Funds no bar for higher degrees

Lending for higher education has emerged as a big business area for banks in recent years. As the cost of education has gone up drastically over the past several years, the loans extended by banks to students, better known as ‘educational loans’, have emerged as a popular choice of financing higher studies. Almost all major banks offer loans to students to pursue higher education.

The rise in enrolments for higher education — in fields such as engineering, management and medicine — and the increasing number of students wanting to pursue studies abroad is fuelling the growth in educational loans. This is despite enrolments for higher education being pegged at a meagre 12 per cent in India.

As on December 2013, education loan disbursals from public sector banks exceeded ₹57,700 crore, from ₹4,550 crore in 2004. The number of educational loan accounts with the PSBs has seen significant increase from about 3.19 lakh in 2004 to over 25.7 lakh as of end-2013.

It is estimated that 70 per cent of these loans are below ₹4 lakh. The major push provided by the Government in education loan disbursals has been one of the key reasons for the growth in this segment.

Besides, the sheer demographics is also aiding the growth. With total annual student enrolments exceeding 25 million, banks see a big potential in lending for the education sector.

With over 700 universities, run by both the public as well as private sector, and over 35,000 colleges across country, the Indian education system is one of the largest and is expanding at a fast clip on the back of growing demand and rising population.

With a sizeable chunk of the population below the 25 years, there exists significant growth potential for higher education in the country, providing an assured market for educational loans for the banking segment. According to an Ernst & Young report, the higher education sector in India is expected to grow at 18 per cent on a compounded annual basis till 2020 to over ₹2,32,500 crore or around $40 billion.

Considering the market potential, the Indian education sector is already attracting investor interest, both by way of the local private sector and foreign investments.

The craze to secure a foreign degree is also fuelling the growth in the educational loan segment for banks. Nearly eight lakh students spent over ₹10,000 crore on studies abroad in 2012-13, according to industry body Assocham.

The US is the most popular destination for post-graduate management and engineering degrees, Australia for vocational training and UK for one-year degree courses. Russia and China are favoured for medical education. The prospects for this sector remain bright as ever, as there is an aspirational middle class in the making that wants to spend an increasing proportion of its disposable income on education.

For a student with a promising academic record, lack of finances will not hamper prospect.

This trend has been borne out by the growth of educational loans over the years. Banks can be assured of customers even if the rest of their loan segments are subject to the ups and downs of the business cycle.