The Hindu Business Line : Universities must be well endowed

Yale University in 2007-08 posted operating revenues of almost $2.3 billion. Of this, tuition fees (inclusive of boarding charges) contributed $246 million, that is, less than 11 per cent.

There were 11,364 students enrolled at this elite Ivy League institution during the academic year ended June 30, 2008. A full year at Yale would have cost an undergraduate $45,000 in tuition fees and boarding expenses. But not all had to fork out thes e hefty sums. About two-thirds of the total enrolled or 7,676 students received financial aid in the form of loans or gifts. The $246 million tuition fees earned after deducting $160 million of funded scholarships did not even cover the salaries of Yale’s 3,020-strong faculty. If one takes the total employee compensation of over $1.3 billion paid to its faculty, managerial-cum-professional staff and clerical and service personnel, less than a fifth of it was recovered from students!

Not a money-making enterprise

The fact is that private university education in the US is fundamentally not a money-making enterprise. This holds true not just for Yale, but also for other Ivy League institutions. Student income accounted for only 20 per cent of Harvard University’s revenues of $3.48 billion in 2007-08, while it was 9.5 per cent of Massachusetts Institute of Technology’s revenue of $2.42 billion, 11.65 per cent of Stanford’s $3.48 billion and 18.61 per cent of Columbia’s $3.03 billion revenue.

Contrast this to India, where private education is just any other business, with students being the consumers from whom the capital invested is to yield returns. Engineering colleges here typically charge between Rs 50,000 and Rs 100,000 as annual tuition fees, in addition to collecting upfront ‘donations’ of Rs 5-10 lakh from those not making it through the regular entrance exam route. For medical colleges, the entry-level capitation fees go still higher at Rs 25-30 lakh. The student-faculty ratio in most institutions ranges from 15:1 to 20:1 (as against less than 4:1 for Yale). Moreover, a chunk of what passes for faculty comprises of individuals having a bare bachelor’s degree and awaiting more lucrative career options.

Private universities in the US, unlike their Indian counterparts, are not overly dependent on student monies to finance their operations. Student fee, as seen in Yale’s case, neither pays for faculty nor even takes care of interest and capital replacement costs. Students are valued not for the moolah they bring in, as much as the talent and knowledge potential they embody. The universities’ primary concern is promoting research and academic excellence that translates into an enhancement of institutional brand equity. Stanford University, indeed, has a tuition fee-waiver policy for students belonging to families with annual income below $100,000. Families with income of less than $ 60,000 are further exempt from contributing to the costs of boarding and other expenses.

endowment monies

The biggest source of revenue for most Ivy League institutions is allocations from their endowment funds. Every major university has an accumulated corpus created out of gifts and donor monies, which are invested in a variety of bonds, mutual funds, stocks, real estate and even derivatives and ‘limited partnership’ private equity and hedge funds. The market value of Harvard’s endowment funds as of June 30, 2008 stood at $36.93 billion, while being $22.69 billion for Yale, $ 21.76 billion for Stanford, $16.3 billion for Princeton, $ 10.07 billion for MIT, $ 7.56 billion for Columbia and $6.23 billion for University of Pennsylvania.

Returns on its endowment investments — some of which have suffered impairment in the post-meltdown period — contributed to 37 per cent of Yale’s revenues in 2007-08. The second largest income source was sponsored contracts-cum-grants (25 per cent). Federal sponsorship was even higher for universities like Stanford and Harvard.

Greater reliance on endowment monies and federal funds rather than student income is, thus, a major factor distinguishing US private universities from those in India. And this, in turn, has a lot to do with the way higher education has evolved in India. Till well into the early nineties, universities were an exclusive government preserve. The pendulum has since swung to the other extreme, with the Government virtually abdicating its role to the private sector. Almost every one-horse town today has an engineering/medical college promoted mainly by politicians, religious organisations and businessmen, for whom selling degrees is no different from trading in vanaspati.

Focus on research

The other, more significant, difference between the university systems of the two countries lies in the emphasis on research. Universities in India engage in very little research. The bulk of research activity is carried out by CSIR, ICAR, ISRO, BARC and other government scientific departments, which have few linkages with either industry or academia.

It is quite the opposite in the US, where the universities, industry and government laboratories compete in filing patents while maintaining specific niches that also allow for collaborative research. There is no divorce between teaching and research in US universities. In fact, universities are viewed as the founts of knowledge and original ideas that eventually find commercial application. The best example of this is the Internet, where the initial concepts of wide area computer networking and packet switching were developed in the early sixties by scientists at MIT.

Selfless initiatives

For university education to have any real future in India, it is necessary for industry (more specifically, businessmen) to think out of the shop. Educational institutions should evolve beyond being proprietary concerns. Rather than promoting their own colleges, businessmen (at least the ones figuring in the Forbes list) should look more at endowing academic institutions and university research as an extension of their private philanthropic activity.

For this, they need not borrow a leaf from John D. Rockefeller, Bill Gates or Warren Buffet. They need only go back to Jamsetji and Dorabji Tata, who provided the seed money for starting two truly great institutions: The Indian Institute of Science (1909) and Tata Institute of Fundamental Research (1945). There is scope for more such selfless initiatives in today’s context. The country deserves something better than the present system that promotes neither merit nor equity while combining the worst of both capitalism and socialism.