By Ashish Fernando
The wrath unleashed by the deadly pandemic snuffed out every aspect of life as we knew it. From personal life to work, Covid-19 upended many sectors, and overseas education was no exception. The drastic impact of the pandemic stifled the dreams of many aspirants in its first year and compelled many to defer their plans. According to the Ministry of External Affairs, the number of students moving abroad for higher education dropped by 55% between 2019 and 2020, with only 261,406 students reaching abroad in 2020.
However, as the pandemic wanes and countries open up their borders, we can witness a surge in study abroad applicants. Prodigy Finance, a UK-based Fin-tech startup, shows that the first three months of 2022 saw a 98% growth in study abroad loan applications compared to the first three months of 2021.
Tier 2 and 3 cities are leading the way
The increase in the number of students willing to study abroad has helped pick up the global education sector. Interestingly, 176% of this growth is contributed by tier 2 and tier 3 cities, including Vijayawada, Warangal, Visakhapatnam, and Tirupati, among others.
Some of the most preferred streams for higher education abroad include Business, Healthcare, Engineering, Public Policy, Law, and Science, with the average loan amount for study abroad applications totaling $42,000.
Why the rise in the number of loan applications?
With the foreign restrictions easing and the vaccinations ramping up, we can witness a gradual rise in the number of Indian students moving abroad. As per the Bureau of Immigration, 133,135 Indian students went abroad for higher education this year by March 20. As a large part of this population is from tier 2 and tier 3 cities, self-financing education might be challenging. Therefore, aspirants are inclined to avail of a loan to fulfill their aspirations.
Education loans and the reluctance of banks
With the world dynamics changing every day, banks are cautious while lending education loans. According to RBI, banks’ education loan portfolio fell by 3.7% between 2020 and 2021 and another 2.4% between 2021 and 2022. The data also shows that education loan disbursement dropped by nearly 6% to Rs. 63000 crores in January 2022.
On the other hand, the personal loan segment grew by 11.6% in January 2022, compared to 8.7% in the previous year.
Various factors have triggered banks’ reluctance to lend loans to students, such as Covid-19, pay cuts, job losses, etc. As a result, banks are also apprehensive of lending small-ticket size education loans (these loans can be availed without collateral, and if there’s a default, banks face a hard time recovering the amount).
One significant factor behind banks’ resistance is the rise in non-performing assets. As per the data shown by the Finance Ministry in March 2021, around 9.55% of education loans lent by public sector banks turned into NPAs by December 2020. 366,260 accounts worth 8,587 crores turned bad of the total outstanding education loans. Banks may need to adopt risk-based pricing to mitigate the risk of assets turning bad.
Navigating the loan application process?
Choosing the type of loan to finance overseas education and applying for it is a matter of due diligence. Questions about the type of loan: collateralized loans and fixed or floating interest loans are essential and should be carefully considered.
An increase in the number of aspirants means stiff competition, not just in getting admits but also in procuring a loan. However, certain things can ease the process of procuring a loan. Students can also turn to international organizations for loans besides banking and non-banking finance companies (NBFCs). Additionally, the EdTech market is catering to students too by shifting its focus to smaller segments and financing short-term programs that traditional financial institutions might overlook.
Various institutions abroad help students finance their education by providing full or partial scholarships. Students can apply for such scholarships. They can also look for schemes to avail a scholarship with a loan.
Finally, always check for the reputation while choosing a university. Banks consider the success rate of the institution while lending a loan and decide the interest rates accordingly.
Projections bear testimony to the astounding growth this sector is set to witness in the time to come. Redseer says around 2 million Indian students will be studying abroad by 2024, with the total expenditure likely touching $80 billion. Thus, with so many students applying for admissions to overseas universities, the demand for financial assistance will only rise.
The author is founder and CEO, iSchoolConnect.