Education and Indebtedness: The Case of Andhra Pradesh

India is an excellent example where past investments in education have yielded handsome tangible benefits. Resultantly, it is now considered as the single most important tool for social and economic advancement for almost all social groups. The problem of low skills acquired through education is well known. A more pertinent problem that is over looked is the unintended consequences of indebtedness that increased investment in education are creating amongst the poor. Unlike in the past few decades, the causes for indebtedness, especially among the poor, are markedly different. While the decades-old causes for indebtedness have remained (like repaying old loans, and daily needs), new causes that require ever larger amounts of credit (like education, health and housing) have been added.

Investments in education from individuals and the government have increased over the past few decades. Increased expenditure on education is indicated by growth in enrolment of students and the expansion of educational institutions in India. The number of schools (primary, upper primary, secondary/senior secondary level) increased from 230,700 in 1950-51 to 1.389 million in 2009-10. This growth was in all segments: the number of primary schools increased from 209,000 to 823,000 while upper primary schools increased from 13,600 to 367,700 and secondary/senior secondary schools increased from 7400 to 189,900 . Enrolment in school education increased from 2.38 million to 243.2 million. In the case Higher Education, the number of universities in India increased from 30 in 1950-51 to 634 in 2010-11 while the number of colleges increased from 695 in 1950-51 to 33,023 in 2010-11. The total enrolment of students increased from 397,000 in 1950-51 to 16.9 millions in 2010-11. UP, Maharashtra and Andhra Pradesh have the highest student enrolment.

The expansion of the government machinery till 1991 and the growth of the private sector after 1991 helped increase the employment opportunities. The high paying jobs in the information technology (IT) and Information Technology Enabled Services (ITES) sectors reinforced the belief that education facilitates economic and social growth and advancement. The consequence of this awareness is magnified in the rural areas since it helped the rise of new elite in a very short span of time: in the last few decades educated found employment, and used the surplus to buy land. As values of land rose and the rise of this elite, mostly from humble origins only helped expand the importance of education in popular perception. It was in this context that the impact of government policy of encouraging education and its consequences needs to be understood. The increase in number of educational institutions from 2000-2010 varies from 60 percent to more than 100 percent across the different segments and more pronounced in secondary, higher and professional education spheres. However, the above developments are not alarming by themselves.

Over the past decade, poor have been convinced due to a combination of factors that include changes mentioned above and rising wages (which leave larger amount of disposable incomes) that the best possible manner in which their children will have a better future is through education – even if it means assuming ever larger quantities of debt. The dysfunctional nature of government schools increases the attraction for the more expansive private schools. An example best illustrates this increased scale of attraction of the more expensive private education: the only private school in Palasamudram Mandal of Chittoor district (Andhra Pradesh) with a population of about 11,000 boasts of strength that exceeds 400. Professional higher education, always more expensive, is deemed imperative for an attractive job.

Since rising cost of private education has moved concurrent to increased expenditure on health and other living expenses, a large number of people end up borrowing money to meet the higher education needs of their children. Invariably, the inaccessibility of low cost institutional loans for large numbers of poor forces them to borrow at high interest rates driving them deeper into debt. A study (2011) on the MFI crisis in AP pointed out that 234 of the 1069 respondents had borrowed money for education from MFIs. These loans varied from Rs.25,000 to Rs.120,000 and were used for various purposes including education.

The inability of the education system to sufficiently impart requisite skills including those like basic communication skills means that students are unable to find jobs that enable improvement in economic well-being or to provide sufficient surplus beyond immediate living expenses to service their debts. This aspect of indebtedness is often overlooked. Our studies indicate that on an average a family assumes new debt of Rs 5,000 to Rs.50,000 annually accrued due to investments on education. According to The National Employability Report – Engineering Graduates 2014 ranks AP among the bottom 25 percentile of States as far as employability of engineering students for IT jobs. Interestingly, the state ranks along with Tamil Nadu and Kerala.

This is part of a largely phenomena that is playing out on a larger scale in different parts of India.  A study found that nearly 47% of 2013 graduates were found unemployable in any sector. Only 2.59 per cent of them was found employable in functional roles such as accounting, while 15.88 per cent was suitable for employment in sales related roles and 21.37 per cent for roles in the business process outsourcing sector.

Thus, it is imperative to understand the precarious nature of the present investments in education that is driven by assuming high-cost debts. This leveraged investment in education should be seen in the context of another leveraged investment that is common among the poor – investment in housing. The gestation period for return on such investments is often decades into the future, while debts have to be serviced in the immediate present. As an owner of a private school chain in AP pointed out that education business has been aided by a change in the mind set of the people at all levels: a change from considering education as expenditure in their personal balance sheets to an investment in their balance sheet. It is also the only segment of the education value chain that is completely unregulated. Investment in education has the ability to improve the social and economic well-being of the poor provided it facilitates gainful employment. Far from creating an ‘aristocracy of culture’ (to borrow a term from Pierre Bourdieu), the incomes generated from such leveraged investments are insufficient to service the debts, thereby driving the poor deeper into the quagmire of debt from which they have little possibility of exiting in the foreseeable future. History shows us that the result of hundreds of thousands individuals borrowing short-term and investing long-term is a perfect recipe for disaster. The catch is that it takes decades for this to play out.