Rapid Growth amid Surging Demand
India’s higher education system has expanded drastically and undergone various changes since independence. India now has a much more socially inclusive mass-based education system than it did in the 20th century.
Over the past two decades, the tertiary student population increased sixfold, from 5.7 million in 1996 to an estimated 36.6 million in 2017/18. The number of universities, likewise, grew from 190 in 1990/91 to 903 in 2017/18, while the number of colleges exploded: 18,000 new colleges were established between 2008 and 2016 alone—that’s more than six new colleges a day. The number of technical institutions offering programs at various levels jumped by a whopping 1,278 percent between 1980 and 2012: While there were only 794 such institutions in 1980, that number is now higher than 10,000.
India has a large young population with low gross enrolment ratios (GER1 ) providing opportunity for the players in the education sector including education loan providers i.e. Banks and NBFCs. GER in higher education in India was about 25.2% for 2016-2017, whereas globally it varies from an average of 8% in sub-Saharan Africa to 75% in Europe and North America.
As per a survey, there are 864 universities, 40,026 colleges and 11,669 standalone institutions in India imparting higher education. Majority of the colleges in India are privately managed (77.8%), of which majority are unaided colleges. Total enrolment in higher education has been estimated to be 3.5 crore students with 1.9 crore boys and 1.6 crore girls. Gross Enrolment Ratio (GER) in higher education in India is 25.2% for 2016-2017 which is calculated for the age group of 18-23 years.
Large regional disparities in education loan portfolio of banks
The distribution of the education loan portfolio by the banks shows large regional disparities. Southern India forms around 56% of the total education loan portfolio of the banks. Amongst the states, Tamil Nadu and Kerala together account for 36% of the outstanding education loan portfolio. The other states which contribute higher to the education loan portfolio of banks include Maharashtra, Source: RBI Karnataka, Andhra Pradesh and Telangana. The education loans are skewed towards some regions mainly on account of higher literacy levels and students inclination to pursue higher education mainly technical courses.
Emergence of NBFCs for student loans
Almost 90% of the portfolio of the NBFCs is spread across 6 cities viz. Mumbai, Delhi, Chennai, Bangalore, Pune and Hyderabad. Mumbai occupies a major chunk of the portfolio followed by Hyderabad and Chennai. The portfolio is widely dispersed as compared with the portfolio of PSBs wherein higher proportion of the portfolio was from Southern India mainly Tamil Nadu and Kerala. The funding for education loans by the NBFCs is concentrated towards post graduate courses mainly Engineering, Management and Master of Science.
How to fund your education dreams….
The prospect of raising funds in order to meet higher education fees is overwhelming to many families. Hopefully, with the increasingly attractive option of educational loans, more families will be able to successfully manage this difficult process.
With the new Indian laws, the government has approved Rs 15 Lakh loans for students who wish to study overseas. As of now, these loans have a moderate interest rate of about 12% ~ 14% and need a strong (100-150%) collateral security to be approved. The repayment period for these loans is approximately 6 months after graduation or when you get a job, whichever comes first.
If you do not want to pay such high interest rates, you can even opt for an International Student Loan through many US organisations such as the ISLP, the Terry Loan and so on. These loans have a comparatively lower interest rate of about 5% per annum and the repayment period is about 20 years. These loans do not require any collateral security but do need a US citizen or a green card holder to cosign the loan.
- The expenses covered under the education loan are: fees payable to college/hostel, examination fee, library/laboratory fee, purchase of books/equipment, any security deposit(s) and the purchase of a computer. Travel expenses are covered for those studying abroad. Interestingly, the State Bank of India also covers the cost of two-wheelers — up to Rs 50,000.
- in general, for studies within India, the maximum amount is between Rs 7.5 lakh and Rs 10 lakh. For education abroad, the maximum loan amount is Rs 15 lakh to Rs 20 lakh
- Interest rates on educational loans range from 11.25 percent to 13.5 percent. For example, SBI charges 11.25 percent for loans up to Rs 4 lakh and 13.25 percent for loans above Rs 4 lakh.
- Processing fees vary from bank to bank. For example, PSU banks do not charge any processing fee, whereas IDBI charges 2.25 percent as a processing fee.
- The deduction under section 80 E of the Income-Tax Act provides for the interest paid on educational loans; there is no cap on the interest amount being paid ( 7 years loan period). This deduction once applied only for self-education, but now this facility is extended for the education of relatives; relatives include only one’s spouse and children.