Overseas Education Loans Surge in India’s Small Towns

Education Loan to Study Abroad | Avanse Financial Services

The Economic Times article reports on the rapid growth in demand for overseas education loans from small towns across India. It cites factors like increased accessibility to loans, growing awareness of global education opportunities, and a desire for better careers as driving this trend.

The report defines small towns as tier II, III cities and beyond. Some examples of high growth towns include Guntur, Surat, Warangal, Ludhiana, Patiala, and Nalanda. Education lenders have seen over 70% of their borrowers this year come from such small towns.

Specific data also shows a 50% jump in overseas education loan applications from tier II and III cities compared to major metros in 2023. The total overseas education loan market stands at ₹1 lakh crore, up 48% year-over-year.

Original Analysis
Rising overseas education loans from small-town India reflect burgeoning aspirations and increasing financial inclusion. However, it also represents higher risk due to challenges securing post-study employment.

The growth likely stems from increased promotion of overseas universities by ed-tech firms and study abroad consultants. They have expanded their targeting beyond major metros. Various state and central government scholarship programs are also boosting interest.

If sustained, this trend could continue shifting enrollments towards countries like Canada, Australia, and parts of Europe. The US and UK remain top destinations but can lose share from reduced visa approvals.

For lenders, small-town borrowers can deliver scale but have higher credit risk. Loan recovery depends critically on securing well-paying jobs after studying abroad. This will likely worsen with impending recessions in Western economies.

Long term, the overseas degree trend could widen inequality if only those with financial resources can access global education and employment. Government intervention through funding support and employment linkage programs may be warranted.

Impact on Retail Investors
Rising overseas loans benefit private education lenders like Avanse Financial and HDFC Credila. Retail investors in these firms would see portfolio gains from substantial growth opportunities.

However, higher delinquencies expected from small-town borrowers pose risks. Retail investors should monitor asset quality trends closely. Any spike in non-performing loans can negatively impact share prices of lenders.

Impact on Industries
The expanding overseas education credit market directly benefits ed-tech and study abroad consultants like Leverage Edu and Collegify. Growing enrollment also advantages immigration and student housing providers abroad.

Sectors like consumer durables, telecom, and banking may gain indirectly through loan-fueled spending. However, diverting students abroad can negatively impact domestic higher education and related industries.

Publicly Traded Companies
Relevant publicly listed firms that benefit include Avanse Financial Services, HDFC Credila Financial Services, HDFC Bank (lender), InfoEdge India (owner of Leverage Edu), and Hero Future Energies (owner of Edwise consultancy).

Those negatively hit could be private Indian higher education providers like Amity University, Chandigarh University, and KL Deemed University. Enrollments shifting overseas can impact revenues.

Additional Insights
It remains concerning that many small-town overseas education loans depend on collateral like property instead of income potential. This raises system-wide risks.

Regulators must update guidelines on appropriate loan applicant vetting, overseas employment prospects review, and optimal loan amounts. Self-regulation by lenders also plays a key role in preventing overheating.

Surging overseas loan demand from small-town India signals growing aspirations but requires prudent underwriting by lenders to limit defaults. Ensuring suitable employment outcomes for global degree holders should be a priority for all stakeholders.

Bhattacharyya, Rica. “Towns A Study in Aspirational Borrowing as Overseas Edu Calls.” Economic Times, 3 Dec. 2023.

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