22 Nov 2014

Measuring Education

Education is a important aspect of everyone’s life, but it’s poorly measured. You don’t know how much you’ve spent, or what the return on investment is. As compared to an investment in a mutual fund or a bank account, whose return is precisely measured down to fractions of a percentage point.

Or real-estate, where there are at least some numbers to go by: how much you’ve paid for a house or plot of land, how much you’ve invested to build a house (if you bought a plot of land), how much you eventually sell it for, and how much rent it earned (if you rented it out) or saved (if you lived there yourself). This is nowhere as precise as a mutual fund or other financial investment, but you can spend an hour, use reasonable assumptions and come up with a ballpark estimate on the return on your investment.

Education is nothing of the sort. You get only vague promises of a better life. This encourages colleges to exaggerate their benefits, like all marketing, defrauding students. And once such a system is in place, which it is in many countries, the people running the show have a vested interest in having the non-transparent system continue. There’s no objective measurement of the performance of a college — how much did you spend [1], and how much did you earn after graduation?

This lack of data means that decisions that are critical to an individual and collectively to the country are made based on guesswork, politics or ideology — how much money should you pay for a particular course? How much should the country as a whole spend on education? How much should be spent on each field of study, such as software engineering, law or marketing? What fraction of the money should be spent on the elite tier of institutions, as opposed to increasing the average standard of education? In the absence of data, all these become political decisions, which means that the right decisions are not getting made. In fact, we often don’t even know if the decisions made turn out in the future to be right, because we don’t measure the results. This is a shame.

What about training that doesn’t neatly fall into the pattern of a four- or three- year college course? For example, if I offer a one-month course on carpentry, or plumbing or electrical work, to the poorest people within the country, what is the economic value of that? Perhaps each rupee of money spent on people at the bottom of the pyramid produces a greater return than the average college does, which really caters to the middle class and higher? Again, this decision should be taken on its merits, not on politics.

In the absence of objective data, students tend to over-spend on education, straining their family finances, and going into debt that’s often hard or impossible to repay. It’s shocking that there’s more than a trillion dollars of student debt — just in the US.

To fix that, colleges or other organisations should be required to collect and publish data on how students are doing, economically. Track each student over his entire career, and anonymise it by the college and the course and the year of graduation, to produce useful data like: The median salary for CS graduates from B.Tech at IIT Bombay in 2014 is ₹10 lakh per year. 90% of them made at least ₹6 lakh. And so on.

This data should be updated every year, and made public, so that students and parents can make informed choices, based on data, rather than marketing. Similar to investing in a mutual fund, where you can look at historical data rather than being taken for a ride by a smooth-talking salesperson.

This data will also help direct funds, whether bank loans or government money, to the optimal investment. If one college charges more than other, but its students don’t make a proportionally higher salary, then the more expensive college is not worth it. So, if you’re a bank, you can give more loans to the colleges that are a good investment. And if you’re a government, you can spend public money in a way that produces the best return for each rupee.

Colleges can also be incentivised to put their money where their mouth is. Instead of promising a bright future, let them promise a particular salary. Students who don’t make that salary get a refund on their fees. Or if it’s a loan from a bank, the college takes over the responsibility of paying the loan back. This means that colleges can no longer make misleading or fraudulent claims about what a wonderful future you’ll have. They, rather than you, take the risk that they don’t deliver what is promised. In that case, you may have wasted your time attending college, but you’re not going to waste your money.

This would be entirely optional for colleges. A college can choose not to promise a starting salary, and students can choose to avoid it, and banks and the government can choose not to fund it. It will be a free market. But with strong regulations to protect students, taxpayers and banks.

In fact, governments can completely stop giving public money to colleges, instead giving out that money in the form of loans, to students enrolling at colleges that promise the most bang for the buck. Whatever the Indian government’s budget for higher education is, most of it (say, 90%) should be spent entirely in the form of student loans, allocating them optimally.

This will set in progress a healthy ecosystem of colleges as they compete to outdo each other in providing better education (as measured in cold, hard cash), or at a lower fee, or some combination of both. Colleges will spring up that guarantee only a modest salary, such as ₹2 lakh (which is still thrice the average annual income in India), but at a really cheap fee, so that it will be a no-brainer for a certain section of society to opt for it. Namely the ones that can’t afford a better college, and whose alternative is to make far less than ₹2 lakh per year. Other colleges can focus on providing higher-paying jobs, but competing among themselves to do so for the least price.

This will bring transparency to students, parents, banks and the governments, letting them know what their options are, how much each of them costs and what the returns are, and thereby make informed decisions. Colleges will race to get better, and public money can be spent optimally, for the best results.

[1] The other thing that needs to be mandated is that colleges should publish their fee schedule ahead of time, rather than being free to hike it midway through the course, at which point you can’t refuse to pay. I’m surprised this is even legal.

Colleges should also be forced to have one single fee, instead of having a whole bunch of compulsory fees, which in turn makes it complex for students and parents to figure out what they’re paying. Don’t have a library fee and a laboratory fee and a joining fee and a donation and other things. After all, if a fee is mandatory, it should be rolled into the base fee, simplifying the decision for students and parents, and letting us easily compare colleges.

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