Do you have big ideas for your higher studies, but not sure of how to fund them? The days of highly structured loans are over. Options for education loans and repayment flexibility are as diverse and varied as the streams and courses on offer these days. Do a quick search, and freeze your loan options as you locate a course and the university you want to go to. Aiding in this venture are many new fintech companies specialising in the student loan space.
A course in engineering in the country on an average may range anywhere between `8 lakh and `20 lakh. An undergraduate medical degree from a private medical college may range from `20 lakh to `50 lakh. Higher education costs abroad are even more expensive, and add to it foreign exchange component and cost of living. Traditionally, students used to finance these expenses by taking either secured or unsecured loans, from banks and non-banking finance companies.
The country’s biggest lender State Bank of India, for instance, offers loans up to `4 lakh for studies in India without any mortgage or lien; above that, up to `20 lakh is available with any property mortgage or lien on fixed deposit of an equivalent amount. Anything above `20 lakh is approved on a case-to-case basis. The loan tenure can range from 10-15 years, with repayment starting in six months after completion of the course.
However, public sector banks are increasingly facing the issue of educational loans turning bad. Higher non-performing assets (NPA) have lowered the rate of growth for them in the segment. Now, students have the option of either choosing new-age lenders online or online aggregators who do all the leg work and fix the right loan choice for the students. That is right from picking up the required certificates, getting them submitted to the banks and securing approval. The demand in this space has seen the rising of a number of education loan start-ups such as Avanse, GyanDhan, SlicePay and KrazyBee.
“Start-ups in this sector aren’t competing with banks directly at this point of time. They are either addressing areas where banks have reduced lending or never lent in the first place. This would include K-12 lending and loans for short-term courses,” says Ankit Mehra, co-founder and CEO, GyanDhan.
They look at financing short-term vocational or skill-building courses that may not get funded by the traditional sources. Starting on a smaller base, GyanDhan has witnessed two-to-three times year-on-year growth last quarter.
Are these start-ups nibbling into the market share of traditional lenders? Not exactly, said Virendra Sethi, Head-Mortgages & Other Retail Assets, Bank of Baroda. “India’s education space is diversified and growing. Banks offer a wide variety of education loans. However, the space is large and there is scope for start-ups to co-exist in this market,” Sethi said.
Educational loan start-ups usually operate mainly on two models: they either lend their own money or they do marketplace lending. Marketplace lending is when they don’t lend on their own, but borrow from banks and NBFCs. Banks take part in this as start-ups do a thorough risk assessment, which leads to less chances of defaults.
Start-ups generally cater to shorter tenure loans with loan terms not exceeding three years in most cases, as against banks that can offer long tenures up to 10 years. If GyanDhan assists in taking one to the right lender, Avanse for example has options to refinance the loan taken. KrazyBee, on the other hand, would help in getting that small gadget that may assist in the course — may be that gaming laptop to hone one’s animation skills, or a DSLR camera for a photography course. The price of courses may vary from time to time, but at present, the interest rates may range anywhere between 10 and 16 per cent.