Education loans, the fastest-growing segment for non-banking financial companies (NBFCs) in recent years, are set to witness a sharp deceleration in growth this fiscal, according to CRISIL Ratings. The agency expects education loan assets under management (AUM) to grow by around 25% this year, a steep decline from 48% in the previous fiscal and an even faster 77% the year before that.
The slowdown follows a raft of policy changes in key overseas education destinations, particularly the US, where visa-related uncertainties and proposed revisions to employment norms have dampened student interest. As a result, NBFCs are facing headwinds in fresh disbursements for international education which had been a strong growth driver, the rating agency says.
“Policy uncertainties in the US, combined with measures including reduced visa appointments and the proposed elimination of optional practical training (OPT) norms, have culled newer loan originations,” says Malvika Bhotika, director at CRISIL Ratings.
Loan disbursements linked to the US dropped by nearly 30% in the last fiscal, she added. Canada, the second-largest market for Indian students, also saw a decline as visa rules turned stricter, with heightened financial requirements and caps on study permits further squeezing disbursement volumes.
In total, education loan disbursements rose by just 8% in financial year (FY)24-25, compared with about 50% in FY23-24. To cushion the impact, CRISIL says NBFCs have turned their focus towards alternative destinations such as the UK, Germany, Ireland, and smaller countries. Disbursements for these geographies have doubled over the past year, pushing their share in total education loan disbursements to nearly 50% in FY24-25 from 25% a year earlier.
"However, this shift is unlikely to fully offset the decline in disbursements to the US, which still comprises half of NBFCs’ total education loan portfolio—down from 53% as of March 2024," it added.
Apart from targeting new geographies, NBFCs are diversifying into domestic segments including loans for higher education within India, skill development, certifications, and school or coaching-related expenses, the rating agency says, adding, "These newer products are expected to lend some portfolio stability, although their overall share will remain modest due to lower ticket sizes."
Despite the global pressures, NBFCs have so far maintained robust asset quality. As of 31 March 2025, gross non-performing assets (NPAs) in education loans stood at a low 0.1%. Even after adjusting for the ongoing moratoriums on principal repayments—characteristic of most education loans—gross NPAs remained under control at around 0.7%.
However, according to the rating agency, the picture may evolve as an estimated 15% of the loan portfolio is expected to exit moratorium status this fiscal. The risk of asset stress emerging from this cohort will need close monitoring, especially as lenders also test newer domestic products.
“Despite the global developments, NBFCs have maintained healthy asset quality so far,” says Sonica Gupta, associate director at CRISIL Ratings. “But the ability of NBFCs to scale up and maintain asset quality in some of the newer domestic products will bear watching as well.”
CRISIL noted that the continued success of NBFCs in the education loan segment will depend on their agility in responding to geopolitical developments and changes in student preferences. As the share of traditional markets such as the US continues to decline and new destinations emerge, lenders will need to recalibrate strategies to sustain growth while safeguarding asset quality.
The analysis is based on NBFCs rated by CRISIL Ratings which account for more than 90% of the industry’s AUM in the education loan space.
