Vineet Gupta Ashoka University Founder discusses urgent reforms for Education Loan Startups facing crisis

The information provided by Bhagwat Karad, the Minister of State for Finance, to the Lok Sabha, revealed a significant 215% growth in the number of students opting for education loans to pursue overseas studies over the past decade. Karad informed the Parliament that approximately 4.61 lakh students have utilised educational loans for their international education between 2012 and 2022. These numbers also got a boost during the COVID-19 pandemic, wherein Education loan startups provided a much-needed boost to student access to education. They offered hassle-free loans, easy EMIs, and study-now-pay-later financing options, addressing a critical gap in the educational finance landscape.

Despite the widespread practice of financing higher education for students through loans in India, the educational loan market remains significantly underserved. According to CARE Ratings, the country's penetration rate of the higher education loan market is just 20%. This lower penetration problem is further exacerbated by the crisis these education loan startups face. Vineet Gupta of Ashoka University says, “My concern lies not just in the financial crisis these education loan startups are facing, but in the potential setback it represents for the educational aspirations of countless students.”

Empowering Students Through Accessible Loans

Over the past decade, the education sector has seen the emergence of innovative lending solutions that promise quick and easy access to education loans. These platforms offered benefits such as zero collateral requirements, small loan amounts, extended repayment periods, and no-cost EMI payment options. They played a significant role in democratising access to education finance, particularly for students from Tier II and III cities and towns across India. Between 2020 and 2022, education-focused lending apps mushroomed, riding the wave of the Indian Edtech boom. For countless students, getting an education loan became a matter of just a few clicks.

Challenges in the Education Ecosystem

These startups initially held the promise of making quality education more accessible. They aimed to bridge the gap between financial constraints and educational aspirations. However, today, they face a crisis that threatens not just their existence but also the educational dreams of countless students.

The growth of education-focused fintech startups has plateaued, and many are struggling to maintain their loan disbursement figures. This trend mirrors the challenges seen in non-education lending apps. The crisis in this sector now poses a significant challenge to the educational ecosystem.

Unintended Consequences for Students

As education-focused lending startups grapple with financial difficulties, students are left in a precarious position. The crisis in this sector has the potential to derail the educational journeys of countless students who depend on these loans to fund their dreams.

The problem is also worsening because of the unethical practices adopted by some of them. Students and their families, already dealing with the stress of financing education, now face the added burden of potential exploitation.

The Way Forward for Education Access

While the crisis in the education loan startup sector raises concerns, it also presents an opportunity for reflection and reform. Prioritising students' access to affordable and transparent education financing options is essential. Striking a balance between innovation and regulation is crucial to safeguard the interests of aspiring learners.

Vineet Gupta, Ashoka University Founder, emphasises, “Our focus should remain on ensuring that students, regardless of their background or location, have access to fair and trustworthy education financing. The education loan startup sector crisis should serve as a wake-up call for all stakeholders to work together and create a more sustainable and student-centric ecosystem.”

Addressing the challenges in this sector requires a concerted effort from regulators, industry players, and educators to prioritise students’ educational aspirations and empower them to pursue their dreams.

(No Hans India Journalist was involved in creation of this content)