In an earlier post, we looked at the feasibility of a real university (RU -- a research university that offers undergraduate programs in multiple disciplines, including natural and social sciences and liberal arts) funded by the UG students through their fees.
In particular, we saw that the basic functions -- undergraduate education and certain minimum level of research activity -- can indeed be funded with a 'reasonable' UG fees of about Rs. 100,000 (1 lakh) per year per student, provided we accept a student/faculty ratio of 40.
Now, equal-fee-for-equal-education is a worthy goal to pursue, and perhaps it may be achieved in the long run. In the meantime, I believe there are at least three considerations that lead us to think of differential fees for UG education in a RU; these are in addition to the current reality that students studying in different institutions pay different fees (sometimes, unofficially or, as they say, 'under the table') even if they are pursuing the same degree program.
First, education in science and engineering relies heavily on hands-on experimentation using expensive equipment in laboratory courses; research in these subjects also require similarly expensive equipment. On the other hand, departments in social sciences and liberal arts are not so burdened. Under this scenario, a differential fee structure makes sense; for example, science and engineering students may be charged a 'laboratory fee' that the others need not worry about.
Second, UG courses in professional subjects (engineering, medicine, law, and perhaps, management) enjoy a huge demand in our society, while the other subjects face a smaller demand. If we use a kind of 'let's-soak-the-suckers' argument (aka the law of demand and supply), differential 'pricing' of UG education follows as a simple, logical conclusion.
Finally, it makes sense to 'offer' a certain fraction of UG 'seats' to the government, and allow the students who come in through this government quota to pay a smaller fee. This can be done, for example, in return for certain support from the government (land grants, some regular financial support, etc).
I call this the 'modified Karnataka model', since it was applied successfully in this state a long time ago for setting up self-financing colleges. It was so successful, in fact, that it has effectively been replicated in several other states, including Andhra Pradesh, Tamil Nadu and Maharashtra. In the original Karnataka model, the government retains its right to fix fees (making a mockery of the concept of self-financing colleges), and so has enormous capacity to meddle with the financial health of institutions. In the modified model, the government does not have that weapon.
One may ask, legitimately, why the government (and students who enter through that quota) should be given this special treatment. There are at least two reasons, and both give a private sector RU a certain legitimacy and acceptability. First, since the government represents the society at large, the institution gains an important ally. Second, the government may use specific mechanisms, such as affirmative action, to advance certain social goals, the RU gets to share in this larger social purpose, by allying itself with the government.
How exactly a RU may divide its student population into different categories that pay different fees will depend on all three factors (and any others that I have not considered here). It is a practical matter that will have to be resolved when a RU is set up.
Irrespective of how this division is done, I have no doubt that the best way to reduce the financial burden on students (remember, the student still has to take care of 'living' expenses which could add upto 50,000 more per year) is through (partial) scholarships and student loans at interest rates similar to those of housing loans. Otherwise, quality education in a private RU would become unaffordable to poor -- but meritorious -- students.
For scholarships, we can think of the government, industry associations such as CII and FICCI, charitable trusts, and individual philanthropists.
Industries always complain about how our current system does not 'impart' to the students the kind of skills needed in the industry; they further claim that they spend considerable sums of money in training their fresh recruits. Presumably, education in the RUs would be of such high quality that CII, for example, finds it worthwhile to fund scholarships (perhaps with a condition that the students should work for a couple of years in one of the CII members -- something similar to what the Singapore government does).
Government as a source of scholarships at the UG level poses interesting challenges. It requires a change of focus from funding UG education through public sector universities (in which case this largesse is shared by everyone studying there; this is the current system), to one in which the government targets its funding by giving scholarships to students who get to choose where to spend that money. The former is centred around universities and their faculty, while the latter is centred around students. This is similar to a change of focus from running ration shops to giving food coupons (this analogy, however, is not perfect); the former is centred around shops and employees, while the latter is centred around consumers from economically weaker sections.