Student loan statistics in India
Student loan interest rates, credit requirements, repayments, defaults in India
The average size of education loans spiked from Rs. 7,08,000 in September 2018 to Rs. 8,95,000 in March 2019. More students are going abroad, and the tuition fee at premier institutions in the country has been rising. So it’s no surprise that the volume of loans in the Rs. 20 lakh-plus category has grown six times in the five years till 2018.
According to RBI 2018 data, public sector entities contribute to more than 91% of the student loans whereas private banks have a much lesser contribution to make.
In India, student loans disbursed fell to Rs. 66,902 crore (US$ 8.8 billion, at FX rate of US$1 = Rs. 76 as of May 2020) in November 2019 from Rs. 71,975 crore in September 2017.
The reasons are that the demand for education loans has come down, and the pressure on banks to grant education loans has eased. As of December 2016, the State Bank of India, the largest disburser of education loans, had given out Rs. 15,716 crore in student loans.
Repayment and default
The demand for education loans has fallen because of the economic slowdown that has affected the job market and the fall in the number of students going in for programs that were earlier thought to have good employment potential.
The unemployment rate was 7.5 percent in September-December 2019, and students who had earlier taken out loans are hard-pressed to repay their loans.
This has increased banks’ NPA (non-performing assets) or bad loans, which, in the case of education loans, was 9 percent in March 2018, up from 7.3 percent in March 2016.
Banks cannot ask for collateral for loans of up to Rs. 4 lakh, but they can insist on collateral or a personal guarantee for loans between Rs. 4 lakh and Rs. 7 lakh. So, banks are more in favour of disbursing loan amounts higher than Rs. 4 lakhs.
Data shows that the number of students seeking loans dipped from 34 lakh to 27.8 lakh during a four year period (upto mid-2019), however during the same period there was a considerable increase in the average loan size from 5.3 lakhs to 9 lakhs.
In addition to banks, non-banking finance company (NBFC) like HDFC Credila, Tata Capital, DHFL Avanse, Auxilo among others also offer education loans.In 2014, the government announced a moratorium for loans taken out till March 31, 2009, but which remained unpaid till 2013, to cover 900,000 borrowers.
Borrowers for nursing courses contribute most to banks’ NPA (20 percent), followed by those for engineering courses. Loans under Rs. 2 lakh contribute 11.6 percent to NPAs, and those under Rs. 4 lakh account for 85 per cent of NPAs.
Counter-intuitively, borrowers of smaller loans, who typically enroll for courses that can get them only lower-income jobs, record higher rates of default than borrowers of larger loans, who are able to find better jobs with higher salaries and repay their education loans.
International students’ plans to repay their loans have been affected by the difficult job market from them in the US, caused by the new H1B regulations and the cap on the number of non-immigrant visas for temporary workers and conditions related to currency devaluation.
Repayment usually starts at the end of your course or a few months after you get a job. Many banks require a co-applicant, such as a parent, guardian, spouse, or parent-in-law. The repayment period is usually five to seven years but can be extended.
In India, the annual interest on education loans ranges between 7.30 percent and about 16 percent, often with 1 percent processing fee.
A few banks offer a fixed interest rate throughout the repayment term. Others charge an interest rate relative to the one-year marginal cost of funds based lending rate (MCLR).
Some banks may offer a lower interest rate to female loan borrowers. Higher education loan borrowers can also avail tax benefit under Section 80E.
IBA’s (Indian Banks Association) Model Education loan Scheme, aimed at providing financial assistance to meritorious students, offers students education loans upto 10 lakhs for studying in India and upto 20 lakhs for studying abroad.
It also provides loans upto 7.5 lakhs without any collateral or third party guarantee under the Credit Guarantee Fund Scheme for Educational Loans (CGFSEL).
Various other schemes like the Central Scheme to provide Interest Subsidy (CSIS) provide interest subsidy to economically weaker sections.