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Despite much progress in the private education sector in the post-1990 democratic era, a dangerous segregation is taking place between the rich and the poor in the education sector.  Wealthy families have access to high quality education offered by expensive private schools and colleges, whereas a vast majority of poor and disadvantaged students are stuck in the ailing public education sector. The new government's attempt to chart a new educational strategy is a welcome sign. Imposing quotas, price control or nationalization will be counter productive.

What follows below is an attempt to offer an innovative mechanism to help underprivileged families have an access to quality higher education through a trust fund.  Even thought the data used below are a bit old, the mechanism itself should be of interest to the policy makers.

Background

I will take the following data to illustrative an example.  Out of 55,000 graduating School Leaving Certificate (SLC) students, an overall 29% (16,000 students) success rate for the public schools and 17% share in the first division class (4,000 students) are not good signs.  Furthermore, the only option for many of these 16,000 financially disadvantaged students is to go to publicly funded, over crowed, politically unstable, and low quality colleges and universities.  The rest pay Rs 2000-6000 per month to go to private colleges and universities.  Some even have the luxury of going abroad to India, Australia, UK, and America. 

Within the last ten years alone, loans and grants totaling more than US $ 100 million from the Asian Development Bank and the World Bank have gone into various institutional capacity building projects, which include special care to meet the needs of children for disadvantaged group.  Primary education has been free for sometime too.  Yet, the middle and lower middle class families are leaving the public school system in droves in favor of expensive private schools.

Poor quality, frequent lockups, violence, political influence, and agitations on the streets have created a cancerous environment in our education sector.  In a country with an average per capita income of Rs 15,000 per annum, a literacy rate of 50%, and 30%-40% of the population under the poverty line, such polarization has proven deadly.  This proposal complements the existing effort but advocates an innovative mechanism to reverse the deteriorating trend in our public education.  The benefits are immediate with long run implications.

Historically, education has been the best equalizer in many societies.  Even the world capital of free market, America, provides free education up to the high school level for all of its citizens: rich, poor, whites, and non-whites.  The challenge for Nepal is to give its poor population an opportunity to have a fair access to quality education.  However, the overly restrictive regulations on the private sector are not the answer.

Market distortions may generate anomalies such as, capital flight to India and deterioration in-school services.  It will also discourage innovations in the production of education, which has been a hallmark of the post-1990 democratic era.  The point is that a healthy private sector can be constructive in helping the public sector, and my proposal strikes that balance. 

The Trust Fund

The proposed system uses five percent tax from the total revenue generated by the private schools and colleges (i.e., all higher institutions).  There are 1.5 million students in eighty-five hundreds private schools, and 70,000 students go to about 250 private colleges.   Using a conservative amount of Rs 1,500 as a monthly charge, the five percent tax revenue will yield about Rs 1.413 billion for the trust fund.  The second portion of the trust fund relies on a ten percent levy -about Rs 1 billion-- from the sin taxes on alcohol, tobacco, and casinos. 

Jointly, the five-plus-ten tax system can raise Rs 2.413 billion worth for the trust fund.  Both sectors, being on the target list of the Maoists, should not mind contributing five and ten percent of their revenues respectively to this noble cause.  In return, the government and the agitating student organizations should not be imposing too much unfair regulatory controls on them.

Benefits

The proposed trust system has many advantages.  The immediate benefit is that it finances the SLC graduates coming out the public school system to go to colleges of their choice.  It gives incentives to public schools and colleges to improve as well.

The public schools would be improved by having to compete to matriculate students with the vouchers that can be spent anywhere.  The financial incentive rewarded based on the number of successful graduates and other reward mechanism will also motivate these schools to improve. Further, the publicly funded higher education system would not be overwhelmed from having to admit thousands of financially disadvantaged graduates into their system every year.  The public university system is also likely to be free from political turmoil.  Smaller class sizes and an opportunity to raise tuition fees on those who can afford will only make these public universities more competitive.  These and other features of the proposed mechanism are highlighted below:

 - The five-plus-ten percent tax revenue from two sources raises Rs 2.413 billion annually.

- Rs 1.356 billion of student voucher monies will be spent as follows:  The SLC first division students (4,000, 17% of the total number in that class) coming out of the public schools will get 5 years of education vouchers to go to colleges of their choice (Rs 2,500 per month on average), assuming that their preferred science discipline would cost more.  The remaining 12,000 SLC students will get vouchers (Rs 1,500 per month on average) for an average of 3.5 years of schooling, which may include, for many students, a technical and vocational education.

- The ten percent of the trust fund (Rs 241.3 million) is set aside to reward the well performing public schools (Rs 15,000 per SLC passing student) to be used for their quality enhancement.

-  The remaining 1.057 billion rupees can be used to improve the quality of public schools in various ways: 25% (Rs 264.3 million) for competitive grants, for example, for computers and equipments; 75% (Rs 792.8 million) for vouchers to cover additional SLC students who matriculate after the second round of attempt, or to provide vouchers for the vocational and technical education for those who fail the SLC exam.

- To encourage publicly funded higher education sector, the college voucher for the public education sector may be set about 25% higher than for the private sector vouchers.

- To break the monopoly of the capital city Kathmandu, the voucher and the competitive grant component of the trust fund, totaling Rs 2171.7 million, should be distributed across the five development regions on the basis of population to encourage the development of educational sector in those regions.

- In the second phase, the proposal also recommends using certain percent of the future earnings from the regional hydropower to go into education and health welfare of that region.  A better-endowed trust fund can, among other things, further promote the trade and technical school training programs to enhance the manpower export industry.   It can also provide low interest rate loans for students to cover expensive discipline such as, medicine and engineering.

The mechanism of the system, assumptions, taxing sources, and the rationalities are developed in detail in a longer article, which can be obtained from the author upon your request.

At least two years of public education of 9th and 10th grades would have to be imposed as a requirement to qualify for such funds.  With the voucher system in place, if the public schools can attract the middle class families back, the competing private counterparts will have to start lowering their tuition to stop the attrition, especially for 9th and 10th grades.  Better quality at public schools and lower tuition at the private sector are the desirable outcomes in the long-run. 

After setting aside 10% for the merit reward and Rs 1356 million for student vouchers for higher and vocational education, a sizable amount of the trust fund can competitively spent to improve the quality of other grades.  This will complement the effort already being made by the Ministry, the Asian Development Bank, and the World Bank. 

In fear of going out of business, professors at public universities and colleges would have to begin devoting more time in institution building to attract the voucher carrying students and less time subsidizing the private sector's activities with their consulting and off-campus teaching. 

The proposed trust fund system may raise all boats, like a higher tide.

Bohara@unm.edu