Digital lending in the education sector: How financial barriers are fading

In a country of nearly 1.3 billion people with a significant young population, financial barriers mustn’t affect the hope of pursuing higher education. There are numerous reasons which stand in the way of easy financing of higher education for students in India. In fact, the education loan approval rate of major Public Sector Banks in India had shrunk to 24 per cent in 2020, despite having a steady accretive demand for student loans.

There are different reasons which make the process of getting a student loan from traditional institutions, onerous and at the same time daunting.

Firstly, meeting the eligibility criteria is a challenge and rejection rates are high due to many reasons, the most common being a lack of collateral, poor CIBIL or credit scores, inadequate earning capacity of the co-borrower, average academic performance of the applicant, and gaps in documentation. On top of that the process is convoluted for reasons like, student loans can be applied through only specific branches of the Public Sector banks, physical documentation and visits are involved and the whole process can stretch up to 3 months or more.   At the same time, the cost of higher education has increased in both domestic and international markets, thereby reemphasizing the need for education loans.

The new-age technologies have ushered in new possibilities, dissolving these barriers and ensuring that loan availability becomes more inclusive and accessible, empowering millions to realize their dreams.

Against this backdrop, some of the major advantages of digital education lending facilities are discussed as follows:

Easy and quick loan application and disbursal process

The loan application and disbursal of money through online procedures are faster and more efficient. There are no intermediaries or agents involved in the entire process. The approach adopted by new-age technology companies is entirely transparent and leaves little margin for error.

Eliminating the pressure on parents to be a co-applicant

Parents and guardians can be assured that they would no longer need to be a co-applicant or guarantor as far as the education loan is concerned. Digital lenders provide student loans by evaluating an applicant’s creditworthiness, course assessment, and future earning potential. They do not rely on the parent’s debt-repayment capability.

Flexible repayment options

Financial burdens are further reduced for the applicants with the help of flexible repayment options. This includes adequate moratorium, reduction of EMI, lower foreclosure charges, extended loan terms, and refinancing options.

Experts as counselors providing excellent after-disbursement services

This critical factor adds to the overall reliability of modern companies over conventional lenders. Besides having an excellent and transparent application and disbursement process (as discussed before), these organizations provide a wide range of after-disbursement services. For instance, visa assistance, tips for first-time overseas travelers, and counseling services are part of the relationship. Hence, the collaboration between students and lenders is not just based on a loan.

Providing funding of 100 per cent cost of education

Based on the creditworthiness and requirements of the students, companies today provide a wide range of loan offers that can cover up to 100 per cent of the finance requirements. The lenders take care of any financial worries that generally bother students during higher studies.

No requirements for collateral security

The need for a tangible asset to be kept as collateral for taking up education loans is not relevant in the context of these modern-age digital lenders. Loans and financial assistance are solely provided based on the creditworthiness and predictive analysis of the repayment capability of a student applicant.

Other critical deals

There can be a plethora of other deals, such as the provision of health and travel insurance and forex services which are critical for a student residing abroad for a considerable period. The digital lenders’ partnerships with reliable vendors in the respective domain, help students get the best possible offers that save money and cover a wide range of future obligations.

Going forward

Students have traditionally faced various challenges whilst availing of education loans and chances of obtaining loans for higher education has been relatively poor. Without proper guidance and transparency, students often were burdened with financial obligations that affected their study-related targets.

However, with the emergence of cutting-edge technology lenders, student loans are becoming more accessible. The loan disbursement has become infinitely more flexible and transparent than ever before. The opportunity to choose the right financial partner to avail the student loan from, is opening up a broad spectrum of possibilities for Indian students to pursue their higher education dreams from an institution of their choice.

The author is founder of Kuhoo Fintech. Views are personal.

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