Red Ink and Education



Fiscal cliffs and walls are all the rage these days. One of the more curious financial facts about the United States is that it has a student debt bomb. Outstanding red ink collected by students for their education is over one trillion dollars.

Curious, I wondered if something similar could happen in India. Educational loans by state-owned banks have been rising quite dramatically, about 35% a year in the case of some banks, since 2003-04 and are beginning to weigh on their ledgers.

What was striking is how little debt Indian households are prepared to take on for education. Indicus Analytica, in its Indian Financial Scape survey, showed that only 0.55% of urban Indian households take educational loans.

While it is understandable that poor families would have difficulty getting a bank to extend them credit, the figure for even the most loan-prone demographic – urban households of western India with annual incomes between one million and two million rupees – is a mere 1.2%.

This struck me as surprisingly frugal. The educational sector in India is officially non-profit but Indians spend large sums on education. The single largest source of advertising revenue for the Indian print sector is normally education. This non-profit sector easily outspends real estate, financial services and fast moving consumer goods in advertising – often more than all three combined. There’s money in them than classrooms.

Of course, Indian higher educational institutions are dirt cheap compared to their US counterparts. Most colleges are subsidised heavily (and foolishly since this amounts to welfare for the middle class). So l took a look at education as a percentage of household expenses.

This proved remarkable. In the US, the bottom one-third spend nearly four per cent of their budgets on education. The top one-third spent only three per cent. But the middle one-third spent only one per cent – a figure that has remained constant since 1989.

Broadly comparable figures for India (broadly because they were in deciles and thus just a bit off when averaged) were 2.57% for the bottom one-third, 3.9% for the middle class and 8.1% for the upper classes. It reaches a remarkable 13.5% for the top decile.

And expenditure has been growing at a remarkable clip of 21.7% per year from 2004-05 to 2009-10. And it is irrelevant as to the income class. It was growing at 18.8% for the bottom decile and 24.3% for the richest tenth.

This is in contrast to the general stagnation of US educational expenditure. This is, one suspects, in part because the financial return on education in the US has been declining. US graduates, inflation-adjusted, earn the same in 2007 as they did in 1979. And the past few years it has gone in reverse – rising debts and falling income.

In contrast, in India each additional dose of education pushes one income up quite dramatically and the gains have been rising. A primary education means an income 21% more than an illiterate person. College education drives up the difference to 263%. World Bank figures show the financial return on education at every level have been rising steadily in India (not the case about 20 years ago).

My takeaway is that education in the US is proving less useful as a ladder for social mobility. Clearly poor Americans still believe it is – a disproportionate amount of the student debt is with black and Hispanic students and poor families, as shown earlier, spend more on education than anyone else. In India, it is accelerating as a means to rise up the income (and thus social) ladder. The growing spending on education also reflects the demand for private education in India and growing surplus income.

But the low levels of educational debt remain curious. This is almost certainly partly because of lower tuition, etc, costs. US colleges have become horribly overpriced since the early 1990s when fees began to accelerate much faster than consumer prices.

It also reflects, I presume, higher savings rate among Indians. It also may signal one benefit of having an extended family. Even as recently as 10 years ago, I used to get requests to chip in funds to help a poor relative through college. Spread across dozens of earning family members, the overall burden was quite light. It may also be that the Indian government’s decision to grant school tuition payments the same tax breaks that any form of investment gets helps keep the debt levels down. My child’s school fees match my mortgage as a tax break today. But the Indian debt figures will almost certainly rise – and they should as education improves as an investment.

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  • Anonymous

    Now that Sujata’s Party has lost BMC election and her favorite Kripa Shankar Singh disgraced, she has chosen to write about Gujarat and indirectly bash BJP.

    Should we be surprised?

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  • Abu Ahmed

    My sympathies are with you and your reporter of 10 years ago in Gujarat – I begin to understand your pain that you feel upon watching the perpetrators of those inhuman crimes in Gujarat continuing to remain above law till now and probably for a long time to come, if at all they are ever booked for the same. Krishna had said in Gita that he would come into the world whenever attrocities go beyond limits. Now its time for him to visit Gujarat and take care of its victims and the culprits. Otherwise, as Gujarat is so near to Pakistan as well as Iran, some nuclear bombs may simply fall on it accidentally of course, by a modern-day Ghori or Ghazni. Before such a thing happens, the culprits should better be booked and justice done to the victims.

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  • Anonymous

    OMG this dynasty slave is still around..

    [Reply]

  • Anonymous

    Guest,
    Do you even have a name forget any common sense?

    [Reply]

  • AshishC

    The answer is evident, is it not?
    Very soon, all HT staffers will start blogging about Pakistan or even Timbuctoo.

    [Reply]

  • http://www.facebook.com/people/Janak-Makavana/100003635221339 Janak Makavana

    When article is published for remembering decade old riots, we should see articles being published for other riot cases (84 Sikhs massacre http://en.wikipedia.org/wiki/1984_anti-Sikh_riots ) and ethnic cleansing of Kashmiri pundits http://www.satp.org/satporgtp/kpsgill/2003/chapter9.htm . Lets keep journalism unbiased.

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  • vinay pandey

    S.P won congress lost and to say that Akhilesh won Rahul lost is rubbish and foolish at best. The lack of organizational base what did in congress and voters knew that congress is in no position to form government hence went for S.P.
    Lok shabha election 2014 is where we will see the impact of all the hard work done by Rahul.

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    Anonymous Reply:

    Rahul Gandhi will not be able to repeat 2009 UP Lok Sabha results. Akhilesh Yadav will see to that. SP will encroach Congress seats by widening its support base and Mayawati/BSP too will be back in reckoning. The RSS will work silently to enhance BJP’s performance but BJP may still not improve much. Congress is certainly in for hard times and will deteriorate further. Rahul Gandhi will be shy of exposing himself further in UP in case it backfires again.

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    Saron Reply:

    Man proposes , God disposes– In SP’s case we can say Akhilesh proposes his cadre disposes– so lets watch

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    Anonymous Reply:

    You are right, SP’s cadre may mar its performance. Hopefully Mulayam, Akhilesh and co. will rein them in.

    Saron Reply:

    Do your think the organisational network would improve in two years time

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  • anil

    If Akilesh can build up the impression that he is serious about tackling corruption, maintaining law and order and confronting religious/caste divides created by Congress he will make a good PM candidate in days to come.

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    Anonymous Reply:

    At this point of time, even a non SP person like me is rather optimistic about Akhilesh Yadav. He has certainly made a good first impression. I hope his arrival will help to throw over rated guys like Rahul Gandhi into history’s dustbin.

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    Saron Reply:

    Yes, there is optimism and expectations

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    Saron Reply:

    He has to prove himself as CM first

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  • Parmanu

    “Nothing in my experience of the country has made me euphoric. In fact, it’s the opposite. It’s just been growing cynicism by the day.”

    You’ve been focussing on the negative things, perhaps? How about looking at the arts, for instance? If you were working for a magazine like Sruti (http://www.sruti.com/), would your view have been different, I wonder.

    A fascinating thought experiment, though. I enjoyed it.

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