Something strange is happening in India’s education loan market. Fewer students are taking loans, but the total amount borrowed has nearly tripled. Both things are true at the same time—and together they tell a story about who can still afford an education.
Over the past decade, the number of active education loan accounts fell 15.2%, from 25.76 lakh in June 2016 to 21.84 lakh in June 2026. Yet the outstanding loan amount surged from roughly ₹52,000 crore to over ₹1.37 lakh crore in the same period .
Read that again. Fewer borrowers. Much bigger debts.
This is not a sign that education is becoming cheaper. It is a sign that the cost of higher education has risen so sharply that only students who can borrow large amounts—or whose families can co-sign and pledge collateral—are able to access loans at all.
The Real Reason Fewer Students Are Borrowing
The decline is not because demand for higher education has fallen. It is because access has tightened.
When education loans were smaller, banks could approve them with less scrutiny. Today, a loan for an engineering or medical seat, or for a master’s degree abroad, can run into tens of lakhs. Larger loan amounts trigger stricter banking requirements: collateral, co-borrower income proof, credit history checks, and repayment capacity assessments .
For students from middle- and lower-middle-income families, meeting these conditions is increasingly difficult. Many eligible students either abandon their plans or settle for cheaper, lower-quality alternatives. The decline in loan accounts, in other words, signals constrained access, not reduced ambition.
The parliamentary standing committee on education flagged this exact paradox in its report, noting that while total student debt more than doubled, the number of students actively availing loans declined .
The US Visa Factor: Why High-Value Loans Shrank
The biggest ticket-size loans in India’s education finance market have historically been for overseas study, particularly to the United States. That corridor has been disrupted.
Education loans for study abroad dropped 30–50% in calendar year 2025, according to non-banking finance companies and loan platforms. US volumes alone were down by as much as 60% . Outward remittances for education during the August 2025 admission season fell 23% year-on-year .
The cause is policy. Tighter US visa norms, uncertainty around post-study work options, and proposed changes to the H-1B regime have made American universities a riskier bet for Indian students and their lenders .
Lenders like Avanse and Credila, which built their businesses on high-value overseas loans, have seen growth slow sharply. Avanse shelved its IPO. Credila paused its listing plans. Both are pivoting toward the UK, Europe, and domestic education—markets with smaller ticket sizes and thinner margins .
What This Means for Families
If you are planning to fund higher education through a loan, the ground reality is this: the loan you need is probably bigger than what your parents would have needed a decade ago, and the bank will scrutinize you more closely.
The government’s PM Vidyalaxmi scheme was designed to address this. It offers collateral-free, guarantor-free loans for students admitted to quality higher education institutions. But implementation has been weak. Of ₹4,427 crore sanctioned between February and August 2025, only about 15% was actually disbursed . Procedural bottlenecks and lack of awareness among rural students have kept the scheme from reaching the people it was meant to help.
The parliamentary committee has recommended several reforms: income-contingent repayment models, extending the moratorium to two years after course completion, raising the collateral-free limit to ₹8 lakh, and simplifying eligibility using ration cards instead of complex income documentation . Whether these recommendations become policy is a separate question.
The Risk No One Is Talking About
There is a hidden risk in India’s education loan book. A large portion of loans are still under moratorium—the period during which students are not required to repay. NBFCs reported gross NPAs of just 0.1% as of March 2025, but nearly 85% of their education loan book was still under contractual moratorium, deferring stress recognition .
As these loans exit moratorium and graduates face a tougher job market, repayment capacity will be tested. If overseas job markets weaken or the rupee depreciates further, defaults could rise from what looks like a deceptively low base.
For borrowers, this matters because it affects future lending. If banks see rising defaults, they will tighten access even further—making it harder for the next generation of students to finance their education.
What Should You Do If You Need an Education Loan?
Start early. Banks take time to process large loans, especially if collateral is involved. Begin the conversation with your bank at least three to four months before the admission deadline.
Understand the moratorium trap. A longer moratorium sounds helpful, but interest accrues during this period. A ₹7.5 lakh loan can balloon to over ₹10 lakh before you make your first EMI payment . Ask your lender whether interest is serviced during the moratorium or capitalized.
Compare banks and NBFCs. Public sector banks dominate education lending and often offer lower rates, but their processes can be slower. NBFCs may be faster but charge more. Check both before committing.
Explore government schemes. PM Vidyalaxmi and the Credit Guarantee Fund Scheme for Education Loans (CGFSEL) can reduce your collateral burden. Ask your bank specifically about these schemes—do not assume they will offer them automatically.
FAQ
Q1: Why are education loan accounts declining in India?
Because loan amounts have grown larger, banks have tightened eligibility requirements—collateral, co-borrower income proof, and credit history. Many students from middle-income families cannot meet these conditions, so fewer loans are being approved even as demand for education remains high .
Q2: How much has the total education loan amount grown?
Outstanding education loans from banks rose nearly 15% year-on-year to ₹8.58 lakh crore in FY26. Over the past decade, the total outstanding amount has nearly tripled even as the number of accounts fell .
Q3: Why did study abroad loans drop so sharply?
Tighter US visa policies, uncertainty around post-study work options, and proposed H-1B changes made American universities riskier for Indian students and lenders. Education loans for study abroad fell 30–50% in 2025 .
Q4: What is PM Vidyalaxmi and why is it under scrutiny?
PM Vidyalaxmi is a government scheme offering collateral-free, guarantor-free education loans to students in quality higher education institutions. It has been criticized because only about 15% of sanctioned funds were disbursed in the monitored period .
Q5: Is the education loan moratorium helpful or harmful?
Both. It gives students time to find jobs before repayment begins. But interest accrues during the moratorium, and a ₹7.5 lakh loan can grow to over ₹10 lakh before the first EMI. Borrowers should ask whether interest is serviced or capitalized .
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