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How ongoing layoffs, impending recession may impact education loan portfolios in 2023

How ongoing layoffs, impending recession may impact education loan portfolios in 2023

While the outlook for the education loan market remains robust, there are, however, worries that ongoing layoffs and impending recession can spell trouble for a few lenders

While the outlook for the education loan market remains robust, there are, however, worries that ongoing layoffs and impending recession can spell trouble for a few lenders While the outlook for the education loan market remains robust, there are, however, worries that ongoing layoffs and impending recession can spell trouble for a few lenders

More than 6 lakh Indian students realized their dream of studying abroad in 2022 compared to 4.44 lakh in 2021, according to the latest government figures. The uptick in the number of students pursuing higher education abroad is attributed to the pent-up demand since students faced multiple disruptions and delays in the last two years due to the pandemic. With the rise in demand for higher education, there was also an increase in demand for education loans.

According to data shared by education financing marketplace Gyandhan, education-focused NBFC Avanse, published reports with a total loan disbursement during the H1 FY23 phase of Rs 3,369 crores, showing 3x growth over H1 FY22. Prodigy Finance, an international lending institution, saw a 98 per cent increase in student loan applications from India in the first three months of 2022 compared to 2021. Another international lender, MPower Financing saw an overall 79 per cent student mobility into major countries from countries like India, Nigeria, Ghana, Brazil, and China. GyanDhan saw a 3X increase in loan originations compared to the previous year. 

There is a similar trend in the domestic space, with an uptick in the number of education loans disbursed to students pursuing their studies in India. According to data shared by Gyandhan, Credila saw an increase of 107 per cent year-on-year to Rs 301 crore. Eduvanz reported that loan disbursals for K-12, test prep, skilling, and upskilling courses shot up to Rs 1,600 crore from Rs 600 crore last year. “In spite of the growth, public sector banks face challenges in this segment. With NPAs at 8-10 per cent, lower value and high default risks make PSBs wary of this segment,” said Ankit Mehra, CEO and co-founder of GyanDhan.  

While the outlook for the education loan market remains robust, there are, however, worries that ongoing layoffs and impending recession can spell trouble for a few lenders.  “With education lending still forming a small percentage of the overall funding, there is ample room for growth for lenders in the coming year. Increased investor interest is also expected to result in a few more start-ups catering to this space. The ongoing wave of layoffs in the technology sector and the impending recession could have an impact on the portfolio quality of some of the lenders. Lenders that are able to manage risk reasonably well in 2023 will be poised for a breakthrough in the coming years,” says Mehra.

Mehra adds, “The education sector has traditionally been resilient to recessions, with application volumes increasing in recessions as individuals take a break to upskill/reskill themselves.”

Also Read: Outlook 2023: Should one invest in FDs or debt funds in 2023?

Published on: Dec 27, 2022, 10:57 AM IST
Posted by: Priya Raghuvanshi, Dec 27, 2022, 10:52 AM IST
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