Education Loans: How they are bridging the financing gap

Education Loans: How they are bridging the financing gap

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Finance gap for Education loan

Banks, non-bank financial institutions (NBFCs) and fintech companies have become invaluable tools for greater financial accessibility for the new India, where ‘expensive education’ can be a barrier.

The rising cost of education in India makes it extremely difficult for financially disadvantaged families to allow their children to pursue their studies. According to the NSO, the following are the average education costs in India:

Average expenditure for Education in india
Average expenditure (in Rs.) relating to basic course per student pursuing a general course. (Image: CARE Ratings)

The way in which education is perceived has significantly changed in recent years. It is no longer just about getting a job with a good salary and settling down – it has become more about following one’s passions and finding ways to monetize them. However, this requires a lot of skills and technicalities, which need to be learned quickly and at a fast pace to keep up with the ever-changing world. But the cost of education is increasing at an average of 15% per annum, studies have shown, as reported by Economic Times, which is leading to a significant increase in the number of people who are unable to finance their education and are forced to drop out. On an average, only 70 out of 100 initial enrollees complete their education, with financial problems accounting for one-third of dropouts, the Hindu reported. 

This is one of the major reasons for informing students about the existence of “education loans.” These loans are designed to provide financial assistance to students who are struggling to afford the high cost of education.

Education Loans: Are they really bridging the financing gap?

Education is the foundation for success and a major driver of economic growth and development. However, in India, access to quality education is often limited due to a wide range of financial barriers. Education loans can be a great way of bridging this gap and helping students from low income backgrounds gain access to all levels of education.

Reasons for a Financing Gap in India

  1. India has a large population of people living below the poverty line, estimating over 21%, making it difficult for many students to access higher education. This is also leading to a financing gap. 
  2. Government’s investment in education has been lacking. This means that there are fewer resources and opportunities for people to take advantage of, leading to further issues with the financing gap.
  3. Lack of scholarships, grants, and fellowships available to Indian students. These are essential sources of financial support for many students, and their absence in India means that access to higher education is made increasingly difficult.
  4. Tuition fees have increased in recent years, making it even harder for students to finance their education. The cost of living in India is also relatively high, meaning that those who have to work in order to finance their studies are even more restricted by their financial situation.

Benefits of Education Loans:

Education loans can provide students with the opportunity to access higher education regardless of their financial background. These loans provide access to higher education and can be extremely beneficial for students in terms of:

  • Increased job opportunities – Students with an education loan may be able to find better job opportunities compared to those without it. With a higher education, they can apply for more advanced positions with higher salaries. This leads to a potential increase in their earnings.
  • Higher earnings – Higher education can provide individuals with the skills, knowledge and qualifications required to access a wider range of job opportunities and career paths, thus creating openings to higher-paying jobs and increased income potential. Higher education also increases the chances of gaining a promotion or furthering job prospects, which can result in increased earnings.
  • Higher returns on investment – An education loan may also provide students with better returns on their investments. For instance, they can re-invest the money they save from their high-paying job into their own business, or other investments, and make a greater return on their original investment.
  • Low-interest rates – Education loans often come with relatively low-interest rates, allowing students to pay back their loans at a lower cost than other financing options. This can help them save money in the long run and make higher education more financially accessible.

How education loans are bridging the financing gap in India?

In recent years, the Indian government has taken steps to bridge the financing gap in India through education loans.  The learners can now fulfill their aspirations even in challenging times due to the easy availability of education loan from financial institutions. These loans are offered by both public and private sector banks. Some of the benefits of these loans include:

1. Easy and fast loan processing

With the introduction of online loan application and approval systems, the loan processing time has been reduced significantly. Banks and NBFCs have introduced an online loan application process that takes less than 10 minutes to complete, with the loan amount being disbursed within 7-10 working days.

2. Low-interest rates

Education loans in India are offered at relatively low-interest rates compared to other types of loans. Lenders offer an education loan at interest rates starting from 11% p.a.

3. Flexible repayment options

Repayment of education loans can be made in easy and flexible installments. Many banks and NBFCs offer flexible repayment options such as repayment after the completion of studies or after securing a job.

4. No collateral or guarantor required

In the case of unsecured education loans, lenders do not require any collateral or guarantor, making it easier for students from economically weaker sections to avail of these loans. 

5. Financial assistance for tuition, hostel fees, etc.

Education loans provide financial assistance to students not only for tuition fees but also for other expenses such as hostel fees, examination fees, etc.

Education-focused NBFC, Varthana’s education loans can be a great way of bridging the financing gap in India and providing access to quality education to unprivileged students. These loans have a range of benefits, such as the best interest rates and flexible repayment options. Varthana believes that no one should be refrained from receiving education or skill development due to lack of access to credit.


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