Booming Student Loans in Bharat: Trends, Insights, and Pathways to a Brighter Future

By: Aayush Bhardwaj (@aayushsanatani155)

The landscape of student loans in Bharat has seen a remarkable evolution in recent years, driven by escalating education costs, heightened academic aspirations, and the advent of new financial solutions. As of October 2023, outstanding education loans have surged by 20.6% year-on-year, reaching an unprecedented ₹1,10,715 crore, marking the highest growth rate in the last five years. This significant increase is attributed to several factors: the revival of offline education post-pandemic, which has spurred a rise in loan applications; a boom in foreign education loans, with average amounts ranging from ₹40 lakh to ₹60 lakh, now comprising about 65% of all disbursed loans; and the emergence of Non-Banking Financial Companies (NBFCs), which have become key players by offering collateral-free loans up to ₹50 lakh and simplifying the application process through digital platforms. Regional disparities are also evident, with southern states like Tamil Nadu and Kerala accounting for approximately 36% of the total loan portfolio, reflecting higher literacy rates and a stronger emphasis on higher education in these areas.

To enhance accessibility and affordability, the Indian government has introduced several initiatives. The revamped Education Loan Scheme (2024), announced in the 2024 Budget, offers loans up to ₹10 lakh for domestic higher education, complete with a 3% interest subsidy for eligible students. Additionally, e-vouchers will be issued to one lakh students annually to streamline the application process. The Vidya Lakshmi Portal allows students to compare and apply for various loan schemes from multiple banks, promoting transparency. Furthermore, the Interest Subsidy Scheme (2009) under the “Pradhan Mantri Uchchatar Shiksha Protsahan Yojana” provides full interest subsidies on loans for economically weaker sections, enhancing accessibility for those in need.

Despite these advances, several challenges persist. High interest rates and collateral requirements remain significant barriers, particularly for economically disadvantaged students. The complex and lengthy loan application procedures can deter potential applicants, while graduates often face difficulties in repaying loans due to high unemployment or underemployment. To address these issues, it is crucial to enhance financial literacy programs in educational institutions, simplify the loan application process by reducing paperwork and leveraging digital solutions, introduce flexible repayment options such as income-driven plans, and expand government subsidies and interest rate waivers for low-income families to ensure that financial constraints do not impede access to higher education.

The data reveals a robust upward trend in student loans in Bharat, driven by rising costs and growing demand for higher education, including an increased inclination towards studying abroad. The average size of education loans has risen from ₹7,08,000 in September 2018 to ₹8,95,000 in March 2019, with loans for overseas education now ranging between ₹40 lakh and ₹60 lakh. The share of overseas education loans has surged from 29% in fiscal 2019 to 57% by December 2023. NBFCs have also become significant players, with their loan offerings growing by 100% in Assets Under Management in FY2023, thanks to their collateral-free and streamlined processes. As the education sector evolves, it is essential for financial institutions to adapt their offerings to meet diverse student needs, ensuring a supportive and effective educational financing environment in Bharat.