Friday, April 01, 2016

Free tuitions at top US universities?

America's top universities, such as Harvard, are under pressure from activists to make tuition free to their students, the Economist reports. The argument is a straightforward one: their endowments are so large that they don't to charge their students any fee- Harvard sits on an endowment of $36 bn.

American universities are not willing to offer free tuition or even reduce their fee, which has soared by 220% since 1980.  Why would they raise the fee when they can afford not to charge students? Simple. Higher fees mean greater power to spend- on new buildings, research, higher salaries for faculty. And if students can raise loans to pay the fee, why not? "We can rip off students, so we will"- seems to be the motto. Many will see shades of this in the IIMs' own propensity to raise fee in recent years.

American colleges argue that they try to care of needy students by providing financial aid- at Harvard, 70% of students are covered by aid of some sort. However, students still have to raise large loans to fund their education. The evidence is that this does come in the way of inclusiveness- those outside a small elite are intimidated by the thought of taking large loans to fund their education.

Again, one sees echoes of all this in the IIM system. The argument is made that most students can afford to take loans given that placement salaries are high. There are two flaws in this argument. One is that several students will still be discouraged from coming to IIMs  given the uncertainty about paying off large loans. The second is that high fees in the IIM system cause other B-schools to raise their fees even though their placement salaries are not high enough to justify the fee. So great is the demand for igher education that students will take the risk of going to lower B-schools even though they are not sure the salaries they will get will make the fee worthwhile.

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