K-12 can’t survive fee waivers: Schools need to scale up digital tech to stay in game during COVID-19

May 2, 2020 4:16 PM

What this notified disaster brings along with it is an accelerated shift towards digitization of traditional learning assets that will ensure virtual learning becomes the norm going forward.

(IE photo)
  • Atul Thakkar and Shahan Sud

Ever since the lockdown has been in force over 300 million students (India’s school age population)
have had to pivot towards being educated from home. This shift towards virtual learning has been initiated to ensure that the novel coronavirus doesn’t spread because of the enhanced community exposure in brick-and-motor schools. This hiatus in the traditional functioning of K-12 institutions, is not new, as the schools are the first to shut down in wake of any natural calamity – and the Coronavirus pandemic is no different as it has been classified as a notified disaster. However, what this notified disaster brings along with it is an accelerated shift towards digitization of traditional learning assets that will ensure virtual learning becomes the norm going forward. And, the ability to adapt to this shift is what will help a host of parents understand that complete fee waivers might not be a feasible alternative at this point in time.

Given that K-12 institutions have high fixed and operating costs, are highly regulated in nature and are run as “non-for-profit” organizations, makes it difficult for the K-12 segment to adapt to disruptions like COVID-19. Given this legal setup it is crucial to understand the amount of ROI a school can generate. Howsoever forbidden the term maybe, it is equally important for the sustenance of the schools. For a school that owns its own land and hard assets generates a ROI of sub-10%; this figure can go up to 15% if the school has leased assets – contingent to the fact that it operates at a 90% utilisation level (which takes anywhere between 5 – 10 years to attain).

After a partial dip into understanding the economics of K-12 institution would make the parents realize that apart from tuition fees a host of other fees are prudent to keep the ancillary activities up and running. What is also crucial to know is that a host of the K-12 players are sitting on large volume of debt to continue their operations and also ensure the digital infrastructure is ready to support students at home. In order to give a peek view, the top 20 lenders (banks and NBFCs) currently have about Rs 50,000 crore loan book dedicated to the K-12 segment. The COVID-19 impact of a complete waiver of the schools fees will lead to a domino effect. With sudden stopping of fees, we predict to see a ripple effect in terms a host of these ancillary service providers becoming unemployed (and as most of these ancillary players like bus contractors, publishers, etc. would have also taken debt they too might contribute to the surging NPAs in our banking system) as education will slowly shift towards virtual assets.

Though the situation might seem gnarly now, we must look at the silver lining in every situation. This means not only do we need to ensure there is continuity in the learning of students but also the sustenance of the service providers that ensure a K-12 set-up is operational. Hence, the parent’s community should look at the existing lockdown as an advanced summer holidays and simultaneously devise strategic solutions to tackle this conundrum in the short-run. Furthermore, as the Indian community has historically required a knee-jerk reaction to pull up their socks, the COVID-19 pandemic has provided one for dilapidated school infrastructure and curriculum. The shift from hard assets and general operating cost towards virtual assets and operating cost is not only going to redefine the skillset priorities for the coming generation but will also make the curriculum far more relevant to current day needs.

That being said, you might be wondering that there still might be a mismatch between the school management and parents. We recommend a host of strategies to tackle this in the short-run:

  • The PTA should sit with the management of the school and should create a fund pool where parents who have lost their jobs should be given a maximum fee waiver.
  • Given that schools are operating virtually through digital learning modules, that means that learning has not stopped. So why should the fees, right? However, given these testing times, the schools and the parent’s body should reach a consensus wherein they agree to give minority discount in the fees to factor into account the non-operational hard assets that their virtual infrastructure is not currently employing.
  • Re-structuring of the fees will be crucial to provide parents with the flexibility to contribute to the
    school in a phased manner, even when there is cash-crunch.

Despite the possible alternatives available it is crucial that in this tug-of-war between educators and the parents, the students don’t lose out on what was the purpose of this whole process, i.e., learning. Also, if this continues for long then we can expect to see more skeletons in the closet of our education system. Though it is very easy for schools to take debt, they shouldn’t. Schools should refrain from taking debt as this isn’t a cash flow problem, it an externality that will disrupt pedagogies and business models – accelerating the shift to virtual learning and new age skills. We recommend that going forward the K-12 segment will need to sweat their physical assets more effectively, use Edtech to complement their existing pedagogies, redefine work allocation for admin and teaching staff based on a work-From-Home setup and also provide significant discounts for their virtual classes going forward (as that will have its own P&L).

Ergo, we would like to conclude by saying as banks find room to accommodate additional exposure in this regulated space, K-12 schools will need design strategies to march forward in times where a coronavirus and recession are playing musical chairs. This will define whether or not K-12 will fall like a House of Cards in these difficult times.

  • Atul Thakkar heads the education practise at Anand Rathi Group.  Shahan Sud is an Investment Banking Analyst at Anand Rathi Advisors. Views expressed are the authors’ own.

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