity Foundation. Mr. Lamichhane is also associated with Rotaract Club of Kathmandu Metro, a voluntary youth-led organization working for professional development of youth under RI District 3292.

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Who says we don’t need more schools?

no new schools?Nepal’s education system has long been pointed fingers at—enrollment rates, dismal performances, and education-market mismatch are just a few points of accusation. We said that the public schools lacked infrastructure and quality services and we also said that private schools charged too much for the services they provided. While we continued to raise concerns over the kind of education system we have, the government went a step further and put a ban on the registration of new private schools. Their usual sense of reasoning brought forth these replies—private schools have been growing like mushrooms; we have enough schools already, we need to focus on strengthening the existent public schools—well of course!

The ban on registration has meant that no new schools have been registered for quite some time and that many hold school licenses so that they can sell them at premium rates. Adding to the artificially hiked prices of schools are the additional costs pertaining to the Institutional School Criteria and Operations Directive 2013. Following the directive (which is mandatory) means that the schools need to undergo a lot of infrastructural changes—the size of classrooms to playgrounds as prescribed—all of which cost money. And the only way through which such private schools can make money is through hike in fee. The fees, however, has been regulated by the government as the Supreme Court has passed a decision on the price ceiling for school fees.

If these were not enough, private schools have to comply with end number of contradictory regulations. Private schools, as such, can be registered as a profit making company as per the Company and once they are registered they have all legal rights to make profits. If only the government stopped interfering then and there. Sadly, it does not. The same schools as per the Education Act as required to provide scholarships to a certain percentage of their students. Provided that most schools do not have problems complying with the same; just that to regulate every bit of their operation seems too strangling to an entity. The Company Act allows schools to be opened in any location deemed necessary for business while the Education Act asks the same schools to follow a lot of procedural requirements when it comes to choosing a location (taking permission from two neighboring schools is included in the deal). And taxes are an altogether different ball game. Schools pay 25% income tax as any other private company as per the Company Act and on top of that the government levies 1% as Education Service Tax. There is no clarity over whether the government wants to treat private schools as profit making companies or service oriented organizations. This this ambiguity has translated into laws that have repercussions on the operations of private schools.

With these many contradictory policies in place; with the kind of regulations that exist—it sure is a climb up steep hills for any school that wants to provide services at competitive prices.  And yet, they say that we need no more schools (probably in the light of their capacities in not being able to monitor existent schools).

Anita Krishnan

About Anita Krishnan

Krishnan holds dual degrees--in law and sociology. Currently, she works as a Research Associate at Samriddhi, The Prosperity Foundation.

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