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Need for Reforms: Why Getting Your Education Financed is Such a Big Deal in India There are market players who are taking an alternative route to finance the parent, not the student, for education: be it school or college

By NV Subramanian

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Off all the expenses, education is one area in which parents stretch their finances to give the best exposure to their child. Today, there are many possible paths for children to explore before they embark upon a career path, be it traditional education or new age vocational courses.

Sky high inflation and no easy access to credit...recipe for disaster

The education sector in general is witnessing inflation rate of about 10-12%, multiple of inflation! While the spiralling costs of schooling, college, coaching and extra-curricular classes has added major burden on parents, the limitations of the current education financing option poses considerable roadblocks for educational institutes and their growth.

Related: Why You Should Care About Student Loan Debt

Today, slowing world economy has begun to affect economies like India via a lower growth rate of exports. Jobs and wage growth continues to be low which in turn has increased the unemployment figures. To make matters worse, credit is not easily available as banks are wary of lending to certain NBFCs because of a heightened risk-perception about the sector. Ever since some of the NBFCs defaulted on short-term papers, banks have become more cautious in lending to them.

Financing education in India - road blocker for institutes...nightmare for parents

The current state of affairs has impacted education sector: not just parents and students, but also Education Institutes.

Related: This Dropout Is Trying to Keep Kids Out of Student Debt

Every education institute needs to invest in real estate, which run into crores. Institutes have to deal with long gestation periods and low supply elasticity; a scenario in which they cannot increase the number of seats available to students on a yearly basis. And liquidity squeeze on credit front is increasing the debt servicing at institutes' end. The biggest impact can be seen in educational institutes' inability to refine their infrastructure.

1. On the other hand, parents, who are the key investors in education, don't have it easy when it comes to funding their child's education. The annual fee at private schools and undergraduate colleges in India stands anywhere between INR 50,000 to 500,000. This is just the tuition fee. The total cost of education - including housing, books, devices etc. is much higher. Most salaried parents fund their child's education out of pocket, which affects their cash flow & gets in the way of their savings.

Related: Yes, You Can Refinance Your Student Loans When You're Self-Employed

2. Unfortunately, neither the institutes, nor the parents, enjoy a separate status in getting financing options in the current scenario. When institutes try to raise financing, they're treated akin to any other capital expenditure sector like hospitality or real estate. As a result, their access to credit is difficult and expensive. Ultimately, the institutes have to pass on these costs to the parents. Likewise, parents don't have special access to financing because of which they end up seeking personal loans or pull money out of their savings. To make their plight worse, they have to pay for their child's education upfront, in advance - be it quarterly, semesterly or annually which increases their cash outflow every few months.

3. Current solutions, like College Education Loans, continue to perform poorly in India. NPAs are high because of higher than expected unemployment in degree courses. Pricing of these loans is state regulated which forces many lenders to stay away from the system, rendering this sector to PSU banks largely. To make matters worse, India's education loan market has shrunk 25% in the past four years. Financing solutions are expensive, cumbersome. Banks typically favor higher value loans and avoid segment of loans below INR 4-lakh (without collateral).

In such a scenario, can one dream of a different reality for Institutes & Parents? Yes, a different solution could help 400,000+ institutes and 150 million parents in the country. It is time to rethink the construct

1. To start with, private education could become a lot more affordable and accessible for students and parents if private educational institutes are given an option to collect fees monthly. Market intermediaries and service providers could step in to facilitate a seamless execution of this process across cities in India.

2. Government and regulators could consider offering long term debt to educational institutes for infrastructure additions, akin to solar / affordable housing. Several institutes in India are 50 - 100 years or older. Therefore it makes sense to offer them easier credit access given their long term viability.

3. There are market players who are taking an alternative route to finance the parent, not the student, for education: be it school or college. Since parents are usually more credit worthy than student, and more disciplined in repayment, one part of the problem can be addressed.

Education isn't an easy, scalable product. It's a service and can be provided only in certain group sizes. However, this limited service can only be offered in a relatively expensive funded environment which requires high investment in real estate, infrastructure etc.

It's time that we take steps to help out both educational institutes and parents, the two key stakeholders in the education system. Education is a key tool to uplift our people's thinking, skilling and earning and it has always been, an investment. While it's costs are certain and results may seem uncertain, yet an absence of investing in education would be disastrous.

NV Subramanian

Founder & CEO of Payed

NV Subramanian (NV) is Founder & CEO of Payed. Payed is a digital financial service company that helps parents pay Education fees monthly. 

NV is a graduate of BITS Pilani and IIM Lucknow, with 17+ years of work experience across ITC, Future Group, Samara Capital and Snapdeal. Throughout his career, he's built businesses around consumers: managed large teams (1500+ people), led large businesses (INR 1000 Cr+ revenues) and won numerous awards (e.g. best iOS app of the year, marketplace category, for Shopo in 2015). 

Over his career, NV has created innovative solutions for India with technology: India's first smart card based CRM solution at ITC, strategic marketing properties at Future Group (e.g. Wednesday Bazaar), chat based e-commerce platform at Snapdeal (Shopo), and co-branded marketing solutions with 15+ banks over his career.

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