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Subvention based Education loans: An Innovation breaking boundaries.

Updated: Jan 22






Education loans act as crucial financial support, empowering students and professionals to upskill to pursue academic aspirations without being hindered by financial constraints. These loans comprehensively cover tuition fees, living expenses, and additional costs, ensuring a smooth journey in the pursuit of knowledge.


Macros:

  • Market Growth: The education loan sector is experiencing remarkable expansion, witnessing a robust 17% surge in FY23.

  • Outstanding Portfolio: Currently standing at an impressive ₹96,847 crore, the outstanding portfolio reflects a positive trend after five years of stagnation.

  • Small ticket education loans in form of school fee / coaching fee / upskilling loans are gaining traction


Types of education loans


Type

Ticket Size

Typical Tenure

Typical Lenders

Remarks

1. Upskilling Programs

1L to 15L

6-24 months

Fibe, Eduvanz, Propelled

Credit assessment is easier as most of the borrowers are salaried professionals

2. Study abroad loans

20L to 1Cr

2-8 years

- All major banks

- NBFCs

-Auxilo

- Avanse

- HDFC - Credila

- Leap Finance

- Prodigy Finance


Some lenders offer unsecured loans upto 75 lacs.


3. Higher education (Grad / Post Grad)

5L to 1Cr

2-5 years

same as Abroad loans

​Grace period upto 3 years is available.

4. School Fee loans

around 1L

1 year

All major banks

Small ticket unsecured loans

5. Coaching institute loans

0.5L to 3L

upto 2 Years

Local NBFC players

Usually provided by the institution itself



Redefining Education Loans: The Impact of Partnerships between Educational institutes and NBFCs


With more individuals becoming educated about loans and steadily building credit scores, educational institutions are increasingly partnering with banks and NBFCs, leading to a surge in such collaborations. Additionally, upskiling course platforms, exemplified by platforms like Scalar, are offering students options for no-cost EMIs and similar setups.





The Win-Win Scenario for students, NBFCs & Institutions


Benefits for Students:

Students gain access to much-needed education through flexible loan structures. Key features such as no-cost EMIs make education financially viable. Some repayment schemes offer extended tenures, allowing students to repay with manageable interest portions.


Benefits for Educational Institutes:

Providing students with the option for no-cost EMIs enhances the viability of courses, attracting a new set of students who might not have enrolled otherwise. This not only increases enrollment numbers but does so at no substantial extra cost to the institution.


Benefits for NBFCs:

NBFCs and banks establish a more secure foundation for education loans through partnerships with educational institutes, expanding their loan books. The partnership terms vary, offering lucrative Internal Rate of Returns (IRRs) to NBFCs. Ways in which NBFCs generate revenue include subvention income and interest income.


*These setups hinge on the specific agreements NBFCs have with their partner educational institutions.


Operational Challenges in the partnerships

Navigating the operational landscape of flexible education loans presents formidable challenges for financial institutions. From constant system adjustments to technical intricacies and the delicate balancing act of regulatory compliance, these hurdles require astute management to ensure both student satisfaction and operational efficiency.


1. System Adjustments: Constant adjustments and configurations are required in the systems of banks and NBFCs due to the flexibility demanded by students. Adapting to the ever-changing student demands makes it challenging for financial institutions to tap into the market effectively.


2. Technical Complexity: Implementing and maintaining systems for flexible education loans pose technical challenges. Real-time updates, diverse repayment structures, and accommodating various partnership dynamics add layers of complexity to the operational side.


3. Regulatory Balancing Act: The dynamic nature of flexible education loans demands financial institutions to stay compliant with evolving regulations. Balancing regulatory changes while ensuring smooth operations requires a delicate act, often involving substantial investments in compliance management.


4. Diverse Institutional Requirements: Every educational institution has unique requirements, necessitating different configurations. Adapting systems to meet the diverse needs of various institutions further complicates the operational landscape.


5. Open market Education Loans: Some education loans are not directly partnered with educational institutes, adding an extra layer of complexity. Operating without direct institutional collaboration requires additional efforts to manage and verify loan disbursements effectively.


Synoriq LMS: Tailored for Educational Finance Challenges

Synoriq LMS emerges as the definitive solution to the operational complexities in the realm of education loans. Our platform is meticulously crafted to handle the dynamic features demanded by the education finance landscape, offering:


1. Flexible Repayment Configurations: Repayment schedules can be easily configured with various payment methods, providing options for moratorium, step-up, step-down, reduced EMIs for certain periods, interest only instalments for initial periods.


With Synoriq’s LMS you can craft that perfect repayment schedule for the borrower to accommodate their financial planning suitable to their salary or career trajectory.


2. Effective Subvention Management: Synoriq LMS streamlines the upfront subvention process, allowing NBFCs to efficiently manage subvention fees. For example, when a student buys a course through a no-cost EMI, the NBFC pays the educational institution 2.25 lakhs upfront and retains the remaining 10 percent as subvention income.

  • Synoriq LMS allows you to amortize the subvention schedule OR book it upfront based on the configurations.

  • Ability to handle subvention as fee income/interest income.

3. Dual Repayment Schedule Views: Synoriq LMS introduces a dual repayment schedule view, seamlessly presenting repayment schedules from both customer and accounting perspectives.


4. Real-time IRR Visibility: The system ensures constant visibility of Internal Rate of Return (IRR) on loans, allowing for better tracking and informed decision-making.


5. Advance-EMI (Downpayment) Capabilities: Synoriq LMS supports the collection of Advanced EMI (Downpayment), factoring these payments into IRR calculations.


6. State-specific GST: Recognising the diverse tax regulations across states, our system accounts for varying taxation on subvention amounts, ensuring compliance and transparency.

  • GST on Subvention fee is handled based on Partner’s state.

  • GST on PF is handled based on Customer’s state.

7. Tranche-based Disbursement: The system accommodates tranche-based disbursements. For instance, disbursing only 50% of the amount initially and the remaining 50% after 6 months helps in managing the risks better.


8. Hassle free partner institute onboarding: Our admin panel gives you the capability to onboard a new partner through a simple and hassle free form in just a few minutes. Also define subvention configuration for the institute.


9. Parent level limit - In case of loan provided to the guardian or a parent, a limit can be assigned to not exceed a set limit of outstanding principal amount. This way exposure to different loans for their multiple kids can be clubbed together from a risk management perspective.


10. Dynamic Partnership Configurations: Whether forming partnerships or operating independently, Synoriq LMS adapts to different schemes and product configurations. Our user-friendly admin panel enables swift configuration, allowing institutions to create tailored products and schemes in just 10 minutes.


Synoriq LMS stands as a versatile and efficient tool, addressing the multifaceted challenges posed by education loans and providing a streamlined solution for financial institutions, students, and educational partners.




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