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Educational empowerment: evolution, innovations

and challenges of educational financing in
commercial banks

Abdul Moeed & Mohd Afjal

To cite this article: Abdul Moeed & Mohd Afjal (2024) Educational empowerment: evolution,
innovations and challenges of educational financing in commercial banks, Cogent Economics &
Finance, 12:1, 2339519, DOI: 10.1080/23322039.2024.2339519

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COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2339519
https://doi.org/10.1080/23322039.2024.2339519

DEVELOPMENT ECONOMICS | RESEARCH ARTICLE

Educational empowerment: evolution, innovations and challenges

of educational financing in commercial banks
Abdul Moeeda and Mohd Afjalb
a
Department of West Asian and North African Studies, Aligarh Muslim University, Aligarh, India; bVIT Business School,
Vellore Institute of Technology, Vellore, India

ABSTRACT ARTICLE HISTORY

This study critically examines the transformative landscape of higher education financing Received 19 August 2023
in India, focusing on the shift from traditional government funding to an increased reli- Revised 22 January 2024
ance on educational loans provided by commercial banks. The paper employs a detailed Accepted 2 April 2024
methodological approach, utilizing secondary data sources to analyze various aspects of
KEYWORDS
educational financing. The research is structured around key areas: the growth and status
Educational financing;
of higher education in India, the Gross Enrolment Ratio (GER) trends, patterns in the commercial banks; higher
financing of higher education, and the performance of educational loan schemes under education demand;
public sector banks. The study examines trends in aggregate public expenditure on edu- education loan scheme;
cation as a percentage of GDP and total expenditure, as well as the streamwise and bank- institutional growth
wise distribution of educational loans. It also scrutinizes the growth and performance of
educational loan schemes, evaluating the overall effectiveness and challenges within this REVIEWING EDITOR
financing model. The analysis reveals a significant increase in higher education institu- Shafiullah Muhammad,
tions and enrolment rates, accompanied by a shift in funding sources from predomin- Associate Professor, BRAC
antly government-led to more diversified, including a substantial rise in educational University, Economics, 66
loans. The paper highlights the challenges faced by commercial banks in managing these Mohakhali, Dhaka 1212,
BANGLADESH
loans, including issues related to the distribution and repayment of educational loans.
The study concludes with insights into the implications of these trends for educational SUBJECTS
policy, emphasizing the need for a balanced approach in financing higher education that 50 Social Sciences; 50.6
considers affordability and accessibility while ensuring quality and equity. Economics, Finance,
Business & Industry; 50.6.1
IMPACT STATEMENT Economics; 50.6.3 Finance;
This paper critically examines the evolution and current challenges in the financing of 50.6.4 Business,
higher education in India, with a particular focus on the role of commercial banks in this Management and
transformative landscape. Through an in-depth analysis of secondary data, the study Accounting
identifies a significant shift from traditional government funding to an increased reliance
on educational loans offered by commercial banks. This shift is pivotal as it reflects a
broader trend towards privatization and market-driven models in higher education
financing. The significance of this work lies in its comprehensive evaluation of the educa-
tional loan schemes implemented by public sector banks and their impact on higher edu-
cation accessibility and affordability. By analyzing trends in the Gross Enrolment Ratio
(GER), the distribution and performance of educational loans, and the challenges faced
by banks in managing these loans, the paper provides valuable insights into the effect-
iveness of current policies and practices. It also highlights the critical need for a balanced
approach that ensures equitable access to education while maintaining financial sustain-
ability. The findings from this study are instrumental for policymakers, educational plan-
ners, and financial institutions as they seek to improve and innovate financing models for
higher education. The paper emphasizes the importance of inclusive financial strategies
that accommodate the socio-economic diversity of students and ensure that no capable
student is deterred from pursuing higher education due to financial constraints.
Moreover, the recommendations provided aim to enhance the structural and operational
aspects of educational loan schemes, making them more robust and responsive to the
needs of the student population. This research not only charts the evolution of educa-
tional financing but also serves as a crucial blueprint for future reforms, ensuring that
higher education remains a catalyst for socio-economic development in India. By
addressing both the achievements and the shortcomings of current financing models,
this paper contributes significantly to the ongoing discourse on making higher education
both accessible and sustainable.

CONTACT Mohd Afjal [email protected] VIT Business School, Vellore Institute of Technology, Vellore, India.
ß 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which
permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been
published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent.
2 A. MOEED AND M. AFJAL

1. Introduction
Higher education, traditionally perceived as a cornerstone of societal advancement, plays a pivotal role
in shaping the economic trajectory of nations. Its impact isn’t merely confined to individual empower-
ment; it reverberates through communities, contributing significantly to the reservoir of human capital,
which is indispensable for holistic national development. As nations transition through phases of socio-
economic evolution, higher education stands as a beacon, directing this metamorphosis and fostering
an environment conducive to knowledge dissemination and skill enhancement.
India, with its tapestry of diverse cultures, traditions, and a rich historical lineage, has been cognizant
of the instrumental role of education in sculpting its future. As we ventured into the new millennium,
the narrative surrounding higher education in India underwent a profound transformation. The focus
shifted, magnifying its importance in national developmental strategies. This renewed emphasis wasn’t
merely rhetorical; it was translated into tangible actions. Efforts were intensified to bolster the educa-
tional ecosystem, evidenced by the surge in universities, colleges, and esteemed institutions of national
significance. However, the quest for expansion wasn’t pursued at the expense of quality. Concurrent
efforts were directed towards enhancing the caliber of infrastructure, pedagogical methodologies, and
human resource development, ensuring a harmonious blend of quantity and quality. Yet, as is often the
case, with growth and expansion come challenges, often intricate and multifaceted. One of the most
pressing concerns that loomed large was the financing of higher education. This concern wasn’t unique
to India but resonated globally, transcending national boundaries and geopolitical differences. The sig-
nificance of higher education, accentuated in an era marked by its potential to facilitate social mobility,
spur knowledge-driven innovations, and stimulate economic propulsion, compelled nations to reassess
and recalibrate their strategies concerning higher education financing.
For India, a nation teeming with youthful vigor, aspirations, and potential, the challenge was particu-
larly acute. The demographic dividend, often touted as India’s strength, brought with it the onus of
ensuring that this burgeoning young populace had access to quality higher education. However, the
traditional paradigms of funding, heavily reliant on government coffers, were grappling with constraints.
The escalating costs associated with world-class higher education and the exponential demand posed
dilemmas that needed immediate redressal. It was against this backdrop that the Indian Banking
Association (I.B.A.) showcased its foresight and innovation. In 2001, the I.B.A. pioneered the Education
Loan Scheme (ELS). The introduction of the ELS was a watershed moment in the annals of higher educa-
tion financing in India. Envisioned not merely as a fiscal tool, the ELS symbolized hope, aspirations, and
the democratization of educational opportunities. Through this scheme, the I.B.A. endeavored to ensure
that financial constraints didn’t stymie the academic aspirations of India’s youth. The foundational prin-
ciple underpinning the ELS was clear: No meritorious student should be deprived of pursuing higher
education due to monetary limitations. The ELS was reflective of a broader global trend, signaling a
paradigmatic shift from conventional modes of higher education financing towards alternative mecha-
nisms. Educational loans, under the aegis of the ELS, emerged as a panacea, offering immediate relief
from the financial burdens of education while also laying the foundation for a sustainable financing
model for the future.
However, the landscape of educational loans in India wasn’t devoid of complexities. The burgeoning
aspirations and hopes vested in the ELS were occasionally tempered by apprehensions and challenges.
A notable concern emanated from the banking and financial sectors, which, despite recognizing the
transformative potential of educational loans, expressed reservations. The apprehensions were rooted in
the burgeoning instances of loan defaults, which threatened to morph these assets into non-productive
liabilities. Notwithstanding these concerns, commercial banks, traditionally perceived as the vanguards
of economic growth and stability, ardently championed the cause of educational loans. Their endeavors
transcended mere fiscal transactions. By facilitating these loans, they were nurturing dreams, fostering
ambitions, and crafting the edifice of a skilled, competent, and future-ready workforce. The commitment
of these banks wasn’t just to individual students but to the nation at large, ensuring that India’s demo-
graphic dividend translated into tangible developmental dividends.
The financing of higher education in India has undergone a significant transformation over the years,
paralleling the nation’s socio-economic evolution. In the initial decades post-independence, the
 COGENT ECONOMICS & FINANCE 3

government predominantly shouldered the responsibility of funding higher education. This period was
marked by the establishment and expansion of higher education institutions, with government support
playing a crucial role in making education accessible to a larger population. This approach laid the
groundwork for India’s educational infrastructure, crucial for the country’s development. However, as
India’s economy grew and integrated with global systems in the late 20th and early 21st centuries, the
landscape of higher education financing began to shift. The increasing demand for higher education,
driven by a burgeoning population, and the rising costs of delivering quality education, necessitated
diversifying funding sources. This era witnessed the growing prominence of private financing in the edu-
cation sector. A pivotal moment in this transformation was the introduction of educational loans by
commercial banks, particularly marked by the Indian Banking Association’s Education Loan Scheme in
2001. This initiative signified a policy shift towards a mixed model of financing, blending public funding
with private loans. While this transition expanded access to higher education, it also brought challenges,
including financial burdens on students and concerns about equity in access. Despite these challenges,
the evolution towards a mixed financing model has been instrumental in democratizing higher educa-
tion in India. This shift reflects a global trend towards sustainable financing models in higher education,
aligning with changing economic and societal dynamics. In essence, the historical trajectory of higher
education financing in India highlights a dynamic shift from a government-led to a more diversified
approach, crucial in shaping the nation’s educational landscape and its future.
The landscape of higher education financing in India has been a subject of extensive academic scru-
tiny, especially in the context of recent trends and statistics. Dar (2020) highlights that the higher educa-
tion sector in India has witnessed a significant expansion, with a notable increase in the number of
institutions from 20 universities in 1950 to 1993 in 2020. However, Dar also points out the challenges in
maintaining quality amidst this rapid expansion, emphasizing the need for sustainable financing models.
Mitra (2015) provides a critical analysis of public spending in higher education in India, noting a shift in
the funding pattern. According to Mitra, there has been a gradual decrease in government spending as
a percentage of GDP, from 1.41% in 2004–2005 to 1.35% in 2012–2013. This decrease underscores the
increasing role of alternative financing sources, such as educational loans. Chalil (2021) delves into the
specifics of financing higher education through education loans in India. He observes that the total
amount of educational loans disbursed has increased significantly, with the Indian Banking Association
reporting a growth from INR 48,300 crores in 2014 to INR 75,450 crores in 2019. However, Chalil also
identifies challenges, including the uneven distribution of these loans and the rising Non-Performing
Assets (NPAs). Ganguly and Raj (2020) contribute to this discourse by examining the issue of education
loan NPAs, specifically in the context of Tamil Nadu. Their study, based on data from the Reserve Bank
of India, reveals that NPAs in educational loans have been a growing concern, with NPAs in Tamil
Nadu’s education sector loans reaching 8.76% in March 2019. These studies collectively provide a
nuanced understanding of the evolving landscape of higher education financing in India, highlighting
the shift from government funding to educational loans and the challenges associated with this
transition.
This study embarks on a detailed exploration into the multifaceted world of higher education financ-
ing in India, focusing on three specific research questions. Firstly, it seeks to understand the current
trends and developmental trajectory of higher education in the country, closely examining how the
mechanisms for financing this crucial sector have evolved over time. This includes a look into the transi-
tion from traditional government funding to more diverse financing methods, including educational
loans.
Secondly, the study delves into the operational aspects of educational loan schemes provided by
India’s commercial banks. This entails an analysis of the growth patterns, structures, and unique charac-
teristics of these loan schemes, aiming to understand how they cater to the educational needs of the
Indian youth.
Thirdly, the research identifies and scrutinizes the inherent challenges and obstacles within the educa-
tional loan framework offered by commercial banks. It aims to suggest practical and effective strategies
to enhance the accessibility and effectiveness of these loans, making higher education more attainable
for a broader segment of the population.
4 A. MOEED AND M. AFJAL

Positioned within this complex environment, the study’s goal is to provide a comprehensive analysis
of the various dimensions associated with financing higher education in India. By meticulously examin-
ing the trends, challenges, and potential future directions, the study seeks to contribute valuable
insights, reflections, and recommendations. These findings are intended to inform and potentially influ-
ence future policies and discussions surrounding higher education financing in India.

1.1. Need and significance of the study

In the vast and ever-evolving tapestry of societal progression, education stands out as a paramount pil-
lar, driving not just individual aspirations but also shaping the trajectory of nations. Beyond its role as a
reservoir of knowledge and skills, education is an indispensable catalyst for comprehensive economic,
political, and social metamorphosis. As history and contemporary experiences bear witness, the caliber
and reach of education within a nation often correlate directly with its economic robustness and overall
societal wellbeing. In the modern era, where economies are increasingly knowledge-driven, the essence
of quality education becomes even more pronounced. It’s no longer just about basic literacy or founda-
tional learning; nations are gauged by their prowess in fostering higher education, promoting innov-
ation, and producing adept professionals capable of navigating complex global challenges. And here,
access to education, complemented by its affordability, plays a decisive role.
India, with its rich cultural mosaic and a burgeoning youth population, stands at a crucial juncture.
The aspirations of millions of young Indians converge towards higher education, driven by dreams of a
better life and meaningful contributions to the nation’s progress. However, the stark reality of financial
constraints casts a shadow on many of these dreams. The chasm between the demand for educational
loans and their actual availability is both vast and deep, leaving countless meritorious students at cross-
roads, their ambitions tethered by financial constraints. Adding to this intricate scenario is the approach
of commercial banks, which, albeit being pivotal stakeholders in the educational loan domain, often
adopt a guarded stance. Their loan policies, characterized by rigorous and sometimes rigid terms and
conditions, further compound the challenges faced by students. While it’s essential for these institutions
to ensure financial prudence, the overarching principle should ideally revolve around ensuring that every
deserving student, regardless of their economic background, has a fair shot at attaining higher
education.
This study, thus, assumes paramount importance in the current context. By delving deep into the
dynamics of educational loans offered by commercial banks, it aims to shed light on the existing bottle-
necks and potential avenues for refinement. The envisioned outcome is twofold: firstly, to create a con-
ducive ecosystem wherein financial barriers to education are minimized, and secondly, to offer
actionable insights to commercial banks, enabling them to recalibrate their loan strategies in a way that
balances financial viability with societal responsibility. Moreover, the findings of this study bear signifi-
cant implications for policymakers and regulators. By pinpointing the pain points and highlighting areas
of improvement, the study could serve as a blueprint for refining the educational loan framework. This
would not only enhance the effectiveness of the loan schemes but also ensure that the interests of all
stakeholders—students, parents, and banks—are harmoniously aligned. In essence, this exploration is
not just about numbers and policies; it’s about aspirations, dreams, and the future of a nation. By cham-
pioning the cause of accessible and affordable higher education, it resonates with the very ethos of an
inclusive and progressive society.

1.2. Objectives of the study

1. To scrutinize the trajectory and current state of higher education in India, while discerning prevail-
ing trends in its financing mechanisms.
2. To delve into the nuances of the educational loan schemes extended by India’s Commercial Banks,
assessing their growth patterns, varied structures, and distinctive attributes.
3. To pinpoint the inherent challenges and obstacles within the educational loan framework provided
by commercial banks and put forth recommendations for enhancing the efficacy and accessibility of
these loans in supporting higher education.
 COGENT ECONOMICS & FINANCE 5

2. Review of literature
The landscape of educational financing in India has been an area of intensive study, with many scholars
and researchers delving into the intricacies of educational loans, the challenges faced by borrowers, and
the implications of these loans on the socio-economic fabric of the country.
Singh (2021) took a deep dive into the world of educational loans in India, exploring the evolving
trends in such loans distributed across different banking institutions, from Nationalised Scheduled
Commercial Banks to NBFCs. Following closely, Gethe and Hulage (2022) analyzed students’ experiences
with these educational loan services offered by banks, drawing connections between various factors like
a student’s family background and their experiences with loan processing. Highlighting the growth in
enrollment for higher education, Chalil (2021) noted the corresponding increase in education loans.
However, he pointed out the discrepancies in the distribution of these loans, which seemed to counter-
act the scheme’s purpose. Further emphasizing the socio-economic implications, Nerkar and Dhongde
(2018) studied the patterns of educational loans, shedding light on their crucial role in India’s socio-eco-
nomic development.
Several studies have pointed out the governmental aspect of educational loans. Duraisamy and
Duraisamy (2016) delved into the patterns of public outlay on higher education and explored educa-
tional loans as an alternative financing mechanism. This consideration of governmental alternatives par-
allels with Sangeetha and Anuradha (2016) exploration of the challenges faced by Commercial Banks in
financing higher education. Rani’s (2014, 2016) research provided a comprehensive look into the financ-
ing trends of higher education, emphasizing the importance of education loans and even proposing
mechanisms to convert these loans into grants.
Historical growth patterns of educational loans have been the subject of Varghese and Manoj (2013)
study, noting a significant growth between 2005 and 2011. However, a detailed analysis by Srinivasan
and Das (2011) revealed a preferential trend by banks, leaning more towards postgraduate students and
those from government-owned institutions. The commercial nature of educational loans was further
emphasized by Gandhar (2010), while Panigrahi (2010) raised concerns about discriminatory practices in
the loan allocation based on gender and region. Chattopadhyay, S. (2007) presented a counter-argu-
ment, suggesting that given the complexities of the capital and job markets in countries like India, pro-
moting educational loans might not be the most advisable. Meanwhile, internationally, Kim (2007)
explored the relationship between student loan debt and degree attainment, revealing how financial dis-
parities can affect academic outcomes.
Narayana’s (2005) study on commercial banks’ role in financing higher education in Karnataka offered
an empirical analysis, focusing on the budgetary subsidy in the collegiate educational sector. This
research seemed to echo the findings of Tilak (1992) who compared the student loan scheme with other
alternative methods of funding higher education.
The literature on educational financing in India reveals a multifaceted landscape. Key findings indicate
a marked increase in educational loans across various banking sectors, aligning with the growing
demand for higher education. Students’ experiences with these loans vary widely, influenced by their
family backgrounds and the specific policies of banking institutions. Despite the overall increase in edu-
cation loans, there are notable discrepancies in their distribution, often leaving certain regions and
demographics underserved. These loans play a crucial role in India’s socio-economic development by
widening access to higher education. A shift in the financing pattern is observed, with a decrease in
government spending and a growing reliance on alternative financing like educational loans.
Commercial banks, pivotal in this scenario, face challenges in balancing financial prudence with educa-
tional support. Some studies highlight a bias in loan distribution, showing preferential treatment
towards certain student groups and pointing out discriminatory practices based on gender or region.
This situation underscores the need for alternative financing mechanisms, including transforming loans
into grants, to alleviate the financial burden on students and make higher education more accessible.
These insights collectively underline the significance of educational loans in India’s higher education sec-
tor and the necessity for more equitable and effective financing strategies.
While existing studies have extensively explored various facets of educational financing in India, a sig-
nificant research gap persists in the specific examination of educational loans provided by commercial
6 A. MOEED AND M. AFJAL

banks. Most of these studies have either broadly addressed the landscape of educational financing or
delved into the socio-economic factors influencing it, yet the intricate dynamics and particularities of
educational loans by commercial banks have not been the central focus. This lack of concentrated
research is particularly critical given the rapid growth of India’s higher education sector and the escalat-
ing costs associated with it. As higher education becomes increasingly pivotal for India’s youth, the
dependence on educational loans is expected to rise, underscoring the need for a detailed investigation
into the practices, policies, and decision-making processes of commercial banks in this domain.
Moreover, the existing literature, while providing diverse perspectives, falls short in thoroughly under-
standing the standpoint of the banks themselves. An exploration into how banks assess risks, determine
loan disbursement criteria, and strategize their educational loan segment is essential. This perspective is
invaluable, especially as India is on the brink of substantial socio-economic shifts, characterized by its
demographic advantage and the growth of its middle class. Understanding the role and functioning of
educational loans in this context is not merely timely but crucial for the formulation of future policies
and strategies that align with India’s developmental aspirations.
Therefore, a more focused and in-depth analysis of educational loans offered by commercial banks is
imperative. Such research will not only bridge the identified gap in the literature but also contribute sig-
nificantly to developing a more inclusive and efficient educational financing framework in India, one
that caters effectively to the needs and aspirations of its burgeoning student population.

3. Methodological framework
This research utilizes a mixed-methods approach, integrating both qualitative and quantitative techni-
ques, to dissect the complex terrain of higher education financing in India. The study is grounded in a
carefully curated collection of secondary data, drawing from authoritative sources like the University
Grants Commission (UGC), the All India Survey of Higher Education (AISHE), the Ministry of Education,
the Reserve Bank of India (RBI), and the Indian Banks Association (IBA). These sources were specifically
chosen for their comprehensive coverage of the educational landscape and their direct relevance to the
study’s focus on higher education financing. Additional data from the Ministry of Finance’s Budget
Division and various higher education statistics repositories further enriches the research, offering a
broad and deep perspective.
The analysis begins with an examination of the growth and status of higher education institutions in
India, followed by an exploration of the Gross Enrolment Ratio (GER) to assess accessibility. The study
then transitions to analyzing the patterns of financing in higher education, particularly the shift from
government to private funding. A significant portion of the research is dedicated to investigating the
role and impact of public sector banks in providing educational loans.
Analytical methods employed include trend analysis to trace historical and current patterns, compara-
tive analysis to juxtapose different financing models, and discourse analysis to interpret policy and bank-
ing sector narratives. Time series data plays a pivotal role in this research, enabling the tracking of
changes and trends over time and providing insights into the evolution of higher education financing.
The study acknowledges potential limitations in data gathering, such as the availability and the latest-
ness of data. The reliability of the sources is critically evaluated to ensure robustness in the findings.
Statistical techniques used include descriptive analysis to present data in a meaningful way, and inferen-
tial statistics to draw conclusions about the broader population. This rigorous methodology not only
deepens the understanding of the state of higher education financing in India but also elucidates the
challenges and opportunities within this evolving sector, directly addressing the research questions.

4. Results
4.1. Trends in growth and status of higher education in India
Table 1 presents a comprehensive view of the evolution of India’s higher education sector over three
decades (1990–2021). The data demonstrates significant growth across various types of higher education
institutions, including Central and State Universities, Deemed-to-be Universities, Institutes of National
 COGENT ECONOMICS & FINANCE 7

Importance, and Private Universities. From 1990 to 2021, there has been a noticeable increase in the
number of all types of universities and colleges. For instance, Central Universities increased from 10 to
54, while State Universities grew from 137 to 437. This expansion is also evident in the rise of Institutes
of National Importance from 9 to 149 and the emergence of Private Universities, growing from none in
1990–1991 to 388 in 2020–2021. The total number of colleges rose dramatically from 5748 to 43,796 in
the same period. Correspondingly, total student enrolments and the Gross Enrolment Ratio (GER) have
also shown an upward trajectory. Enrolments increased from 4.9 million in 1990–1991 to 41.4 million in
2020–2021, while the GER almost quintupled from 5.9 to 27.3%. This substantial growth in enrolments
and GER reflects a broadening access to higher education in India. This data can be contextualized
within the broader socio-economic trends in India. The liberalization policies starting in the early 1990s,
coupled with economic growth, likely contributed to the expansion of higher education. The increase in
GER indicates improved accessibility, possibly due to policy reforms and the growing middle class’s
demand for higher education. However, the substantial growth of private universities and the negligible
mention of government educational institutions in later years hint at a shift towards privatization in
higher education. This trend raises questions about the quality and inclusivity of higher education, as
private institutions may not be accessible to all socio-economic groups. In terms of policy interventions,
the data suggests a need for continued support and expansion of public higher education infrastructure
to ensure equitable access. The government’s role in facilitating this growth, particularly through
schemes like the Educational Loan Scheme, and its evolution over time would be worth exploring fur-
ther to understand its impact on these trends. Overall, the table provides valuable insights into the
changing landscape of higher education in India, indicating significant growth in the sector but also
pointing towards an increasing role of private entities and the challenges of ensuring inclusive and
equitable access to quality higher education.

Table 1. Trends in growth of higher education in India.

Deemed-to- Institutes of Total
Central State be National Private enrolments
Year universities universities universities Importance universities Total colleges (in millions) G.E.R (%)
1990–1991 10 137 28 9 NA 5748 4.9 5.9
1991–1992 10 139 31 10 NA 6008 5.2 6.0
1992–1993 10 142 31 10 NA 6323 5.5 NA
1993–1994 10 150 33 10 NA 6764 5.8 8.8
1994–1995 11 154 36 11 4 7319 6.1 NA
1995–1996 12 154 37 11 4 7923 6.5 5.5
1996–1997 14 152 38 11 4 9940 6.8 6.2
1997–1998 16 156 39 11 4 10678 7.2 6.5
1998–1999 16 160 40 11 5 11089 7.7 9.0
1999–2000 16 167 42 11 5 11831 8.0 10.0
2000–2001 17 172 46 12 5 12806 8.4 9.5
2001–2002 18 178 52 12 4 13150 8.9 9.6
2002–2003 18 183 74 13 8 15343 9.5 10.1
2003–2004 18 190 86 13 9 12178 10.2 10.6
2004–2005 18 203 96 13 9 17625 11.0 10.9
2005–2006 20 217 102 13 10 18064 11.5 10.7
2006–2007 21 219 110 18 11 19000 13.1 12.4
2007–2008 28 222 109 33 16 20677 14.4 13.1
2008–2009 40 255 125 38 28 22000 16.0 13.7
2009–2010 40 243 130 41 53 25951 17.2 15.0
2010–2011 41 281 115 58 87 32974 27.5 19.4
2011–2012 42 286 117 59 105 34852 29.2 20.8
2012–2013 42 292 116 62 122 35525 30.2 21.5
2013–2014 42 309 116 68 153 36634 32.3 23.0
2014–2015 43 316 111 75 181 38498 34.2 24.3
2015–2016 44 342 122 75 198 39071 34.6 24.5
2016–2017 44 345 112 100 233 40026 35.7 25.2
2017–2018 45 351 113 101 262 39527 36.6 25.8
2018–2019 47 385 124 127 305 40489 37.4 26.3
2019–2020 48 386 126 135 327 42343 38.5 27.1
2020–2021 54 437 126 149 388 43796 41.4 27.3
Source: University Grants Commission (UGC.) Annual Reports of Various Years, AISHE Reports of Various Years, Ministry of Education, GOI.,
New Delhi.
8 A. MOEED AND M. AFJAL

4.2. Trends in Gross Enrolment Ratio (G.E.R.) in higher education in India

Table 2 provides an insightful look into the enrollment patterns in higher education in India over a
thirty-year period, focusing on gender-wise distribution. The data indicates a steady and significant
increase in the GER for both males and females. In 1990–1991, the total GER stood at 5.9%, with no sep-
arate data for males and females. By 2020–2021, the total GER more than quadrupled to 27.3%, reflect-
ing a substantial increase in higher education participation. Notably, the GER for females, which was
6.7% in 2001–2002, rose to 27.9% in 2020–2021, surpassing the male GER, which was 26.7% in the same
year. This trend of increasing female participation is a positive indicator of gender parity in higher edu-
cation access. The upward trend in GER can be contextualized within the broader socio-economic and
policy landscape of India. The post-liberalization era, starting from the early 1990s, witnessed significant
economic growth and social reforms, which likely contributed to the increased demand and access to
higher education. The expansion of universities and colleges, as seen in Table 1, aligns with this growth
in GER.
The steady increase in female GER is particularly noteworthy. It reflects the impact of various govern-
ment initiatives and societal changes aimed at promoting female education. However, while the overall
growth in GER points towards increased accessibility, it also raises questions about the quality and inclu-
sivity of education, especially in the context of the rising number of private institutions. Moreover, the
implications of this growth in GER for the educational loan market are profound. As more students,
especially from diverse socio-economic backgrounds, seek higher education, the demand for educational
loans has likely increased, as indicated by the growth in educational loan schemes. However, the data
also suggests potential areas for further research and policy intervention. The shift towards private
higher education and the associated costs might influence the accessibility and affordability of higher
education, especially for lower-income groups. The increasing reliance on educational loans to finance
higher education necessitates a closer look at the lending practices of commercial banks and their
impact on student demographics.

4.3. Trends and patterns in financing of higher education in India

Table 3 provides a detailed view of the government’s spending on education from 1990–1991 to 2020–
2021, in terms of its percentage of GDP, total budgetary expenditure, and allocation within social
services.
The data shows fluctuations in public expenditure on education as a percentage of GDP, with a range
from 3.4 to 4.4% over the 30-year period. Notably, there is a slight upward trend in recent years, with

Table 2. Trends in gross enrolment ratio (GER) of higher education in India (in percent).
Year Male Female Total GER
1990–1991 NA NA NA
2001–2002 9.3 6.7 9.6
2002–2003 10.3 7.5 10.1
2003–2004 10.6 7.7 10.6
2004–2005 11.6 8.2 10.9
2005–2006 13.5 9.4 10.7
2006–2007 14.5 10.0 12.4
2007–2008 15.2 10.7 13.1
2008–2009 15.8 11.4 13.7
2009–2010 17.1 12.7 15.0
2010–2011 20.8 17.9 19.4
2011–2012 22.1 19.4 20.8
2012–2013 22.7 20.1 21.5
2013–2014 23.9 22.0 23.0
2014–2015 24.5 22.7 23.6
2015–2016 25.4 23.5 24.5
2016–2017 26.0 24.5 25.2
2017–2018 26.3 25.4 25.8
2018–2019 26.3 26.4 26.3
2019–2020 26.9 27.3 27.1
2020–2021 26.7 27.9 27.3
Source: University Grants Commission (UGC) Annual Reports of Various Years, and AISHE Reports of Various Years, New Delhi.
 COGENT ECONOMICS & FINANCE 9

Table 3. Trends in growth of public expenditure on education in India.

Year As % of G.D.P. As % of Total Budgetary Expenditure As % of Social Services
1990–1991 3.8 13.3 51.4
1991–1992 3.8 13.1 50.6
1992–1993 3.7 13.1 50.3
1993–1994 3.6 12.9 50.0
1994–1995 3.6 12.9 49.7
1995–1996 3.6 13.3 49.4
1996–1997 3.5 13.3 49.6
1997–1998 3.4 13.0 49.8
1998–1999 3.6 14.2 50.2
1999–2000 4.4 17.0 50.7
2000–2001 4.1 16.7 50.9
2001–2002 3.6 12.8 49.4
2002–2003 3.6 12.6 48.0
2003–2004 3.4 12.4 48.8
2004–2005 3.2 11.2 19.9
2005–2006 3.3 11.2 21.1
2006–2007 3.4 11.7 21.6
2007–2008 3.4 11.4 43.9
2008–2009 3.6 10.1 42.6
2009–2010 3.9 11.2 44.1
2010–2011 4.0 11.8 46.1
2011–2012 3.8 13.6 47.2
2012–2013 3.7 11.7 46.6
2013–2014 3.8 14.1 46.7
2014–2015 4.0 10.9 44.0
2015–2016 4.2 16.3 42.8
2016–2017 4.2 17.2 41.8
2017–2018 3.8 13.5 42.4
2018–2019 3.9 10.4 41.2
2019–2020 4.1 15.0 42.5
2020–2021 4.3 12.8 38.9
Source: UNESCO, World Bank, Analysis of Budgeted Expenditure on Education of Various Years and Economic Survey of Various Years,
Ministry of Finance, Government of India.

the expenditure reaching 4.3% of GDP in 2020–2021. When viewed as a percentage of total budgetary
expenditure, the numbers reveal a similar fluctuating pattern, peaking at 17.2% in 2016–2017 and drop-
ping to 12.8% by 2020–2021. However, the allocation of educational expenditure as a percentage of
social services expenditure shows a declining trend, from 51.4% in 1990–1991 to 38.9% in 2020–2021.
This decline suggests a potential shift in priority within social services or an expansion in other areas of
social services outpacing education.
Contextualizing these trends within India’s socio-economic landscape reveals several insights. The
fluctuations in educational spending can be linked to broader economic conditions and policy shifts,
particularly those related to privatization and liberalization. The slight increase in education spending as
a percentage of GDP in recent years might reflect a renewed focus on education in national develop-
ment. However, the decline in its share of social services spending raises concerns about the prioritiza-
tion of education relative to other social sectors. The data indicates a complex relationship between
government spending and the quality, access, and equity of education in India. Despite the increase in
absolute terms, the declining share within social services might impact the overall financing of higher
education. This could partly explain the rising reliance on commercial bank loans for education, as indi-
cated by the growth in educational loans. The table underscores the need for nuanced policy interven-
tions to ensure balanced and effective allocation of resources in the education sector, aligning with the
national goal of inclusive and quality education for all. The data also points towards the increasing
importance of alternative financing mechanisms, such as educational loans, in the context of changing
government expenditure patterns.

4.4. Trends in public expenditures on higher education in India as a percentage of GDP and
percentage of total budgetary expenditure on education
Table 4 traces the government’s financial commitment to higher education from 1990–1991 to 2020–
2021. The table provides two key indicators: expenditure on higher education as a percentage of GDP
and as a percentage of the total budgetary expenditure on education. The data reveals a fluctuating
10 A. MOEED AND M. AFJAL

Table 4. Trends in public expenditures on higher education in India as a percentage of GDP and percentage of total
budgetary expenditure on education.
Expenditure on Higher Education Expenditure on Higher Education
Year (As % of G.D.P.) (As % of Total Budgetary Expenditure on Education)
1990–1991 0.46 11.30
1991–1992 0.42 10.80
1992–1993 0.41 10.80
1993–1994 0.40 11.00
1994–1995 0.37 10.81
1995–1996 0.35 10.14
1996–1997 0.33 9.80
1997–1998 0.34 11.80
1998–1999 0.37 11.90
1999–2000 0.45 12.70
2000–2001 0.46 14.60
2001–2002 0.39 12.89
2002–2003 0.40 12.60
2003–2004 0.35 11.98
2004–2005 0.32 12.13
2005–2006 0.32 12.73
2006–2007 1.14 13.29
2007–2008 1.09 13.32
2008–2009 1.17 13.63
2009–2010 1.20 11.96
2010–2011 1.29 12.79
2011–2012 1.23 12.91
2012–2013 1.19 12.59
2013–2014 1.26 13.87
2014–2015 1.22 12.74
2015–2016 0.65 12.85
2016–2017 0.64 12.74
2017–2018 0.49 10.04
2018–2019 0.52 12.07
2019–2020 0.61 12.47
2020–2021 0.62 11.86
Source: Calculated from Selected Educational Statistics and Analysis of Budgeted Expenditure on Education of Various Years, Ministry of
Education, GOI, New Delhi.

trend in the government’s investment in higher education relative to GDP, with a low of 0.32% in the
mid-2000s and a notable peak at around 1.20% in 2009–2010. The latter years, however, show a
decrease, settling at 0.62% in 2020–2021. When considering higher education expenditure as a percent-
age of the total budgetary expenditure on education, the trend fluctuates less dramatically, ranging
from around 9.80–14.60%, with the figure for 2020–2021 being 11.86%.
Contextualizing these trends, the data reflects the changing priorities and challenges in financing
higher education in India. The increase in expenditure as a percentage of GDP in the late 2000s might
be attributed to policy reforms or initiatives aimed at strengthening higher education. The subsequent
decrease, however, raises questions about the sustainability of such investments and the impact on the
quality and accessibility of higher education. This trend might correlate with the liberalization policies
and the increasing role of private institutions and commercial banks in financing higher education.
The relatively stable trend in the percentage of total educational expenditure allocated to higher edu-
cation suggests a consistent but not significantly expanding commitment in the context of the overall
education budget. This stability, alongside the declining percentage of GDP spent on higher education
in recent years, might have implications for the growing dependence on educational loans and the
necessity for robust policy interventions to ensure equitable access to quality higher education. The data
from Table 4 highlights the need for a balanced approach in governmental spending on higher educa-
tion, one that aligns with the evolving socio-economic needs and ensures that the growth in higher
education is both inclusive and sustainable.

4.5. Trends in growth and performance of educational loans scheme under public sector banks
in India
In India, both public and private sector banks offer educational loans. Public sector banks play an essen-
tial role in financing higher education. PSBs’ educational loan performance in India has demonstrated a
 COGENT ECONOMICS & FINANCE 11

Table 5. Trends in growth and performance of educational loans scheme under public sector banks in India.
Year Number of accounts Outstanding amount (` In crore) Year on year growth (%)
31st March 2005 468,207 6,713 47.54
31st March 2006 679,945 10,012 49.14
31st March 2007 944,397 14,283 42.65
31st March 2008 1,246,870 19,847 38.75
31st March 2009 1,603,385 27,646 39.51
31st March 2010 1,928,350 35,628 29.81
31st March 2011 2,237,031 43,074 20.03
31st March 2012 2,460,493 49,069 13.92
31st March 2013 2,509,465 53,520 9.07
31st March 2014 2,572,716 58,256 8.84
31st March 2015 2,568,586 61,967 6.37
31st March 2016 2,502,183 65,464 5.64
31st March 2017 2,484,349 68,783 5.50
31st March 2018 2,307871 62,456 1.11
31st March 2019 2,194,977 72,800 2.55
31st March 2020 2,016,525 75,939 3.36
31st March 2021 1,878,866 77,902 3.00
Source: Figures taken from Department of Financial Services, Annual Report, Various Years, I.B.A. Report, Ministry of Finance, Govt. of India.

continuous increase in the number of accounts and outstanding amounts. The increase in educational
loans provided by PSBs is a good sign that students can access the higher education sector to fulfill
their goal of studying in India or abroad. The year-wise data of educational loans, including outstanding
amount, number of accounts, and percentage-wise increase in educational loans from 31st March 2005
to 31st March 2021, are provided in Table 5.
Table 5 presents a detailed view of the educational loan landscape in India from 2005 to 2021, show-
casing the number of loan accounts and the outstanding amount in crores, along with the year-on-year
growth percentage. The data illustrates a significant growth in both the number of educational loan
accounts and the outstanding amount from 2005 to 2011, indicating a robust demand and expansion in
the educational loan sector during this period. The number of accounts rose from 468,207 in 2005 to a
peak of 2,572,716 in 2014, while the outstanding amount increased from `6713 crore in 2005 to `77,902
crore in 2021. However, post-2014, there is a notable decline in the number of loan accounts, dropping
to 1,878,866 by 2021. This decline might suggest various underlying factors such as changes in the eco-
nomic landscape, policy reforms, or the efficiency and accessibility of the loan schemes. Despite the
decrease in accounts, the outstanding amount continued to grow, albeit at a slower rate, indicating a
rising burden of educational debt.
The year-on-year growth percentage in the outstanding amount shows a downward trend, starting
from 47.54% in 2005 and stabilizing around 3% in the recent years. This slowing growth rate could
reflect a saturation in the market or increased challenges in loan disbursal.
Contextualizing these trends, the data points to the significant role of educational loans in facilitating
access to higher education, especially in the context of increasing costs and privatization trends in the
sector. The initial growth phase aligns with the expanding higher education sector and the liberalization
policies. The recent decline in the number of accounts, coupled with the increasing outstanding amount,
raises concerns about the sustainability and inclusivity of the loan schemes. It suggests a need for a crit-
ical examination of public sector banks’ policies, practices, and the evolving socio-economic factors influ-
encing educational loan uptake. The data from Table 5 highlights the evolving nature of educational
loans in India, indicating a need for policy interventions and strategies to ensure these loans continue to
facilitate access to higher education while remaining sustainable and equitable.

4.6. Streamwise and bankwise distribution of educational loans in India

As of December 2020, about 23.3 lakh accounts had educational loans outstanding, totaling `84,965
crore, according to data gathered from the State-level Bankers’ Committees (SLBC). Over 3.5 lakhs of the
accounts were categorized as Non-Performing Assets (N.P.A.s). According to a stream-specific analysis of
the outstanding loans, medical students are the recipients of `10,147 crore (11.9%) of the total amount
of `84,965 crore, followed by engineering students with `33,316 crore (39.2%), nursing students with
`3675 crore (4.3%), M.B.A. students with `9541 crore (11.2%), and all other streams combined with
12 A. MOEED AND M. AFJAL

`28,286 crore (33.2%). Nearly 14 percent of N.P.A.s in nursing were the highest compared to the total
outstanding loans, followed by 12.1 percent in engineering, 7.1% in M.B.A., and 6.2% in medical. N.P.A.s
comprise 8.4% of all outstanding loans in all other streams (Table 6).
Table 7 presents a comprehensive overview of the distribution of educational loan accounts across
major banks in India for the years 2013 through 2017. At a glance, State Bank of India (SBI) dominates
the scene with the highest mean value of 552,054 loan accounts, ranking first throughout the consid-
ered period. Following SBI, Canara Bank and Indian Overseas Bank take the second and third positions,
boasting mean loan accounts of 266,210 and 225,067, respectively. The Indian Bank and Punjab National
Bank round out the top five with respective mean values of 176,747 and 157,254 loan accounts. While
the top-tier banks exhibit substantial figures, there’s a gradual decrease as we move down the ranks.
For instance, the State Bank of Travancore, which ranks 10th, holds a mean value of 93,354. By the time
we reach the 20th position, held by State Bank of Mysore, the mean number drops to 29,178.
It’s also noteworthy that the last few banks on the list, such as IDBI Bank, Punjab and Sind Bank, and
State Bank of Indore, have significantly fewer loan accounts, with figures ranging from 13,157 to as low
as 670. The Bhartiya Mahila Bank, which ranks last, holds a mere mean of 210 loan accounts over the
period, and interestingly, shows no educational loans for the year 2013. The table provides a detailed
insight into the distribution and mean values of educational loan accounts across various banks, empha-
sizing the dominance of certain institutions like SBI, Canara Bank, and Indian Overseas Bank in this par-
ticular financial segment.

Table 6. Streamwise distribution of educational loans in India.

Streams Amount of loan (crores) Amount of N.P.A.s (crores) Non-performing assets as a percentage
Medical 10,147 633 6.2
Engineering 33,316 4042 12.1
Nursing 3675 520.2 14.1
MBA 9541 685.5 7.2
Others 28,286 2383 8.4
Total 84,965 8263 9.7
Source: SLBC April-December 2020 and Times of India 22nd March 2021.

Table 7. Bankwise distribution of total number of educational loan accounts.

Name of bank 2017 2016 2015 2014 2013 Mean value Mean Rank
State Bank of India 480922 512716 568817 593474 604339 552054 1
Canara Bank 296373 292000 274867 250374 217434 266210 2
Indian Overseas Bank 241369 230597 231457 220626 201285 225067 3
Indian Bank 165172 159489 173748 180637 204691 176747 4
Punjab National Bank 158735 156529 157314 157813 155879 157254 5
Bank of India 135065 135205 135429 134540 122839 132616 6
Central Bank of India 128780 125793 126692 123328 109762 122871 7
Syndicate Bank 119008 112662 114362 116541 113138 115142 8
Union Bank of India 102509 97978 98811 94211 90807 96863 9
State Bank of Travancore 73818 87169 90955 105125 109705 93354 10
Bank of Baroda 81960 82697 87835 89243 88743 86096 11
Andhra Bank 51334 55063 56036 57965 61542 56388 12
UCO Bank 53367 53969 55496 54303 50571 53541 13
Corporation Bank 53672 53952 53254 52371 49897 52629 14
Allahabad Bank 48989 49011 49015 49467 47610 48818 15
State Bank of Hyderabad 43221 47386 49203 50664 51425 48380 16
Oriental Bank of Commerce 45076 46092 47292 48085 48449 46999 17
Vijaya Bank 51423 47867 42297 38013 34393 42799 18
Bank of Maharashtra 30490 30554 29516 29876 27218 29531 19
State Bank of Mysore 27806 28972 29334 29897 29883 29178 20
State Bank of Bikaner and Jaipur 18372 19873 21398 22363 22449 20891 21
United Bank of India 16629 17676 20221 24196 23285 20401 22
Dena bank 18126 18948 18640 17235 15391 17668 23
State Bank of Patiala 15372 15897 16082 15814 15020 15637 24
IDBI Bank 19072 16932 13635 9440 6707 13157 25
Punjab and Sind Bank 7306 6868 6717 7109 7003 7001 26
State Bank of Indore 669.98 669.98 669.98 669.98 669.98 670 27
Bhartiya Mahila Bank 383 288 163 6 Nil 210 28
Source: Annual Reports from Ministry of Finance, Government of India.
 COGENT ECONOMICS & FINANCE 13

Table 8. Bankwise distribution of total number of educational loan outstanding amount (in crores).
Name of bank 2017 2016 2015 2014 2013 Mean value Mean rank
State Bank of India 15706 15177 15464 14740 13753 14968.03 1
Canara Bank 7092 6738 5524 4746 4267 5673.33 2
Punjab National Bank 4811 4799 4397 4258 3588 4370.56 3
Indian Overseas Bank 4655 4409 3958 3597 2978 3919.49 4
Indian Bank 3617 2893 3288 3452 3650 3380.07 5
Central Bank of India 3902 3742 3443 3088 2527 3340.40 6
Bank of India 3275 3093 2918 2652 2412 2869.99 7
Syndicate Bank 3027 2986 2745 2768 2556 2816.34 8
Union Bank of India 2930 2739 2481 2219 2082 2490.07 9
State Bank of Travancore 1973 2109 2276 2475 2394 2245.43 10
Bank of Baroda 2121 2054 2098 2062 1970 2061.04 11
Andhra Bank 2406 1831 1821 1511 1427 1799.07 12
Corporation Bank 1572 1681 1360 1252 1150 1403.03 13
Allahabad Bank 1531 1463 1405 1347 1262 1401.39 14
State Bank of Hyderabad 1500 1472 1306 1185 1123 1317.31 15
UCO Bank 1374 1456 1319 1262 1141 1310.25 16
Oriental Bank of Commerce 1379 1347 1314 1271 1227 1307.61 17
Vijaya Bank 1281 1091 903 760 670 941.06 18
Bank of Maharashtra 870 804 703 637 553 713.38 19
State Bank of Indore 670 670 670 670 670 669.98 20
State Bank of Mysore 734 703 657 628 614 667.28 21
United Bank of India 463 477 489 531 552 502.21 22
State Bank of Bikaner and Jaipur 477 501 508 515 501 500.40 23
State Bank of Patiala 545 524 500 448 405 484.40 24
IDBI Bank 737 692 428 254 171 456.41 25
Dena bank 507 430 420 364 328 409.83 26
Punjab and Sind Bank 287 246 240 232 219 244.83 27
Bhartiya Mahila Bank 11 9 3 Nil Nil 5.7275 28
Source: Annual Reports from Ministry of Finance, Government of India.

Table 8 provides an analysis of the educational loan outstanding amounts (in crores) held by various
banks from 2013 to 2017. The State Bank of India (SBI) clearly leads the pack with an impressive mean value
of `14,968.03 crores, solidifying its position at rank 1. Following SBI, Canara Bank holds the second position
with a mean outstanding loan amount of `5673.33 crores. Punjab National Bank, Indian Overseas Bank, and
Indian Bank come next, with mean values of `4370.56, `3919.49, and `3380.07 crores, respectively. The table
further shows that the outstanding loan amounts gradually decrease as we move down the ranking. Mid-tier
banks like State Bank of Travancore and Bank of Baroda have mean outstanding amounts of `2245.43 and
`2061.04 crores respectively. By the time we reach the lower end of the table, banks such as State Bank of
Indore, State Bank of Mysore, and United Bank of India exhibit mean values ranging between `669.98 crores
and `502.21 crores. Interestingly, the Bhartiya Mahila Bank stands out with the smallest mean outstanding
loan amount of just `5.7275 crores, ranking last. Table 8 offers a detailed glimpse into the distribution of edu-
cational loan outstanding amounts across multiple banks over a span of five years, highlighting the domin-
ance of major banks like SBI and Canara Bank in this financial domain.

5. Educational loan scheme by commercial banks in India

India underwent substantial economic reforms in 1991, which significantly curtailed the public
budget allocated to the education sector, notably tertiary education. This led to the flourishing of self-
funded private institutions, resulting in an escalation of higher education expenses. Consequently, sev-
eral aspiring students faced obstacles in pursuing advanced studies due to these heightened costs.
Recognizing this gap, the Indian government had earlier attempted to address this in 1963 by initiating
the National Loan Scholarship Scheme. However, challenges like massive overdues and strategic short-
comings led to its cessation by 1991.
A renewed focus on supporting deserving yet economically constrained students emerged around
2000. Consequently, commercial banks were entrusted to champion educational loans. The Indian Banks
Association (I.B.A.), in conjunction with the Reserve Bank of India, formulated an exemplary Educational
Loan Scheme in 2001, later announced in the Union Budget of 2001–2002, now referred to as the Model
Education Loan Scheme. This initiative was primarily designed to ensure that financial constraints did not
deter meritorious students from pursuing higher education, either domestically or internationally.
14 A. MOEED AND M. AFJAL

Deemed as a socio-economically pivotal initiative, the Reserve Bank of India (R.B.I.) not only recom-
mended its implementation but also integrated educational loans into banks’ priority sector lending.
Several banks, drawing from the I.B.A. guidelines, have since introduced tailored educational loan
schemes. Such financial instruments, prevalent globally, pivotally reallocate the educational cost burden
from governmental agencies to families and students, ensuring no capable student is deterred due to
monetary impediments (Puttaswamaiah, 2010).
Educational loans, sometimes termed deferred payment plans, are foundational to higher education
policies where students assume a portion of their educational costs (Johnstone, 2004). Such loans in
India seek to rectify capital market limitations, although both lenders and borrowers encounter uncer-
tainties throughout the educational journey and loan repayment process, contingent on future earnings
(Barr & Crawford, 2005; Chapman, 2006). Central to this initiative is the principle of inclusivity, ensuring
that even students from economically disadvantaged backgrounds are supported. The comprehensive
loan encompasses diverse higher education courses and covers essential academic expenses. The
scheme underscores that only individuals seeking education should benefit from these loans.

6. Educational loan scheme in India

The stipulations and provisions surrounding educational loans have been diligently designed to ensure
that students in India can access higher education without financial constraints. The framework for such
loans is quite comprehensive. For instance, students aiming to pursue their academic endeavors within
the country can avail of loans up to `10 lakh. On the other hand, those with aspirations of studying
abroad can secure a loan amounting to a maximum of `20 lakh.
Remarkably, the margin and security norms that accompany these loans have been crafted keeping
in mind the best interests of students and their families. They are considerably liberal and notably leni-
ent. For loans up to `4 lakhs, it’s mandatory for parents to co-sign the loan agreement as joint bor-
rowers. In such cases, the bank does not demand any other form of security or collateral, reflecting the
trust and emphasis placed on education. However, as the loan amount scales upwards, the bank’s
requirements undergo subtle modifications. For loans between `4 and `7.5 lakh, the bank necessitates
collateral security. This comes in the form of a third-party guarantee deemed suitable and valuable by
the bank. In scenarios where the loan amount surpasses `7.5 lakhs, the bank mandates tangible collat-
eral security, the value of which should align with the bank’s criteria.
Another noteworthy feature catering to female students is the interest rate concession. Introduced in
2009, female students can avail of a deduction of 0.50% on the prevailing interest rate. Speaking of
interest, it’s pegged to the base rate, a value determined and periodically reviewed by individual banks.
Efficiency and transparency also underscore the loan sanctioning process. Banks commit to either sanc-
tioning or rejecting an education loan application within a span of 15 days, provided the application is
complete with all necessary documentation. Upon securing the loan, students are granted a grace
period, commonly referred to as the repayment holiday or moratorium period. This period is either the
total duration of the course plus an additional year or six months post the student’s employment,
depending on which is sooner.
The timeline for loan repayment is also explicitly defined. For loans not exceeding `7.5 lakhs, the
maximum tenure, inclusive of the study and moratorium period, is 10 years. For amounts surpassing `7.5
lakhs, this tenure stretches to 15 years. To safeguard the interests of the bank, some might even necessi-
tate students to procure a life insurance policy while availing the loan. Lastly, in a bid to streamline the
loan application process and make it more accessible, the Vidya Laxmi portal was inaugurated in 2015.
This portal permits students to apply for unsecured education loans amounting to a maximum of `7.5
lakhs. This initiative underlines the commitment to bolstering educational prospects in the country.

7. Issues and challenges of educational loans offered by commercial banks in India

The educational loan scheme, while a commendable initiative that has facilitated numerous students in
India to pursue higher education both domestically and internationally, is not without its challenges.
From the perspectives of both students and banks, this system presents a myriad of issues.
 COGENT ECONOMICS & FINANCE 15

Firstly, the education loan market in India remains underdeveloped. Unlike certain other welfare initia-
tives, the Educational Loan Scheme operates exclusively on commercial principles, which translates to a
lack of provisions for softer loans tailored for the needy. Adding to these financial constraints are the
stringent and often inflexible terms pertaining to collateral security. Furthermore, there have been
instances where individuals exploit the Educational Loan Scheme as a mere means to migrate abroad
rather than primarily for educational pursuits. An unsettling aspect of this system is the absence of any
link between the educational institutions and the bank’s decision to grant loans, based purely on a stu-
dent’s annual academic performance. The marketability of a course, or its potential to secure employ-
ment, often becomes a deciding factor for sanctioning a loan. This means professional courses, which
promise higher employment rates, tend to be favored over others.
This bias poses another challenge. Students, especially those from economically weaker backgrounds,
often find it hard to meet the bank’s stringent requirements to secure an education loan. This can inad-
vertently dissuade students from lower-income families, women, and those from other marginalized sec-
tions of society from seeking higher education. Amplifying these concerns is the high-interest rate that
these education loans carry.
A significant problem exacerbating this situation is the rising rates of unemployment or underemploy-
ment among educated youth. Their inability to secure appropriate jobs often results in loan defaults.
Several studies have underscored that the recovery rate of these student loans is alarmingly low. This
not only escalates the administrative costs of the student loan programs but also inflates the Non-
Performing Assets (NPAs) due to wilful defaults and negligence in repayment. Additionally, there are stu-
dents who, either because they wish to pursue further studies or other reasons, choose to defer their
loan repayments. The phenomenon of ’brain drain’, where students migrate and settle abroad post their
education, can also hinder the loan repayment process, further complicating the challenges faced by the
banks.

8. Suggestions to improve educational loans offered by commercial banks in India

Addressing the increasing demand for higher education in India poses a significant challenge for the
government. Enhancing the educational loan scheme can provide a pivotal solution in this context. Here
are some refined suggestions:
The burgeoning population with aspirations for higher education warrants government intervention.
To bolster the educational loan scheme’s effectiveness, several measures can be recommended. Firstly,
financial support should be extended to deserving students with the assurance of repayment post-
employment. Prioritizing students from underprivileged backgrounds is essential; they should receive
fully subsidized education loans to level the playing field. Incorporating skill-oriented training within the
education framework can ensure students secure employment promptly post their studies. It would be a
progressive step to mandate a portion of the Educational Loan Scheme for the economically disadvan-
taged, ensuring equitable access. When it comes to loan collateral, banks should adopt more flexible
terms, particularly for outstanding students from economically constrained backgrounds. Interest rates
on educational loans, currently higher than other loan types, should be reduced. This would also require
standardizing interest rates across banks to avoid disparities. The lending criterion should be more inclu-
sive, supporting not just professional courses but also general higher education streams. Assessing a stu-
dent’s creditworthiness and repayment potential before sanctioning loans will bolster the scheme’s
sustainability.
Post loan disbursement, banks should actively monitor loan utilization and maintain regular commu-
nication with students. This will not only ensure proper fund utilization but also aid in timely loan recov-
ery. The loan scheme should offer diverse options, such as government-backed loans, interest rate
subsidies, and flexible repayment plans. In fact, provisions like waivers for students with limited future
income prospects could be considered. Given the trend that students in professional courses typically
secure the most significant loan amounts, banks should innovate and diversify their loan offerings to
encompass a broader range of courses. Lastly, it’s imperative for banks to continually refine their cus-
tomer service, ensuring transparency, empathy, and reasonable loan repayment periods.
16 A. MOEED AND M. AFJAL

9. Conclusion
This study has illuminated the crucial role of higher education in shaping individuals and society, par-
ticularly against the backdrop of escalating costs associated with higher education. The analysis reveals
a clear trend: the burgeoning demand for higher education in India has led to a significant shift in its
financing, increasingly relying on educational loans, especially through Public Sector Banks (PSBs). This
shift reflects a broader socio-economic trend and policy orientation towards privatization and market-
driven education models.
Key findings from the study indicate a consistent growth in student enrollments and higher education
institutions, placing an enormous responsibility on the government and financial institutions to support
this expansion. PSBs have emerged as a vital cog in this mechanism, providing necessary financial sup-
port to students. However, the system faces challenges like disparities in loan accessibility and the rising
burden of educational debt. The study’s recommendations extend beyond banking practices, advocating
for policy-level interventions from the government and educational institutions to diversify financing
models and improve the inclusivity and sustainability of higher education financing.
Looking ahead, the study suggests avenues for future research, such as examining the long-term
impacts of educational loans on students’ career outcomes and exploring alternative financing models.
Reflecting on the methodology, the study acknowledges its reliance on secondary data and suggests
that future research could include primary data sources for a more nuanced understanding.
Furthermore, the findings have broader implications for India’s educational landscape. They highlight
the need for policies that not only ensure the financial viability of higher education but also promote
equity and social mobility. This includes addressing the gaps in loan accessibility between urban and
rural students and considering the impact of educational loans on long-term social and economic out-
comes. In conclusion, while educational loans have become a key instrument in facilitating access to
higher education in India, there is a pressing need for comprehensive strategies that address the chal-
lenges of this financing model. Such strategies should aim to balance financial support with equity and
quality in higher education, ensuring that the growth in the education sector contributes positively to
India’s socio-economic development.

Disclosure statement
The authors have no conflict of interests.

About the authors

Abdul Moeed is a Research Scholar in Economics at the Department of West Asian and North African Studies,
Aligarh Muslim University, Aligarh. He has qualified NTA UGC NET/JRF in Economics as well as Education. His
research primarily focuses on the Financing of Higher Education, with additional interests in the Economics of
Education, Educational Finance, Public Finance, Higher Education Policy, and Economic Policy.
Mohd Afjal is an accomplished Assistant Professor at VIT Business School, Vellore Institute of Technology, India. With
a diverse educational background and extensive research experience, he has made significant contributions to the
academic community in the areas of finance, economics, and technology. With a strong foundation in both finance
and economics, Afjal has focused his research interests on several key areas including Performance Evaluation of
Industries, Benchmarking and Frontier Analysis, Corporate Finance, Behavioural Finance, Blockchain and FinTech,
and Financial Econometrics.

ORCID
Abdul Moeed http://orcid.org/0009-0005-2313-3628
Mohd Afjal http://orcid.org/0000-0002-1234-6055

Data availability
The data will be made available on request from the corresponding author.
 COGENT ECONOMICS & FINANCE 17

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