If these numbers are true, I think it points to an academic rip off far larger than the US student loan problem. If the coaching industry is $3.4B annually, and there are only 10,000 slots at the IITs, that's $340,000 per spot. It effectively costs more to attend the nominally state-funded IIT than an Ivy League school.
Of course, most of that cost is not paid by those who get in. If we assume that every one of those half million test takers spent $6800 for coaching, they're being severely ripped off. You'd have to assume that the average IIT entrant spends over 50x as much as the average unsuccessful test-taker before that comes down to even half -- and at that point, the IIT entrants are paying $175k.
Either the article is leaving off the some important details -- perhaps the number quoted for the coaching industry does not just include the IITs -- or this is an economic disaster that no one has yet noticed.
I was a part of this coaching industry as a student, it is almost inevitable if you are applying for IIT. For a two year period, I shelled out approximately Rs400,000. That is around 9000 USD at the then exchange rate of around 45 INR to a US Dollar.
This amount includes coaching, hostel charge, food, books, everything.
EDIT: And this is on the higher end of the spectrum. I had the privilege of going to one of the best IIT coaching institute.
I'm willing to bet a dollar that the $3.4B number is wrong or at least misleading. A very likely mistake is that the article is quoting the total size of the entire academic coaching industry in India. Engineering schools admission is not the only highly competitive field in India.
This is a great observation! While I cannot testify for the numbers quoted in the article, which are suspect as other comments have noted, I'll share my understanding from about 15 years back when I was one of those students. Note that I barely have any data in support of this.
Many of the students who are able to make it through the IIT-JEE examinations actually do not have to spend as much on the coaching. There are people who are in the top 2% in terms of their brains, irrespective of the exam, which have a high likelihood of being in the top 2% in the examinations too. They of course still have to work hard (1) to acquire the needed knowledge, and (2) to gain speed which is also critical via practice.
There would be people in the first 2% who do not fall in the second 2% and vice versa. All the students on the boundary need to work hard to boost their chances as much as they can. But then there are top 1% (number is made up), for whom chances of slipping outside of 2% would be relatively smaller. Reality gets more complex of course since it is not just one threshold "in-or-out", but also about being able to choose the field of one's interest after getting in.
A whole next class of people are those who believe in themselves a bit more than their real capabilities, because they do not know it just yet. These are the ones I believe who end up paying the most. They would gradually see that there are falling through the cracks while still having the desire to get in. A friend of mine took a bold step, surprising everybody around, by backing out on a timely basis.
Finally there are people who would be interested in getting in, but know they do not stand a chance with IIT-JEE. These better save both time and money and focus on something else, that may include other colleges or other fields of study.
Given the reputation of the college, there are coaching institutes which downright abuse the situation. I have heard of famous coaching centers promising money-back guarantees of making it through, which have their own entrance examination to select students that already have a very high chance of getting through! I have also heard of similarly reputed centers who would secretly promise a country-wide rank in the top 10 to as many as 50 students (!), again with a money back guarantee.
Serving as a single data-point would be my own case. I did not go to the IIT but to another reputed engineering college [1], but yet the idea is valid. My total expense for the coaching was about $150 [2], and my four years of undergrad, being subsidized by the government, was about $100 + books [3]. Yes, this is all four years of college, and this applied to ALL students in my college. Yet, some of my own cousins paid $5,000 to go to a local college of no reputation for a nominally similar degree that ultimately did not get them anywhere.
To summarize, the distribution of spending amongst prospective students is somewhat more involved, probably hurting those people the most whose idea of self-worth is not commensurate with reality.
[1] That's a separate story in itself.
[2] None of the numbers here are inflation-adjusted to today from ~15 years back.
[3] Books too were generally cheaper Indian editions, so not as costly.
Of course, most of that cost is not paid by those who get in. If we assume that every one of those half million test takers spent $6800 for coaching, they're being severely ripped off. You'd have to assume that the average IIT entrant spends over 50x as much as the average unsuccessful test-taker before that comes down to even half -- and at that point, the IIT entrants are paying $175k.
Either the article is leaving off the some important details -- perhaps the number quoted for the coaching industry does not just include the IITs -- or this is an economic disaster that no one has yet noticed.