Unlike yesteryears, the cost of quality education has been increasing across the board, and school fee is no exception. As most schools need to be paid in annual modes, the cost of financing school education is rising, which directly impacts the family’s financial plans.
Now until a couple of years back, self-finance was the predominant and possibly the only way for financing primary and secondary school education. It is because, in India, education loans provided have been primarily available for the higher education segment. Like, banks for several years have been offering education loans to students going to study in a foreign university or aiding those joining IITs, IIMs, or any course, such as engineering or medical.
Limitations so far
And even though with the advent of players offering a path breaking model for funding education - that is fee financing - it remained restricted to higher education only. Hence, school fee remains an additional financial expenditure for most families of the students. Moreover, in case of an emergency or loss of income, which happened due to the pandemic, there comes a choice, especially for the lower- and middle-income families, to choose between survival and education of their children. The consequence is obvious - high drop-out rates in the primary and the second levels of school.
This is exactly what most lower- and middle-income families faced as a large number of self-employed parents, or those working in SMEs or particularly unorganized sectors lost their jobs during the first and second wave of the COVID-19. The situation eventually led them to withdraw their wards from schools as they were in no position to pay fees.
Hence, this is why fee financing for schools becomes an essential aspect when it comes to increasing kid’s participation in formal education.
So what is fee financing?
It is a funding process where the fee financing company pays for the entire year’s fee upfront to the schools and the families of the students can pay the amount back to the fee financing firm in installments which are cost-free or have a zero% interest rate.
It’s no doubt that every school was impacted by the unprecedented challenges brought by this ongoing global crisis. However, schools in Tier 2, 3, and 4 regions of the country were hit the hardest as compared to the creamy layer of schools in metropolitan and Tier 1 cities. In fact, in the absence of physical classrooms, quickly shifting to an online mode of learning for many schools located in Tier 2,3, and 4 regions became a challenge. And it continues to be.
Need for fee financing for schools
Amongst many things, one of the major reasons why fee financing for schools becomes imperative is it ensures continuity of student’s education, even during tough times. Say, for example, many students, who had to leave school because of pandemic-induced financial constraints, have lost 1.5 years of education already - that has directly or indirectly impacted their income-earning capability for life. So if parents have the accessibility of fee financing it will help them fund their kid’s education without any additional cost.
At the same time, there are 10 lakh schools across India. Even on average if these schools have one crore fee receivable, it means there are 10 lakh crore receivable fee in the school segment only. But since March 2020, this was massively impacted. Schools have been shut and on average the fee received by them was just 50% while creating a gap of 5 lakh crore. Even the ancillary industries, related to schools, that provided transportation, dress, and study material faced shortcomings. These industries form approximately 10-20% of the total annual fee, which was wiped off completely in the face of the pandemic. Besides, schools also faced shutdowns that also led to several job losses in the school segment. Thus to bridge the above-mentioned gaps, school fee financing is emerging as a valuable solution for both parents and schools like never before.
The leading players in this space are also leaving no stone unturned. Realizing that schools in tier 2, 3, and 4 regions of India are an untapped market with absolutely no players catering to their financing needs, they have taken the lead. Through fee financing schools in these locations are now able to get the entire session’s fee upfront. With freshly infused capital, these schools will now be able to invest in modern or digital infrastructure as well as other activities.
Conclusion
It is no secret that with schools reopening, there will be a floodgate of requirement in fee financing, that will help in the recovery process of schools as well as aid parents to advance their kid’s education. Of course, it will help improve school attendance. From a broader perspective, the quality of education across schools will also enhance thereby making education accessible to each child universally without any roadblock.
This article is authored by Sandeep Wirkhare, MD & CEO, ISFC - Indian School Finance Company Pvt. Ltd.
Share
Tweet
