Students who have deferred or changed their plans of heading to Canada or Australia for graduation courses are also picking up loans from these non-banking financial companies (NBFCs) to enrol in expensive courses in India, particularly in smaller towns.
For instance, Bengaluru-based fintech Propelld has seen the volume of students taking loans increase by 15-20% over the past one year. About 45% of the loans are for coaching fees and a similar percentage for upskilling programs. The balance 10% is for higher education in tier-II and tier-III colleges, which can be for a ₹5 lakh-10 lakh loan for a two-year course.
Pointing out that the education loan sector is unpenetrated, unlike the housing loan segment, Victor Senapaty, co-founder of Propelld, said, “While the top-ranking colleges, the IIMs and IITs, get loans from banks, the ones in the lower rungs and those with flagship programs are where NBFCs can play a role,” Edgro is an NBFC and a unit of Propelld .
About half a dozen NBFCs Mint spoke with said they are disbursing loans worth ₹2-70 lakh and have decided to increase their domestic loan books.
Mumbai-based Eduvanz, which earlier focused only on upskilling programmes, entered the domestic higher education segment six months ago to tap into students who want to study aerospace engineering, specialized graphic design courses, etc.
“We are targeting students who want to enrol in tier-1 and tier-2 colleges even for engineering, medical and MBA courses for average ticket size of ₹12 lakh,” said Varun Chopra, co-founder and CEO of Eduvanz.
The NBFC has tied up with non-banking lenders such as Northern Arc and NBFCs like Tata Capital. Some NBFCs offer loans directly and some of them also have a marketplace where they tie up with other lenders and help students bag the loans for a commission from the larger lenders.
Then, New Delhi-based GyanDhan, which would earlier offer loans for upskilling courses ( ₹1.5 lakh average) or to study abroad ( ₹34 lakh average), decided to look at higher education loans this May.
“In the last month, 30% of the enquiries for loans came from students who wanted to pursue an MBA or engineering degree,” said Ankit Mehra, co-founder and chief executive officer of GyanDhan. The average ticket size for higher studies so far is ₹7 lakh for the NBFC.
What’s the model?
NBFCs either tie up with banks for a co-lending arrangement or disburse loans on their own and, in most cases, collateral is not asked for. (Collateral typically is a physical asset against which a lender lends money to a borrower. )
Instead, repayment capability of the borrower is determined by the ticket size of the loan, the borrower’s profile, the course in question, and the institute as well.
“NBFCs (that are giving education loans) are focused and nimble-footed in reaching out to the target audience,” said Narayanan Ramaswamy, partner and head for the education and skill development practice at consulting firm KPMG India. “Compared to banks, they have lesser overheads and, hence, can be more attractive.”
The foreign connection
A recent cap on international students and stricter work visa rules by Canada has forced thousands of students to opt for other countries at the application stage itself. Australia and the UK, too, last year cited a housing crisis and the rise of dubious colleges to restrict movement of students heading to their shores. This has pushed many students to look at colleges in India.
Rachit Agrawal, co-founder of AdmitKard, a Noida-based study-abroad startup, noted that changing policies on post-study work permit influence students’ decisions. “If opportunities in India improve, students might prefer staying back,” he said.
“Students’ decisions often depend on the outcomes of the courses, whether they are online, offline, in India, or abroad. If Indian students are spending more on these non-core STEM (science, technology, engineering, and math). courses, it might be because they’ve seen their seniors succeed in the job market with these skills,” added Agrawal.
The loan rush in small towns
Interestingly, the rush to tackle loans from NBFCs is getting popular in tier-II and tier-III cities where job opportunities for non-traditional, high-ticket courses were initially limited. But now many colleges offer those courses.
In fact, the colleges have alliances with NBFCs where the students can take loans for upcoming courses from the lender and repay with interest once they secure a job via campus placement.
“Colleges come to us for income-share agreements or non-collateral loan provisions, allowing their students to pay after they start earning,” said Rohit Gajbhiye, founder of LEO1, a Mumbai-based edu-fintech startup. The founder has seen this trend in cities like Bhopal and Jaipur.