Since the pandemic began, there has been a notable rise in the disbursement of IBA model education loans by Public Sector Banks (PSBs) in India. They have disbursed more than ten per cent of the loans in Kerala, a State with a population of just 3.57 crore people.

According to the Ministry of Finance, the Model Education Loan scheme formulated by the Indian Banks’ Association (IBA) allows for collateral-free education loans up to ₹7.50 lakh. It also allows no margin for loans up to ₹4 lakh. Moreover, the repayment period after the moratorium is available for up to 15 years for all loans.

Between FY21 and the third quarter of FY24, the PSBs disbursed a total of ₹1.08-lakh crore as education loans, according to the data that Ministry of Finance presented in parliament on Wednesday while answering a question raised by MP Derek O’Brien. 

A closer examination of the data reveals that PSBs have disbursed 13 per cent of education loans totalling ₹14,421 crore in Kerala alone. Maharashtra is second on the list with loans reaching ₹13,804 crore. Three southern states — Andhra Pradesh, Karnataka and Telangana fall in the third, fourth and fifth positions, respectively.

The Kerala Story

In 2017, the Kerala government launched the Education Loan Repayment Support (ELRS) scheme to aid students who have taken education loans not exceeding ₹9 lakh and to students whose family income does not exceed ₹6 lakh per annum. As part of this, the state government bears 90 per cent of the amount repayable during the first year, 75 per cent in the second year, 50 per cent of the repayable amount in the third year and 25 per cent in the fourth year.

Economist Mary George points out that this has resulted in an increased demand for education loans in the state.

The latest ‘All India Survey for Higher Education’ shows that Kerala has the fourth highest gross enrolment ratio in higher education at 41.3 per cent. The gross enrolment ratio takes into account the number of students enrolled in higher education as a percentage of the eligible population aged 18 to 23 years. But, this data only takes into account the number of students who study in Kerala and not the students who migrate to other states. 

George says a large number of students migrate to other states and countries to pursue higher education and this may be a contributing factor for high dependency on education loans. “Kerala has a high unemployment rate and campuses in the state are mostly in the state of unrest, owing to frequent protests. Also, the quality of education isn’t up to the mark,” says George. “This prompts a lot of parents to send their children to neighbouring states or other countries to study, on loans,” she adds. 

The loan growth

The Ministry of Finance data also shows that the dependence on IBA education loans has been growing multi-fold in the country since the pandemic. While ₹13,329 crore was disbursed in the entire country in FY21, the amount nearly tripled to ₹38,321.5 crore in FY23. In FY24, until December, the amount was ₹32,960.29.