FAQs on IIT fee hike - Perception isn't the reality

The tuition fee of IITs is increased from Rs. 90,000 per annum to Rs. 2,00,000 per annum with exemptions to SC, STs, differently abled students and those whose income is below 1 lakh per annum.

There is a lot of discourse on the desirability of the decision and its possible effects. This post aims to put numbers to some of the assumptions and highlight the effects of this decision which are being missed out in the discourse.

IITs have 4 year courses and 5 year courses (dual degrees - B.Tech + M.Tech). So, the total expenditure comes out to be 12 lakh for 4 year courses and 15 lakh for 5 year courses, assuming 1 lakh per year for expenses other than tuition.

Moving on to the FAQs.

FAQ 1: Salary of IIT graduates

Context: Some argue that IIT graduates can repay loans of 12 - 15 lakh with the kind of salaries that get through jobs secured in campus placements. For this, we need to look at the data of typical job package of fresh IIT graduate.

Data: The median salary of jobs offered during IIT campus placements is around 8-9 lakhs per annum. There might be news reports of packages running in crores but this is the median package. Note that 50% of graduates earn less than 8 lakh per annum and 40% fall in the range of 4-8 lakh per annum.

FAQ 2: Placement percentage in IITs

Placements in IITs are conducted in two phases. The first phase begins on Dec 1st of every year and goes on till around 20th of Dec. The bulk of companies come during this period. The second phase starts in around 2nd week of January and theoretically goes on until May but practically till March. Very few companies come during this period. 

In 2015, 70% students are placed in the first phase of placements in IIT Kharagpur. Considering the number of companies in 2nd phase, this can go up to 80-85% (personal guess). 

The point is that 100% placement is a myth. There is still a section of people who might not get jobs in campus recruitment.

FAQ 3: Contribution of IIT graduates to India

Context: It is argued if investment on subsidizing IITs really worth it.

Data: It is difficult to quantify such contribution, especially the counterfactual of what would have happened if IITs weren't established. The best we can do is to quantify some proxies of IIT graduate's contribution and see if the expenditure on them is worth the effects.

A study was commissioned by PanIIT to estimate the impact of IIT alumni. This was conducted by Zinnov Management Consulting and India Brand Equity Foundation, a trust established by the Ministry of Commerce and Industry, Govt. of India partnered with PanIIT for this purpose. The report was released by the then Prime Minister of India, Dr. Manmohan Singh in 2008. The report says
  • "IIT Alumni have helped generate, directly or indirectly, 15 to 19 million jobs over the last 50 years. On an average, an IIT Alumnus is associated with the creation of around 100 jobs. Close to 71% of the jobs generated, directly or indirectly, by IIT alumni are in India.
  • IIT Alumni have been associated with incremental revenue addition to the tune of USD 200 billion over the last one year (2007). Overall, close to 50 percent of the incremental revenue addition is accounted for by the alumni based in India. Incremental revenue addition is defined as the percentage increment of the revenue by the alumni in managerial positions is responsible for.
  • 8% of IIT graduates work in social sector transformation."
The report also discusses the contribution of IIT alumni in the social sector, research and other areas.

By any metrics, this return is several times larger than the investment.

FAQ 4: What percentage of IIT graduates migrate abroad?

The above report says that 65% of IIT alumni are settled in India and the rest 35% are based abroad. 35% is way below what's generally perceived in discourse.

Questions

1. Can an IIT graduate pay back the loan of 12-15 lakh?

Some argue that the expenses incurred should be charged to students and others argue that students can pay back these loans. Underlying both these arguments is an assumption, a student can pay back these loans in a reasonable manner.

What does reasonable mean? Of course, anyone can pay back the loan, if a time frame of 2-3 decades is considered. But, a reasonable time frame is the one which doesn't significantly hamper the future pursuits. Typically 5-7 years time frame is considered reasonable. It's also the time frame in which the IIM graduates typically plan to pay back the loan.

So, the question now is - can an IIT graduate pay back the loan of 12- 15 lakh within 5-7 years with the salaries that they typically receive?

8-9 lakh comes to 50k-60k per month and the loan EMI comes to 30k per month (back of the envelope calculation). Typically most of these jobs are in metros where 20k per month is the minimum expense required. So, essentially, out of 50k, 30k is for loan and 20k for rent and other purposes, which means zero savings.

Remember that the above calculation is for median salary. For the 50% students below it, it's much difficult.

It suggests that it is highly difficult to pay back the loan, contrary to perceptions.

2. Whom is it going to effect?
  1. Obvious things first - graduates have to live on zero or meagre savings for 5-7 years.
  2. Students planning to pursue higher studies - masters and Ph.Ds. This includes a significant section of people who pursue academics in the engineering field. Higher studies is no longer an option with this loan.
  3. Students who want to pursue jobs in the engineering field. The salaries in the engineering field are much lower compared to IT jobs. The median for that is much below 8 lakh per annum. It's a huge dis-incentive to those who want to pursue actual engineering. It indirectly encourages students to take up non-engineering jobs.
  4. Students who might possibly start a company.
  5. Students who pursue interests in the social sector.
  6. Lasst but not the least - high potential students spending productive years of life to pay off the loans.
3. Why shouldn't IIT graduates pay back the loan if IIM graduates are doing?

One, the median salaries of IIMs are much higher and their fee is similar to the new fee of IIT.

Two, IIM is a post graduate professional course, meaning, for most people it's the culmination of academics. They would want to pursue professional life after this and mostly those who do pursue IIM do so because their life priority is decided. This, along with the salary, may make them pay for 5-7 years since there's no next step in most cases. 

Undergraduate education isn't so. There is a lot to figure out about life and certainly the salaries are no way close to IIMs.

4. What about other countries?

For every America, there is a Germany where all higher education is free. So, let's focus on India and what's needed for India.

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12 comments:

  1. Just one question on top of my head. Why this analysis does not include parents support or other scholarships given to IIT students as fee aid?

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  2. How manipulative the article is !!!
    Of course the average starting package is of Rs. 50000/- only but it doesnt remains same for next 5-7 years. Even if you perform average in your job, you get considerable hike after year or two. (forget about the cases where you may perform outstandingly in your job or you switch companies after a year or two).
    Of course, you will not have enough savings (or may be zero saving) in your first year of job, but who the hell is really expecting to start saving(that too after paying your 30000 EMI) in first year of job.

    Above all i am not really defending or suggesting to increase IIT fees,we may discuss these with few other valid points but the points in this article are clearly manipulative ones.

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    Replies
    1. The hikes are 15-20% on the average but expenses also increase. Things like marriage etc. In any case the loan is not a trivial burden.

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  3. Merit brings students to IIT, when a fees of1 to 1. 25 lacs is beingcharged in other engneering colleges. This shoul be maximum for IITs also.

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  4. Merit brings students to IIT, when a fees of1 to 1. 25 lacs is beingcharged in other engneering colleges. This shoul be maximum for IITs also.

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  5. And above all, what if an IIT graduate wishes to enter politics? He can't, simply because he has loans to pay off.
    And if people from IITs don't take up politics, 10th fails would. And there's the fate we're sealing for future of India right there, I guess.

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  6. Two Flaws:
    "Students planning to pursue higher studies - masters and Ph.Ds. This includes a significant section of people who pursue academics in the engineering field. Higher studies is no longer an option with this loan."

    Higher studies in IITs comes with a stipend. Students are paid by the govt. They dont need to take loans. Only the undergraduates will have to take loans as they need to pay the fees from their pockets.

    "Students who want to pursue jobs in the engineering field. The salaries in the engineering field are much lower compared to IT jobs. The median for that is much below 8 lakh per annum. It's a huge dis-incentive to those who want to pursue actual engineering. It indirectly encourages students to take up non-engineering jobs."

    Less than 1% of the students pursue actual engineering jobs.

    Further it is unlikely a student is going to turn down an IIT admission because he cannot pay this fees. Everyone knows the return on an IIT degree is much more than the 2 lakhs per annum fees that they will pay.

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    Replies
    1. Higher studies in IIT? How many undergraduates will go for IIT masters? Come to IIT to know the condition of research facilities. And the stipend just covers the masters fees. Question arises whether they will go for better institutes for master's or PhD? Many of my friends , who took loan, opted for job than higher studies because of their loans.

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    2. Irrespective of loans, people are opting for jobs. Non IITians (who pay even higher fees) opt for higher studies in IITs because they also want the brand against their name.

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  7. Conveniently ignored that two thirds of fee is waived off for families with < 5.0 lacs annual income, that first year after graduation is no interest, assumes parents pay nothing for education (not even pocket money) and salary remains the same throughout 5-7 years period, assumed no scholarships in IIT. Only catch is if the student decides to go for higher studies, but then wait, IIT students never get scholarships there as well, right? We don't want to pay more taxes, we don't want to use BSNL/Air India, etc. but we want Govt. spending to increase everywhere. Oh yes, bring back black money and the nation will survive perennially :) Keep up such analyses, mate.

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    Replies
    1. Yes, some facts have been ignored or overlooked in the article. But the point is that if medical colleges(yes,many colleges have a few as low as 5000/semester), many DU colleges and others get subsidy on fee then why not the iitans? Afterall, iitans are giving atleast the same output if not more than them. Also, the fee of the SC/ST students being waved off, irrespective of their financial background makes absolutely no sense, just a catch to walk away with more Dalit votes. Practically, since half the fee is waved off and for the other half its doubled, the government wont be getting any benefit whatsoever in monetary terms,only difference is that The reserved candidates will lend more support to the government. Its as if, the middle class of the general category is earning to support all people of the country, dude if someone is ewrning more than 5lpa thats also because his/her parents have and are working very hard to earn that sum and they have full right to enjoy more ease in terms of paying their fee. Makes no point, why they should pay for others.

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    2. Earning*. So basically, the fee hike does no good to the finances of bsnl or air india. It only helps the government to gain dalit support,thats all.

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