The role of fintech in enabling school financing in smaller cities

With India aiming to become a developed economy by 2047, upskilling the country’s working-age population and improving education access for young students has assumed critical importance. However, while there has been a healthy rise in the number of educational institutions in India over the past decade, education affordability still remains a significant challenge for most students. 

This is especially true for those hailing from Tier II and III cities, with many parents seeking education loans to fund their child’s education. Recognising the need for accessible financial support, non-banking financial companies (NBFCs) are leading the way by introducing tailored education loan products that are enabling students in funding their educational pursuits.

Need for flexible financing solutions

With ever-improving education infrastructure and rising awareness about the importance of quality education, more parents are enrolling their children in reputed education institutions to ensure better career prospects in the longer term. However, considering that tuition fees have been increasing year-on-year due to inflationary pressures, many parents are finding it difficult to finance school education without resorting to external means. 

This has contributed to the growing demand for education loans, especially across smaller Indian cities where there is a greater desire to achieve upward mobility. That said, both public and private sector banks have been unable to cater to this rising demand, largely due to their traditional underwriting processes that tend to favour applicants with strong financial backgrounds. Additionally, considering the higher rate of NPAs (non-performing assets) within the education loan segment, these lending institutions generally extend collateralised education loans to applicants with prior credit histories. 

This combination of strict underwriting processes and high collateral requirements deters many parents from accessing loans through these lenders. Consequently, the growing demand for quality education is being constrained by limited financing options, forcing many students to abandon their educational aspirations.

Democratising education access 

In stark contrast to this approach, a new breed of education-focused fintech NBFCs have been revolutionising the school financing space by focusing on the employability and future earning potential of candidates to make underwriting decisions. These fintech NBFCs not only assess applicants through a 100% digital process, thereby eliminating the need for extensive paperwork and lengthy turnaround times, but they also provide them with tailored financing solutions that are mapped to the structures and outcomes of different educational programs. 

What’s more, by offering collateral-free school financing options with flexible repayment schedules, these fintech NBFCs are making quality education accessible even for those from low-income groups. As a result, an increasing number of students from smaller cities are availing themselves of school loans from these new-age lenders and bridging the education affordability gap without needing to migrate to larger cities. 

Additionally, these fintech NBFCs are partnering with top-tier educational institutions in non-metro locations to offer students the option to pay their fees in easy instalments, thereby fast-tracking student onboarding and ensuring zero delay in the student enrolment process. 

Challenges and opportunities

As fintech NBFCs go beyond school financing to expand into upskilling and test prep sectors, they need to overcome low financial literacy levels among applicants hailing from smaller towns and cities. 

To address this challenge, these lenders are offering loan counselling sessions that guide students and parents through the loan application, disbursal and repayment process, educating them about the various financing options as well as associated terms and conditions. By improving financial literacy through loan counselling, fintech NBFCs are not only helping families in making informed decisions about financing education, but are also reshaping how small-town India accesses and pays for education. 

The author is Co-Founder, Propelld, a fintech startup specialising in education lending.