What does capitation fee mean in the context of education?
The Concise Oxford Dictionary defines capitation as follows:
The payment of a fee or a grant to a doctor, school, etc., the amount being determined by the number of patients, pupils etc. Origin (denoting the counting of heads)
The Merriam-Webster Dictionary defines capitation as follows:
Etymology: Late Latin capitation-, capitatio poll tax, from Latin capit-, caput
1 : a direct uniform tax imposed on each head or person : POLL TAX
2 : a uniform per capita payment or fee
The dictionary definitions suggest that the capitation fee is not a fee linked to the actual cost of providing a service (on a cost plus margin model), but a fee linked to the number of persons to whom the service is provided (with the attempt to charge all of them a certain amount ) to recover costs and more.
(Update: A submission by counsel, F.S. Nariman, in the P.A. Inamdar case (August 2005) defines capitation fee as "something taken over and above what the institution needs by way of revenue and capital expenditure plus a reasonable surplus.")
Andhra Pradesh, Karnataka, Kerala, Maharashtra and Tamil Nadu have enacted legislation that prohibit the charging of capitation fees (surprisingly, I haven't come across such legislation in any of the other states - something worth pondering). The definition of capitiation fee in some these state legislations are extracted below.
The Kerala Self Financing Professional Colleges (Prohibition of Capitation Fees and Procedure for Admission and Fixation of Fees) Act 2004 defines capitation fees as follows.
“capitation fees” means any amount by whatever name called, whether in cash or in kind paid or collected or received directly or indirectly in addition to the fees determined under section 4.
4. Fee Structure
(1) Notwithstanding anything contained in any law for the time being in force or in any judgment decree or order of any court or other authority or in any agreement
(a) the fee to be collected from the candidates admitted in the Government Quota shall be the same as the fee prevailing for the corresponding course in the State Government colleges.
(b) the fee to be collected from the candidates admitted in the Management Quota shall be determined by the management taking into consideration the inevitable expenses for running the institution.
(2) The fees to be determined under clause (b) of sub-section (1) may include all or any of the following items, namely: -
(a) tuition fees on yearly basis;
(b) library fee;
(c) laboratory fee;
(d) caution deposit;
(e) development fee; and
(f) refundable deposit; if any
The Supreme Court Judgement in 1993 in the Unni Krishnan Case declared that charging capitation fees was illegal. The judgement quotes the definition stated in the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act 1984:
Be it enacted by the Karnataka State Legislature in the Thirty-Fourth Year of the Republic of India as follows" Clause (b) of Section 2 defines the expression 'Capitation fee' in the following words: "2(b) Capitation fee means any amount, by whatever name called, paid or collected directly or indirectly in excess of the fee prescribed under section 5, but does not include the deposit specified under the proviso to section 3."
Another Supreme Court Judgement in 2001 quotes the definition stated in the Maharashtra Educational Institutions (Prohibition of
Capitation Fee) Act, 1987:
Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987, Section 3(a) - Capitation fee - Meaning - The expression "capitation fee" is defined in Section 2(a) of the Act. Capitation fee means "any amount, by whatever name called, whether in cash or kind, in excess of the prescribed or as the case may be approved, rates of fees regulated under Section 4."
I have not been able to find the text of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987 online.
There are two other Acts which would also have defined capitation fees
- Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act 1983.
- Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act 1992
but I haven't been able to find the text of these Acts.
The definitions in these Acts are more or less similar and define capitation fee as anything in excess of the fees prescribed or approved by the state.
A point to note is that the legislation was enacted as recently as 2004 in Kerala, but the Acts in Andhra Pradesh (1983), Karnataka (1984), Maharashtra (1987), and Tamil Nadu (1992) were all enacted before the Supreme Court declared capitation fees illegal in the Unni Krishnan case in 1993.
The Supreme Court in its judgement in October 2002 in the TMA Pai Foundation vs the State of Karnataka case stated the following (emphasis mine).
57. We, however, wish to emphasize one point, and that is that inasmuch as the occupation of education is, in a sense, regarded as charitable, the government can provide regulations that will ensure excellence in education, while forbidding the charging of capitation fee and profiteering by the institution. Since the object of setting up an educational institution is by definition "charitable", it is clear that an educational institution cannot charge such a fee as is not required for the purpose of fulfilling that object. To put it differently, in the establishment of an educational institution, the object should not be to make a profit, inasmuch as education is essentially charitable in nature. There can, however, be a reasonable revenue surplus, which may be generated by the educational institution for the purpose of development of education and expansion of the institution.
69. In such professional unaided institutions, the Management will have the right to select teachers as per the qualifications and eligibility conditions laid down by the State/University subject to adoption of a rational procedure of selection. A rational fee structure should be adopted by the Management, which would not be entitled to charge a capitation fee. Appropriate machinery can be devised by the state or university to ensure that no capitation fee is charged and that there is no profiteering, though a reasonable surplus for the furtherance of education is permissible. Conditions granting recognition or affiliation can broadly cover academic and educational matters including the welfare of students and teachers.
Q5(c) Whether the statutory provisions which regulate the facets of administration like control over educational agencies, control over governing bodies, conditions of affiliation including recognition/withdrawal thereof, and appointment of staff, employees, teachers and Principals including their service conditions and regulation of fees, etc. would interfere with the right of administration of minorities?
A.Fees to be charged by unaided institutions cannot be regulated but no institution should charge capitation fee.
Q.9 Whether the decision of this Court in Unni Krishnan J.P. vs. State of A.P. [(1993) 1 SCC 645] (except where it holds that primary education is a fundamental right) and the scheme framed thereunder require reconsideration/modification and if yes, what?
A. The scheme framed by this Court in Unni Krishnan's case and the direction to impose the same, except where it holds that primary education is a fundamental right, is unconstitutional. However, the principle that there should not be capitation fee or profiteering is correct. Reasonable surplus to meet cost of expansion and augmentation of facilities does not, however, amount to profiteering.
The court's ruling hinges on the semantics when it states "Fees to be charged by unaided institutions cannot be regulated but no institution should charge capitation fee," in answer to Q5(C) in the judgement. Also who is supposed to determine what is a reasonable surplus? The institutions themselves, the State or the Courts?
This judgement seems to indicate that the State cannot regulate unaided institutions, who are free to set their fees as they wish. As long as unaided institutions don't term any part of their fee as a capitation fee, and as long as they only make a reasonable surplus ('reasonable' as determined by the institutions themselves?) they are perfectly within their rights. These unaided institutions would in effect be operating as commercial non-profits.
As mentioned in a previous post titled Why can't a college be more like a (for-profit) firm?, studies point to the fact that educational institutions are better off as donative-commercial non-profits rather than pure commercial non-profits.
The capitation fee model aims to recover all the costs of providing the education from the students themselves - they are effectively trying to be commercial non-profits and so limit their student base to only those who can afford to pay the full fees to cover the costs and thereby lose out on the peer influence effect. On the other hand, the top universities in America like Harvard, Cornell, Stanford and others and institutions like the IITs and IIMs in India have set themselves up as donative-commercial non-profits. They have amassed (and continue to amass) huge endowments by raising funds (donations) from alumni and others and use the returns from their endowments or grants from the Government (as in the case of the IITs and IIMs) to subsidise the cost of education for a large number of students. By providing a subsidy, these universities are able to attract meritorious students irrespective of whether they can afford a full fee education or not and leverage the peer influence effect very well.
I think the capitation fee model as a pure commercial non-profit model is unlikely to be sustainable over the long term. The donative-commercial non-profit model is a proven sustainable model as universities in Amercia have shown. It remains to be seen whether the IITs and IIMs in India can sustain the model by raising private funds if the Government grants stop completely - I think they could quite well do that, though they would have to work really hard at fund raising, which they are slowly beginning to.
Building on the donative-commercial non-profit model, I think we need to look at the possibility of another model where in addition to the donative revenues, the institutions could also look to raise commercial revenues from constituencies other than the students. Educational institutions could, like newspapers, aim to serve two different constituencies.
- the students who would be charged a reasonable and affordable fee for getting an education instead of the full fee to recover all costs from the students themselves
- another consitutency to whom the educational institution would provide some product or service and get paid for it. The educational institution could look to use its students to develop the products or provide the services as part of their education. In the process the institution generates revenues and keeps costs low since the students work to learn and not to be paid.
A teaching hotel like the Statler hotel run by the Cornell University's School of Hotel Administration is a good example of generating revenues with students running the hotel as part of the course work. While this may be easier to do in the service-oriented courses like hotel management, we need to think of ways in which the engineering, sciences and the arts courses could also generate some revenues.
I had earlier described a few examples of how this work-based learning model could work in the context of schools and colleges, where the students help their institutions generate revenues, even as they learn.
Addendum: It turns out that most of the top American universities generate substantial revenues (40-45% for state universities and about 5% for private universities) by providing medical services through their Medical School. See my post on the sources of revenue for American universities.