Saturday, April 15, 2006

Private Tuition :: Khaleej Times

The primary and secondary-aged children of ex pats in the UAE go to private schools. The tuition is paid by the parents, or - perhaps more often - by the parent's employer.

There is a wide range of schools to choose from and there are large differences in tuition rates. The highest of those exceed those at private universities in the UAE:
Fees at the most expensive of the higher education institutions in the UAE such as the American University in Dubai and the American University of Sharjah are fixed at around Dh48,000 annually, whereas a number of upmarket private schools catering to the top bracket of the society fall between Dh40,000 and Dh50,000 annually.
In addition, tuition increases in recent years have been steep. In demand and supply terms, both growing but supply has not caught up with the growth in demand over the last five years or so. The question is, why not? Several possibilities come to mind. Immigration to the UAE continues to push the population growth rate into the double digits annually, and not only in fast-growing Dubai. You might expect that growth in school facilities (and hiring of teachers) could keep pace if the growth was anticipated and there was confidence that the economy of Dubai was not subject to collapse. Thus, the relatively slow pace of growth in schools probably indicates some lack of confidence that the economy of Dubai going to grow as it has and some lack of confidence that the economy is viable and is immune to adverse and unpredictable factors like another war in the Gulf or a major terrorist attack.

There are cost push factors, too, of course. There is a massive building boom across the UAE and building costs are up as a result. It costs more to build a school. Housing costs are up, too, so it becomes more costly to recruit teachers to migrate to the region - whether you cover their housing costs as an allowance or compensate them through a higher salary.

Finally, it is conceivable that there are regulatory barriers to entry. Perhaps there are numerous government procedures that slow the expansion and/or government review cannot cope with the rate of expansion and falls behind in granting licenses. If there are entry barriers, this creates short-run profits for existing schools as tuition gets bid higher for the few places available. This could create a lack of competition:
Elias Bou Saab, Vice-President Admission at the American University in Dubai (AUD), explains the healthiest way to keep tuition fees low and affordable is by allowing competition. “Higher education institutions in the country are faced with stiff competition,” he said, pointing out to the mushrooming of universities and colleges from across the globe setting up branch campuses in various emirates are offering programmes at competitive prices.
Parents wonder about what may be a revealing inconsistency:
“Most school managements charging high tuition fees, or, having raised their fees recently, attribute the high tuition fees to increasing costs of land, building rentals, service charges, fuel costs, and high salary packages paid to teachers and staff to maintain the quality of education. But if the universities can offer education at competitive rates, despite, faced with similar problems and increasing retention packages of faculty members, why can’t schools contain their fee structures and make it affordable for many,” a number of parents point out.
That's a good question. Perhaps the answer is that universities are in an international market for students whereas parents of primary and secondary children are less likely to send them abroad. In this case, the primary and secondary school markets do not have the safety valve of studying abroad; surges in demand have to be absorbed locally and price runups will be steeper.

The KT article contains a couple of pleas for government regulation of tuition at new schools. That will have exactly the opposite of the desired effect: it will discourage investment in new schools. Better to figure out what can be done to make it easier to open new schools. Yes, making schools easier to open might make it easier to cheat parents becasu. It is up to parents to do a better job of determining for themselves if a school is fly-by-night or not. Now the presumption is that the government is taking care of that - and when the government is unable to keep up with accreditation that creates an opportunity for schools to cheat parents on the quality of education. The solution is for parents to take the responsibility upon themselves to ensure that the school is offering what it claims to be offering.

Dubai-based GEMS Group on Saturday announced that it is applying to the Ministry of Education to authorise school fee increases above 20 per cent across 11 of its Central Board of Secondary School Education (CBSE) and Indian School Certificate (ISC) schools in the UAE. The increases are effective as of April 1.
. . .
Hugh McPherson, Chief Operating Officer of GEMS Schools, said the current Ministry of Education ceiling of 20 per cent tuition fee increase every three years is "not adequate to cover the schools' rapidly escalating operating costs."
. . .
Officials at the Education Zone and the Ministry of Education confirmed the news and said that a fee hike was "justifiable" if the schools provided additional quality services to the pupils. Mona Al Lootah, head of the zone, told Gulf News on Saturday that there are 15 more schools waiting for approval to increase their tution fees.
Let's be clear. What we are being told is if a school wants to increase its tuition because of escalating costs it can do so only if it offers additional quality services. How small can those additional quality services be? If it's they can be small this is window dressing meant to allow tuition increases. And if the additional quality services have to be substantial, that's perverse. Because if something becomes more expensive the rational thing to do is usually to substitute away from it not to add to it.

Notice it is the rules of the regulation that create this perversity. The schools cannot go to the parents and say let's find a way to economize on some of the extras we offer that are not central to education. Instead they have to add more extras in order to get permission from the regulators to increase fees. That inflates costs rather than trimming them.

My recommendation is the same as always. Government should not be in business of regulating prices nor should it be in the business of regulating the frequency with which buyers and sellers can renegotiate terms. If parents want schools to enter into contracts that say tuition does not change except every three years, that is their business, not the business of government. If schools want to enter into contracts that allow them to adjust tuition mid-year under extraordinary circumstances, that is their business.

When it is government regulation that freezes tuition from changing for three years you essentially have a price ceiling. In an environment where costs are rising and, like the UAE, demand is growing, that ceiling can become binding if it is not binding from the start. Newly arriving parents will find it difficult to get that school to accept their child. They will find their choices limited to new schools whose tuition reflects the higher cost environment - and perhaps also reflect reduced competition as the only schools available for new students are new schools. And investors' enthusiasm for investing in schools will dampened because they fear price controls, slowing entry and prolonging the period of high prices due to accelerating demand.

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Blogger Keef said...

About 25 new private schools opened in Dubai this academic year, with a similar number expected next year. Schools have to be inspected by the Misinstry of Ed and the Municipality before they can begin operating, and while this can be a lengthy process I don't think it's a total deterrent.

I was very surprised that Uni fees are lower than the top-dollar secondary schools though.

3:45 PM  

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