Education loans are the only way for higher education, for those who cannot afford the amount demanded by the university/institute.
More than aiding a student, the stake of the financial institutions lies in increasing the profitability of their business. They stand out as a prudent product for the banks to sell and achieve margins.
The main reason that drives students curious is the professional courses. According to the industry estimates, around Rs 80,000 crore was spent on higher education by Indians last year, most of it in pursuit of professional degrees.
Currently, there are more than 15-16 million students in colleges and technical institutes across the country and an additional quarter of a million on campuses overseas. The sector is growing at 20%-22% annually.
Moreover, in recent years, the loan business has also 'democratised' with takers from both upper as well as lower income groups.
Curiously, the sector attracts interest despite a legacy of bad loans. In nationalised banks, the education loan segment is marked by rising defaults or non-performing assets (NPA). Some have recorded a gross NPA as high as 15% in their portfolios in some states, prompting them to lay down stiff conditions for loans after years of liberal contribution.
Some have even been pulled up by the courts for denying loans to students or for laying down such conditions. However, the apex body of the institutions, Indian Banks Association (IBA), has now amended the repayment rules for this segment, given its socio-economic significance.
It is also revealed that the home finance companies are not guided by the IBA model when it comes to disbursal of education loans. However, company officials are quick to point out that they have their own mechanism on judging criteria and the final loan outcome is on a case by case basis, which is often influenced as much by the profile of the institute as of the student.
With the proliferation of B-schools and engineering colleges, it's early days for these companies. With a 35% CAGR (Compounded Annual Growth Rate) in the sector over the last eight years, education loans are clearly still a learning experience for them.