The Indian government is trying to move away from a grant-based model for higher-education institutes, pushing them to raise their own funds
It set up the Higher Education Financing Agency (Hefa) to lend to institutes for high-budget infrastructure projects
Four years after the first loan was given out by Hefa, the government’s budget allocation for the agency dropped to zero in 2023
The National Institute of Technology (NIT) at Surathkal in Karnataka got its Central Research Facility (CRF) equipment against a Rs 80 crore (US$9.5 million) price tag. Indian Institute of Technology (IIT) Delhi, in the national capital, revamped its postgraduate students’ experience with its Rs 84.3 crore (US$10 million) investment in Dronagiri and Saptagiri hostels. IIT Madras in Tamil Nadu did the same for its Mandakini hostel for fresher students at a budget of Rs 146.8 crore (US$17.5 million).
All of them had two things in common. One, they were capital-intensive projects at India’s top engineering colleges. Two, and more importantly, they were financed through the Higher Education Financing Agency (Hefa), a non-banking financial company (NBFC) set up five years ago.
Hefa, a partnership between the government and the state-owned Canara Bank, exists to help educational institutions with high-capital financing for infra upgrades.
NV Varghese, former vice-chancellor of the National Institute of Education Planning and Administration (NIEPA), a state-run research institution, points out that the decline can be attributed to institutions finally getting a grasp on these loans being a bad deal without a steady income for payback.
On the other hand, the government’s cash tap for Hefa has run dry: a mere Rs 1 lakh (US$1,200) each in the 2021 and 2022 Union budgets—then a complete shut-off in 2023. The justification, according to a March 2023 Rajya Sabha report, is that the government’s equity contribution in Hefa is enough to meet the agency’s current needs.
Exclusive funds
In 2018, Rs 2,750 crore (US$330 million) was earmarked for Hefa, with a directive for centrally funded institutions—IITs, IIMs, NITs, and central universities—to exclusively turn to the agency for loans
But how much do educational institutes that typically rely on government grants benefit from Hefa loans? A former IIT director suggests that Hefa is beneficial only when institutes choose to take the loans, but it becomes tricky when they’re compelled to accrue debt for infrastructure.
So, what happens when schools end up swimming in loans worth hundreds of crores? It is often the students who get soaked in the wave of debt. After all, the most viable path for most institutions to finance their loan repayments is to increase their fees.
Why do they need loans?
Educational institutions that take loans via Hefa are required to repay the full principal amount or a part of it over a 10-year period—depending on their type and the year they were founded. The government pays the interest rate, initially set at 8.5%, but subject to annual revisions; it was adjusted to 7% last year.
Explore more infographics like this in The Ken – Visual Stories
This NBFC’s $12B loan offer to higher-ed is leaving its only customers cold
But why do more and more colleges and universities need loans in the first place? Simply because they’re growing, with more students and new policies, such as extra spots for women in IITs and the economically weaker section (EWS) quota in all higher-education institutes.
Besides, the big plan under the National Education Policy 2020 is to have 50% of all eligible students in college by 2030—up from about 27% in 2020–21. And schools are adding more seats to make it happen.
Naturally, there is a greater need for larger hostels, classrooms, and laboratories—not to mention improved faculty housing and expanded research facilities….
Assist arsenal
Grants-in-aid to centrally funded institutions are distributed across three categories: general grants-in-aid, capital grants, and salary grants. Capital grants, which support infrastructure, saw drastically reduced funding post the introduction of Hefa
How to reap returns and settle debts?
Subrahmanyam framed Hefa as a switch from “push money”—where funds were pushed from the government to institutions—to “pull money”—granting institutions the power to pull funds when needed. Loans were swiftly processed and disbursed directly to vendors upon project milestones.
Institutions availing of Hefa loans are obligated to repay the predetermined amount irrespective of the project’s progress. In essence, this implies that even if no work has been initiated on a project (read: no funds have been expended) the institution is still bound to fulfil the repayment commitment.
But it is the burden of these very loans that have educational institutions caught in a tug-of-war between rising student numbers and looming repayments. The government must decide whether to stick with the old grants-in-aid syllabus or expand Hefa’s curriculum—taking lessons from the past five years.
Edited by guruprasad
This is a free story, so share away without limits
