NBFCs Adapt as Education Loan Growth Slows Amid US Policy Changes

Education loans have been the fastest-growing asset class for non-banking finance companies (NBFCs), registering over 50% growth in assets under management (AUM) over recent years. Crisil Ratings projects that this pace will halve this fiscal year due to reduced disbursements for students pursuing education in the US following a series of policy amendments.

In response, NBFCs are pivoting towards diversifying their portfolios by exploring new geographies and product adjacencies. Although non-performing assets (NPAs) have remained stable thus far, the asset quality remains under scrutiny given the global uncertainties and the fact that a substantial 85% of AUM is still under a contractual principal moratorium.

Last fiscal year, NBFCs saw their education loan AUM soar by 48% to ₹64,000 crore, following an impressive 77% spike in fiscal 2024, according to Crisil Ratings. However, for the current fiscal year, growth is anticipated to moderate to 25%, with AUM projected to reach ₹80,000 crore, the agency noted.

Malvika Bhotika, Director at Crisil Ratings, highlighted the impact of policy uncertainties in the US, alongside measures such as the reduction in visa appointment slots and proposed changes to Optional Practical Training norms, leading to a 30% decline in total disbursements to that geography last fiscal. Similarly, disbursements to Canada have also fallen due to tighter visa regulations including stricter financial requirements.

Overall, education loan disbursements only increased by 8% in fiscal 2025 compared to 50% in fiscal 2024, as NBFCs adjusted their focus to other geographies. Crisil Ratings reported that disbursements related to courses in the UK, Germany, Ireland, and smaller countries doubled as students sought alternative destinations. The contribution of these alternative geographies rose to almost 50% of total disbursements in fiscal 2025 from 25% a year earlier.

Despite this strategic shift, the decline in US-linked disbursements remains significant. The US's share in the overall education loan portfolio dropped to 50% by March 31, 2025, from a high of 53% the previous year. Looking ahead, it's projected to decrease further as lenders increasingly turn to domestic loans and adjacencies like school funding and skill development loans, although these are unlikely to dramatically impact the overall portfolio due to their smaller ticket size, Crisil Ratings concluded.

(With inputs from agencies.)