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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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