Technology and Education Lending — The Perfect Marriage?
There are 993 universities, 39,331 colleges, and 10,725 standalone institutions in India, according to an All-India Survey on Higher Education (AISHE) report. The non-formal setup comprising of pre-schools, coaching classes, vocational training centers, and education material suppliers forms a critical part of the private sector education in India and has shown extraordinary growth in recent years and.
The unprecedented hike in the education costs in India in recent years can be attributed, among other reasons, to inflation, quality concerns, technological advancement, innovative implementation techniques, demand for skilled labour, etc. Today, basic private schooling (K-12) in Indian cities is remarkably more expensive than before due to the ingress of private & foreign brands following international education standards. In current times, while an engineering college course sets a parent back by anywhere around INR 5–12 lakh, medical courses can cost up to INR 50 lakh. Even in premier institutes that exclusively allow only merit-based admissions, affordability poses a significant hurdle. Most premier business schools in India offer professional courses that are generally valued over INR 10 lakh. Despite this recent advancement in education standards, many Indian students still prefer to pay many times the tuition fee to pursue STEM and other professional courses in universities abroad. According to Times of India, the education loan market crossed the INR 93,000 crores mark in 2020, a majority of which was disbursed by banks. A large chunk of the total loan value was for higher education overseas. The stringent visa regulations might have affected the number of applications but with the ticket size rising exponentially in the last 5 years with students aspiring for the Ivy League institutions and banks favouring high volume loans.
With the significance and exigency of improving education in India, the Indian Banks Association developed a model education loan policy for higher education in India, and abroad in 2001 (later amended in 2015). Under this policy, loans are divided into 3 sections- up to 4 l, up to 7.5l & above 7.5l. While No guarantor is required for loans up to 4 lakhs, a third-party guarantor is mandatory for loans less than 7.5 lakhs. A guarantee can be waived off if the loan is eligible for credit guarantee coverage. A parent needs to be a joint borrower for loans above 10 lakhs. Under this policy, the upper limit for higher education loans is set at 10 lakhs for domestic and 20 lakhs for foreign institutes. Financing criteria for banks could be the course, institution pedigree, and employment opportunities post-completion. Priority sector norms are not applicable to loans above 10 lakhs. Market demand post-course, the pedigree of the college, interest rates differ for every bank as they’re linked with base rates or MCLR. They may also differ on the basis of the availability of collateral. Repayment commences post-course completion and an additional moratorium of 1 year. While this policy was formed for the member banks of the IBA, non-member banks can also follow the same guidelines.
Due to high demand, lenders disbursed loans worth 11,000 crore rupees in 2020. The past year has seen a sharp spike in loan applications for online courses offered by NBFCs in partnerships with edutechs, even though such loans are of lower values and shorter tenures. Amidst the pandemic, various banks have also digitized the education loan process and one can easily avail credit from the confines of one’s home. Innovative products facilitating loans for online education may hit the market soon. Certain NBFCs are working towards providing loans exclusively to schools to enable quality education. Various state-approved portals also help students apply for loans to multiple banks through a single form.
New trends in the education industry demand strong financers for the industry. Financers demand robust technology to enhance business and capitalize on the opportunities. With new techs like AI, ML, and no code facilitating the service providers, it will be interesting to see how the technology-financing marriage works.
