Education Budget: Modi govt told HEFA-hit IITs, IIMs, universities to raise fees, cut costs

NEW DELHI : While public opposition to the Higher Education Finance Agency has come mainly from university students and teachers, institutions have also expressed their disquiet about HEFA to researchers from the National Institute of Public Finance and Policy (NIPFP).

The NIPFP was engaged to review the agency and its functioning which lasted from July 2022 to January 2023. Its report, obtained by Careers360 through a Right to Information (RTI) application, reveals the extent to which HEFA strained the finances of public institutions.

With HEFA, the union government introduced a radically different system of funding infrastructure expansion in higher education. Set up in 2017 as a joint venture between the education ministry and Canara Bank, the non-banking finance company extends loans to government-run higher education institutions (HEI), replacing grants. The institutions are expected to repay parts or the entire principal amounts, depending on the category into which they fall.

By early 2023, when the review concluded, heads of premier institutions such as Indian Institutes of Technology (IIT), Indian Institutes of Management (IIM), central universities and science education institutions were feeling immense financial strain .

“Our neck is above the water, we are saving every bit to repay the loan due in a year’s time, but many of our sister IIMs (3rd generation) are in difficult financial situations,” a third-generation IIM told the researchers about raising IIM fees.

A second-generation IIT was more direct: “The HEFA loan should be replaced by the earlier system of grants by the ministry as it is putting a burden on the IRG of the institute.” In fact, 91% of 78 borrowers surveyed by NIPFP said they preferred the block grant system to the project-based loan financing.

The “IRG” – internal revenue generated – of public institutions is now crucial for repaying the loans. The NIPFP report shows that on average, 78% of internal revenue is from student fees ; in some institutions, it is 100%. Except for a handful of top institutions – such as the most established IITs that have enjoyed decades of public patronage – IRG amounts are small and already go towards closing the gaps left by grants.

Increasing internal revenue meant “austerity measures” and rising costs for students. The ministry of education had “asked HEIs to reduce recurring expenditure by 10%, and recruitment of contractual staff has to be kept to bare minimum”, says the NIPFP report. Institutions told NIPFP that the “MoE [ministry of education] has asked them to raise fees”.

On the prospect of hiking IIT fees, a second generation IIT, set up over 2008-09, told reviewers, “How can we put three people in one hostel room and raise the charges? It is only when we have better infrastructure that we can charge more fees.” NIPFP recommended keeping all institutions under 15 years old out of the purview of HEFA, but they continue to be a part of it.

HEFA Loans: Windows of repayment

HEFA loans must be repaid. How they are repaid and to what extent the government assists with it depends on the “repayment window”. The main criterion for deciding the repayment scheme is the age and type of the borrowing institution. Depending on that, the government will pay the interest and principal amounts.

When first announced as part of the education budget in 2016-17, HEFA was intended to meet the needs of institutes like IITs, IIMs, National Institutes of Technology (NIT), and Indian Institutes of Science Education and Research (IISER). But by 2018-19, its scope was expanded massively to include nearly all public higher education institutions. It became a key point of the Modi government's education policies.

The total investment target went from Rs 20,000 crore in 2018-19 to Rs 1 lakh crore with the launch of the ‘Revitalising Infrastructure and Systems in Education (RISE) by 2022’. Plus, five “repayment windows'' were created. These were as given below.

HEFA Loan: Original repayment windows

In September 2020, windows 4 and 5 were closed. Since the government was paying both principal and interest for these categories, they were a burden on the exchequer. Only categories allowing cost-sharing were retained.

But that did not help the institutions and many stayed away from loans. On its part, HEFA was meant to raise funds from private investors and donors but, as the first part of this series revealed, failed spectacularly. No private sector investment has come.

NIPFP, brought in to review the general underperformance, conducted a survey among 115 institutions across categories – 78 borrowers and those that were hesitating – and proposed windows based on the following factors:

1. Institution type

2. Streams

3. Actual age in terms of infrastructure and other development

4. Location

5. Enrolment size, composition and fee structure

It recommended that institutes such as National Institute of Technical Teachers' Training and Research (NITTTRs), IISERs be given grants and not loans. This would mean “a significant proportion of institutes would fall outside the purview of HEFA loans”. It also suggested that higher education institutes less than 15 years old be allowed to develop first before bringing them under loan financing and that the period of repayment be extended to 15-20 years from the current 10 years, with no prepayment penalty. “It would help spread the loan repayment burden across more batches of students,” the report said.

In March 2023, a Parliament panel recommended revision of HEFA scheme to widen the scope for financing under it. In July 2023, the government revised the repayment windows but the duration was fixed at 10-15 years. The new windows were as given below.

HEFA Loan: New repayment windows

The revised system brought some relief to the newest central universities but for technical institutions, the brackets either remained unchanged or they now had to chip in with the interest as well. Education budget 2024 – with the rest of the union budget – is on July 23.

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Loans, IRG, fee-hikes

It is no accident that the advent of HEFA has coincided with fee hikes and student protests across campuses.

The last seven years have seen protests in Delhi University , Allahabad University , Central University of Kashmir , Jawaharlal Nehru University , Pondicherry University, Banaras Hindu University (BHU), IIT Bombay , IIT Delhi , IIT Hyderabad, IISER Mohali, IISER Pune, IISER Bhopal, NIT Bhopal, NIT Rourkela, NIT Jamshedpur and NIT Srinagar.

Institutions are also putting expansion on hold to avoid taking loans. A high-ranking, well-established NIT earlier had told Careers360 that it was being cautious with recruitment because it wanted to avoid taking a loan for building office spaces, housing and other facilities. A respondent Indian Institute of Information Technology (IIIT) had told NIPFP: “Taking loan under HEFA will completely deplete the IRG of the institute, leaving it with no options to meet its routine expenditure and forced to put on hold academic development activities or purchase of research equipment.”

According to NIPFP, an institution should not have to spend more than 50% of its annual IRG on a loan instalment. However, of the borrowers surveyed in 2022-23, 14 were spending over 50% and 23, over 40%. NIT Goa, set up in 2010 (and part of payment window 2 in both old and new schemes), was spending over 90% of its internal revenue on the loan – “far above the safe limit”.

“After the introduction of EWS, fees exemption based on the income criteria, it is difficult to generate IRG. HEFA loans can be effective for those institutions whose IRG is sufficient to repay the HEFA loan. Institutions like ours face difficulties to generate (sic) IRG,” NIT Goa told reviewers.

NIPFP had suggested closing loans for institutions like these and moving the projects back to the grant system. The government, however, continues to lend to them creating a potential “debt trap”. NIT Goa did not respond to Careers360’s queries on how it was managing now. If it does, this copy will be updated.

A central university told NIPFP that half the fee collected was going into repaying the HEFA loan and a third-generation IIM said it anticipated “great difficulty in loan repayment.”

How institutions earn and spend

The income or internal revenue of an institution depends on its age, type, courses, location, enrollment and fee structures. According to the NIPFP report, government grants comprise around 80% of revenues and the rest is internally generated.

on average, 78% of internal revenue is from student fees. For institutions that do not receive regular government grants, such as IIITs set up as public-private partnerships, 97% of IRG is from fees.

IRG levels are not uniform within the same loan repayment category. For example, established IITs and NITs will both be eligible for Repayment Window 1 – liable to repay 100% of the principal and 10% of the interest. But as the report notes, older IITs have more than double the IRG of older NITs, on an average.

Then, basic science education has been lumped with technical education. “Basic sciences cannot be considered at par with the technology institutions. The objective is different,” explained a respondent IISER. “We are producing human capital… The students here do not emerge with a huge pay package and campus placements. The fee has to be kept low accordingly. The ways of generating IRG are limited.”

Given their placement in the fourth repayment window – they need to repay 100% of principal and interest – only one IIIT had taken a HEFA loan by early 2023.

Similarly, the experience with revenue generation varies widely among central universities. While some told NIPFP that repaying the 10% wouldn’t be a burden, others either dare not take a loan or are struggling to repay their share. Plus, internal revenues are already earmarked for other purposes.

“The ministry says take a loan for the full extent of IRG…We are receiving lesser grants. We are spending on an average 50% of IRG on maintenance. We should also have some buffer in case of eventualities,” a borrower told NIPFP.

A central university which hasn’t taken a HEFA loan said, “We have a deficit in grants. We are managing with our IRG. Our IRG, at Rs 11 crore is not large. Out of the IRG, the salary and other payments for self-financing courses come. We have 50% reservation for SC students for whom there is a full tuition fee waiver. Per semester fees for regular courses is very low, between Rs 6,000- Rs 10,000. It is difficult for us even to set aside Rs 2 crore a year towards loan repayment.”

Newer institutions require the most capital but have few students, teachers and alumni and limited avenues for generating income.

“The entire loan component should be met by MoE as the university is in the early stage of establishment and it is situated in a backward area. Further, the university couldn't increase the fee structure because of economic conditions and inflation,” said a central university started in 2009 which has borrowed from HEFA.

IIM Amritsar, established in 2015, borrowed Rs 343 crore for the construction of its permanent campus. “The institute will soon have to find additional sources of revenue,” said the March 2022 report of the IIM Amritsar Evaluation and Review Committee .

“There may not be head room in increasing total annual fees since they are already marginally more than the average Cost to Company (CTC) salary offered during placement. Increase in student intake for existing programmes, more executive education programmes and a five-year integrated IPM are some possible avenues to increase the revenue on a sustainable basis.”

Given the massive reliance on student fees, NIPFP’s report said the loans should be so structured that institutions don’t have to spend over 30% of IRG on instalments.

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Raise fees, reduce costs: Education ministry

Institutions told the reviewers that the ministry of education asked them to “raise fees” and “reduce recurring expenditure" and keep the appointment of contractual staff to a minimum.

As there are waivers on tuition fees for the disadvantaged groups, institutions rely on other fees to increase their IRG. They have charged fees under different heads to meet these requirements. Students are being charged for admission, laboratories, computers, libraries, development, extension activities, cultural activities, games and athletics, gymkhanas and swimming pools, career development, convocation, examinations and marksheets , registration, identity cards, CDs, medical, modernisation and more. In addition, there are hostel, mess, electricity, and water charges.

Institutions like Jamia Millia Islamia and Delhi University have also launched self-financed courses, the fee for which is higher than the regular course fees. Jawaharlal Nehru University is preparing to start short-term online courses to raise resources through fees. Then, Central University of Himachal Pradesh (CUHP), Dharamshala, which has applied for a loan, has introduced self financing seats within existing programmes. That fetches additional revenue without extra costs. The University Grants Commission’s Institutional Development Plans (IDP) guidelines advised universities to identify sources of funding such as grants, alumni donations, private sector partnerships, and fundraising campaigns.

The “austerity measures” include cutting administrative staff, academic activities, repairs and maintenance, even curtailing lectures of visiting professors. Some have switched from newspaper advertisements to social media to announce admissions and courses.

( This is the second of a three-part series on exactly how HEFA, which provides loans to public institutions for infrastructure development, has impacted higher educational institutions and students. )