Education is the gateway to a secure and prosperous life. More so higher education, as it gives many more career options. The government too has identified this as a high priority for the country’s growth and has set a target of increasing the Gross Enrolment Ratio (GER) for higher education from 27% to 50% by 2030.
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In general, the cost of higher education keeps increasing every year. If one believes that the investment in a child’s education gives one of the best returns on investment, would it be right to deny admission into a good institute just because the fee was out of range? Does it not make sense to take a student loan and ensure the best possible education? The other scenario would be that the parents might have the money to fund the education but a lump sum payment upfront might not be optimal. Again, a student loan might be a very convenient option.
According to Reserve Bank of India’s Report on Trend and Progress of Banking in India 2022-23, non-banking finance companies (NBFCs) disbursed Rs 25,352 crore in education loans, up 79 percent from Rs 14,162 crore in 2022.
Another report published in February 2023 by rating agency CARE, NBFCs almost doubled their market share in retail education loans to 18.6 percent in September 2022 from 9.9 percent in September 2020 – that’s two years. During this same period, retail education loan assets under management (AUM) of CARE-rated NBFCs increased to Rs 17,877 crore as of September 2022 from Rs 7,738 crore as of September 2020.
While a large chunk of these loans pertained to study abroad programs, these figures do indicate the large appetite for education loans in the country.
Availing an education loan for higher studies is quite common in western countries; the trend is only catching up in India. Typically, an education loan helps bridge the gap between the financial resources available to the student and those required to pursue an educational course. The immediate gains of availing of an education loan are being able to pay for the tuition fee, food, accommodation fee, books, laptops and other ancillaries.
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Many lenders serving the Study Abroad audience pay the full tuition fees, which allows the student to fully focus on studies without worrying about other things. Some lenders, however, pay a large portion of the costs involved. It depends on the university/institution which is offering the course, the student profile (consistent performance over the years can make all the difference), the job prospects of the course, and the global economic scenario – a perceived recession soon or interest rate hikes can be party poopers. Some students apply for scholarships or Assistantships in the place of study, which could add up to prospects of landing a well-paying job and being able to pay off the loan sooner rather than later.
In India, banks focus more on the premier institutions offering post-graduate programs. Not too many bank options are available for undergraduate courses, vocational courses or upskilling courses. These are typically marked by lower ticket, shorter tenor loans that are offered by newer NBFCs or fintechs. Also, in most such cases, a moratorium is not part of the structure and the EMI starts immediately. For students who do not have an income stream, the option is to have their parents cosign the loan agreement.
While doing research for the right kind of course, it is only natural for the student to spend most of the time looking at options for the course and its entrance process. It is only when admission is granted that the focus suddenly shifts to arranging money to pay the fees. In a sense, the option to go for a loan is more of an afterthought. This is why, those lenders who can turn around a loan proposal quickly are preferred by students as well as institutes. Having all the relevant documents for KYC, income, etc. properly organized also helps someone avail of a loan quickly. However, nothing comes close to having a good credit history in terms of being important for loan approval. Needless to say, the borrower should exercise adequate caution in terms of interest rate charged on the loans, and fine print, among others.
Education loans open a huge window of opportunity in the form of top-level job opportunities to students who, in the normal course, couldn’t even dream of it. Such a loan can propel them into a new league altogether, marking a seminal change in their lives.
