Education Financing needs more instruments and trade-able instruments to be able to increase funding to the sector. Here I build the first ladder of the case for Education bonds.
“Free at the point of use” is the Holy Grail of all essential services, and that ideal extends to the health and education sectors too. In a perfect world, we would all be able to afford to live in countries that provide every resident all the education they demand. Indeed, I do believe that the amount of free education that a country can offer is a good indicator of its development and human rights priorities. While primary education remains the domain of the state in most countries, higher education continues to suffer from funding gaps despite mass scale national programmes. All schoolrooms are also not funded equally and the resource gap shows in the range of experiences of students. Conventional funding options for a nation are state funding, private sector institutions (who can tap their own funding sources) – so basically taxes and philanthropy.
But conventional does not necessarily access enough granularity or scale – or both. The challenge in funding education is to be able to do both. The first goal is to ensure that each individual is funded according to their needs, as much a possible while remaining sensitive to their personal circumstances. The second goal is to create a system by which this funding can be accessed by all in an equitable manner. This does not mean simple blanket state subsidies to all. Nor does it just mean taxpayer-funded student vouchers or scholarships. There are smarter models that exist and inspire. For example, Australia has a post compulsory education funding model where the cost of studentship is funded by a loan, which is then repaid along with tax deductions once employed. The rate of deductions is flexible based on payment capacity and willingness. This is probably the gold standard of funding recovery in the world today though it requires both good design and operational capability.
Traditional Indian models of funding education that have been tapped include large and small scale philanthropy. The Azim Premji Foundation not only engages schools but also creates a university to create an entire school of thought around systemic education. The Bharti Foundation supports free schools across various states. Traditional ‘industrialists’ established trusts that would build and support schools among other activities. New mega corporates, including Reliance, continue the tradition with a fair bit of investments in schools. Others like the Mahindras, as an example, continue to fund innovative efforts and social entrepreneurs in their education interventions.
Smaller enterprises and individuals continue to support education via micro philanthropy whether it is the retired teacher who continues to teach students at home, the household that pays for books and uniforms of the children of help, a teacher in Alwar who creates free apps and updates to help all students or the young activist who spends gap years and more in improving education standards in areas that need support. The aggregate of such contributions and small and medium efforts to contribute to education continue to remain beacons of hope. In many places, these interventions funded in small ways have provided essential education services in lieu of government provision.
Systemic and scaled solutions to education provision must of course involve the state. But the state too has co-opted the citizen in this effort in more ways than just taxes. India imposed an education cess to support state spending in education that has run its course. The mandated Corporate Social Responsibility requirement for companies allows them to spend on education and this has provided a dramatic boost to education funding in India enabling both traditional infrastructure and non-traditional interventions to be funded. Current funding and indeed the discovery of funding is a fragmented effort often facilitated by some venture capitalists or larger foundations with funds. The sheer effort to find funding at the time of need is still quite huge and therefore in the hands of a few experts. This needs to change and access to funding needs to be as important as the availability of funding. Needless to say, if funding is directed at scale, it can focus on national or regional imperatives too, such as boosting a particular skill or sector where students can find better paid employment opportunities.
There are other interesting options to boost funding of education at scale, and these can engage both the public and private sector. Education bonds are rarely seen in India and this has surprised me for years. It is entirely logical for education ventures, even if they are not for profit, to increase the range of their funding options by seeking debt in the open market. Tradeable education bonds will strengthen and deepen the market for investments in education. This is even more useful when CSR is mandated and smaller enterprises struggle to bear the costs of investing and managing their CSR funds. The regulations allow them to invest in CSR via funds. I would highly recommend Education CSR Bonds both in the private sector and in the public sector that allow scaled investments in education. I certainly hope to see an announcement in the next budget. Education bonds could fund thousands of small libraries at scale, and I am looking at you Pratham to take the lead here. Education bonds could fund investments into better research into learning outcomes and a deeper evidence of what actually works in Indian classrooms.
Education bonds could fund bright students who need travel grants to showcase their innovations when they win awards in other countries. There could be smaller bonds for single causes – for example, funding student research, funding student social enterprises. Educate Girls, an NGO that focuses on helping girls catch up with education, has an education bond that promises outcomes that helps an investor decide on the worthiness of the bond. There could be larger bonds at national scale that allow individuals to participate in the grand journey of education via National Scholarships. The government has already announced a National Scholarship portal where students can apply. State governments (many, not all) now have consolidated websites where all scholarships can be accessed. Can the taxpayer participate in funding these via tax free national education scholarship bonds?
Education bonds can be issued by anyone willing and able to take on debt or can operate as an agent to enable specific purpose based donation (in which case they should not be called bonds, but units of some sort). This is the stuff that we financial engineers and intervention designers thrive on – to create a range of instruments fit for purpose and need. Currently the nation waits for grand Education Finance agencies, while painfully sorting out the messes of unpaid education loans still sitting on the books of banks. It still needs to create mature and independent refinancing agencies for education funding. While this juggernaut rolls on at its own pace, and will take its time, the nation needs a vehicle to fund a wide range of education requirements. Education Bonds are an excellent way to engage more of the public in the journey to better education for all.