Lenders shell out bigger foreign-education loans as costs rise

Swelling costs of foreign education are beginning to reflect in the size of education loans, with non-bank lenders leading this market reporting an increase of 40-60% in ticket size over the last couple of years.

As living costs rise and colleges in countries like Germany, Australia, and Canada raise their fees, students are forced to borrow more. Rising competition to serve a growing market has also pushed non-banking financial companies (NBFCs) to increase the size of foreign-education loans. Discipline in loan repayments has also encouraged NBFCs to lend to this segment.

“There has been a 50-60% increase in [the size of] overall education loans for studying abroad over the last two years. Before the pandemic, the average loan ticket size was ₹18-20 lakh, and now it has become ₹24-26 lakh,” said Amit Gainda, managing director, Avanse Financial Services Ltd, one of the largest NBFCs in the education sector.

Rising inflation, living costs, and a strengthening dollar, have boosted expenses for a Master’s degree by 8-10%, Gainda said.

Leverage Edu, which ties up with banks and NBFCs for overseas-study loans, said it disbursed loans of worth ₹30 crore in 2021. The amount rose to ₹370 crore in 2022 and is expected to touch ₹750 crore in 2023.

Education companies charge a processing fee from lenders for each such student loan that gets accepted.

“Our loan ticket size has shot up by 40% this year, as compared to last year. Earlier, banks were not comfortable offering unsecured loans; but now, competition from NBFCs to meet the demand from tier- 2 and -3 cities is pushing banks to increase loan amounts,” said Akshay Chaturvedi, founder and chief executive, Leverage Edu.

Banks have been traditionally reluctant to extend large education loans for foreign studies.

Over 700,000 students went abroad to study in 2022, shows government data. The number is expected to increase this year, as college campuses increase their student intake after two years of pandemic. Students primarily head for colleges abroad in spring and autumn sessions.

“Students now prefer to head to higher cost centres abroad, and an increase in living costs and fees is pushing families to go for a larger loan,” said Ankur Dhawan, president, upGrad Abroad, a unit of the edtech company upGrad Education Pvt. Ltd.

According to Dhawan, college fee has risen across countries—UK-8-10%; Germany- 25%; Australia-15%; and Canada-10%.

The amount that students need to have in their bank accounts, including escrow, has increased overall, said Dhawan, though it varies from country to country.

UpGrad Abroad brings in 10% of the edtech firm’s revenues, and Dhawan estimated it will increase “significantly” this year as loan disbursals are up by 10%, from ₹30-35 lakh per student.

According to GyanDhan, an NBFC that has tie-ups with edtech firms, the average loan amount has gone up from ₹32 lakh three years ago to ₹39 lakh now.

“The cost of a post-graduate degree in science, technology, engineering, and mathematics (STEM) may start at ₹60 lakh, and the student asks for a loan of about ₹39 lakh. About five-six years ago, requests for unsecured loans were not accepted. But now, these are the ones pushing lenders to increase loan amounts,” said Ankit Mehra, co-founder and chief executive, GyanDhan. The NBFC disbursed loans worth ₹1,500 crore in FY23, and has already crossed ₹550 crore in the first two months of the current fiscal.

Experts said while banks have been focusing on student loans for pursuing higher education in India, non-bank lenders are ahead when it comes to overseas-education loans. “Their [NBFCs’] delinquency rates are much lower compared to traditional banks. We see demand continuing for these specialized NBFCs as more students head abroad to pursue education,” said Sanjay Agarwal, senior director, Care Ratings.

In a report on 10 February, Care Ratings said the education loan segment in India has been primarily dominated by public sector banks but over the past five years, specialized NBFCs focussing on overseas-education-loan segment have seen a steady increase in market share. In the past five years, NBFCs have almost doubled their market share in the education loan segment.

devina.sengupta@livemint.com