Cut in higher education subsidy suggested

The Economic Survey for 2011-12 has indicated a need for reducing government subsidy to higher education by introducing better commercial loan schemes for students.

Over the years, the diverging trajectories of costs and revenues due to rapidly increasing per student cost and increasing tertiary level participation has imposed "immense pressures" on the exchequer.

Moreover, subsidies are “inequitable” in the sense that irrespective of one’s parents’ wealth, all individuals in a state subsidised institution get the same level of subsidy.

“Therefore, there are views that argue for reducing government support for higher education and replacing it with better commercial student loan schemes,” the survey, which was tabled in Parliament on Thursday, said.

Referring to a study conducted by the Indian Statistical Institute (ISI), New Delhi, the economic survey noted that existing debt markets for student loans are highly imperfect with high interest rates and “collateral requirements”.

An alternative type of student loans - Income Contingent Loans (ICL) - can be introduced to lend money directly to the educational institution which will be recoverable from the students, once they get a job.

“An ICL is essentially a loan given to anyone who wants to invest in higher education and the repayment, which starts once the individual gets a job, is denominated in terms of a certain percentage of the income to be paid for a stipulated time period," the survey noted.

The “distinguishing feature” of an ICL is insurance against unfavourable outcomes, since the repayment amount is positively linked to income and could even be zero below a certain threshold income level.

Australia was the first country to institute a “broadly based income-contingent charging system” for higher education called Higher Education Contribution Scheme (HECS) in 1973.