Education Loans amounted to about ~97,000 Cr (US 11.7 billion dollars) in India in FY2022-23 according to RBI. This is merely 0.7% of total loan portfolios of banks and NBFCs. [ For context home loan is about 14% of loans in India. That means home loans 20X larger than education loan.]

Reasons could be many. In our experience following have been the reasons.

1. Parents consider education as an expense and not an investment. Hence psychologically Indian consumers do not like funding an expense with a loan. Stay well within your means logic prevails.
2. Financial education on return on investment for education loan is rarely looked into. Parents only look at can I afford it or not. And hence hope and push children to get education in India. Though this changing rapidly as education inflation is twice that of normal inflation. In short the cost of education is growing at 2 times the speed vs other consumables.
3. Most Tier 1 institutions in India are affordable owing to them being govt run. After Tier 1 institutions everything in India is slowly but steadily becoming as expensive as study abroad. This is the core reason why students are flocking toward study abroad choices. Almost 10 lakh student per annum is project numbers student going abroad in next 2-3 years. [ Of course the ease of applying and information available has gone up drastically post study abroad becoming main stream profession for many VC funded and legacy study abroad counselling businesses.]

Despite this why is education loan portfolio such a small portion of education loan?

1. Non Performing assets [NPA] is defined as loans defaulted in common man’s parlance. This affects the profitability of banks. NPA of education loan is ~7.8% vs NPA for overall portfolio is about ~2.9%.
2. Due to higher NPAs, Govt has to push education loan as a priority sector lending. So it is a push from govt to govt bank employees that they should do at least some part of their loan book as education loan. This leads to large lenders like SBI/ BOB not looking at it as a favourable product for growth.
3. But NBFCs like Credila and Avase has shown the way to banks on how to control NPAs around 1% by better credit evaluation / Partial simple interest. They paved the path on disruption in old school though process of loan are given based on past or present income to taking into account future employment opportunities for the student.

All of the above reasons is why banks or NBFCs are stringent with education loan applications. Hence it is much recommended for students and parents to understand all aspects of education loan and application to approval timelines. They must prepare in advance to avoid loss of opportunity due to in ability of funding the education. We suggest that they should kick start preparation on this alongside application to universities.

Click Here to book your free consultation call