India's overseas education loan market is experiencing a significant slowdown, particularly for students planning to study in the United States. Industry sources report a sharp drop in loan applications for the fall 2025 academic season, a trend directly linked to recent changes in U.S. visa policies that affect post-graduation work opportunities.
Financial institutions that have heavily invested in this sector are now facing uncertainty after years of consistent double-digit growth. The decline marks a notable shift in a market that has long been a reliable growth engine for many lenders.
Key Takeaways
- Loan demand for U.S. studies has fallen sharply for the Fall 2025 academic season, the first major decline in decades.
- The downturn is primarily attributed to stricter U.S. H-1B visa policies, which create uncertainty about post-study employment.
- Many high-achieving Indian students are now voluntarily opting to stay in India rather than pursue U.S. education.
- Non-Banking Financial Companies (NBFCs), which hold a significant share of the market, are now re-evaluating their strategies and exposure to the U.S. market.
A Sudden Downturn in a Booming Market
For years, the overseas education loan sector in India was a story of rapid expansion. Driven by a growing middle class and a large pool of English-speaking students, demand for financing studies in countries like the U.S., UK, and Canada grew consistently. However, the landscape has changed dramatically for the Fall 2025 intake.
Industry insiders have reported an unprecedented decline in loan applications, especially for the U.S. market. One source described the August peak season as "much weaker this year," adding, "We have never seen such a decline in premium borrowers." This downturn follows a period where the sector outpaced most other retail lending categories.
The H-1B Visa Connection
The H-1B visa is a non-immigrant visa that allows U.S. employers to temporarily employ foreign workers in specialty occupations. For many international students, it is the primary pathway to gaining work experience in the U.S. after graduation. Recent policy changes, including significant fee increases, have made this route more difficult and uncertain, directly impacting the decisions of prospective students and their families.
Bankers have pointed to the U.S. policy environment as the main driver of this slowdown. The administration's focus on tightening the H-1B visa program has created a perception of instability for international graduates seeking employment. While current students are exempt from some changes, the signal to new applicants is strong enough to deter them.
A Shift in Student Aspirations
Interestingly, the drop in loan applications is not due to a higher rate of visa or university rejections. Instead, it reflects a conscious decision by students and their families to reconsider their plans.
"This decline is largely voluntary and not because of visa or application rejections," an industry executive noted.
This trend is particularly concerning because it involves high-caliber students. According to another source, many of the students choosing to remain in India have strong academic records and test scores. These are candidates who, in previous years, would have been prime candidates for top U.S. universities and subsequent high-paying jobs.
Furthermore, the demand is not simply shifting to other countries. While Canada, Australia, and parts of Europe remain popular, they are not absorbing the volume of students who have opted out of the U.S. The U.S. remains the largest and most significant market for Indian overseas education loans, making the current downturn particularly impactful.
Impact on India's Financial Lenders
The slowdown poses a significant challenge for Indian financial institutions, especially Non-Banking Financial Companies (NBFCs) that specialize in education loans. Companies like Credila Financial Services and Avanse Financial Services have built substantial businesses around financing overseas studies.
NBFCs Dominate the Market
Over the past decade, NBFCs have aggressively expanded their presence in the education loan sector. Their market share grew from just 11% in 2016 to nearly 45% by 2024, often outpacing traditional banks with faster processing times and more flexible loan products.
These specialized lenders are now feeling the pressure. For instance, nearly two-thirds of Credila's assets under management were linked to overseas education as of March 2025. Avanse Financial Services has also surpassed Rs 10,000 crore in assets under management, with a large portion of its portfolio dedicated to students going abroad.
Diversification and Risk Management
While these companies have tried to diversify their portfolios by lending to students heading to Europe and Australia, the U.S. market's dominance means the current drop cannot be easily offset. Credila's disbursements to U.S. universities saw a double-digit fall in FY25. Lenders are also contending with the depreciation of the Indian rupee, which has increased the overall cost of overseas education by 10-15%.
Looking ahead, one source predicted that "FY26 loan growth for the education loan market is expected to decline in double digits." In response, lenders are remodeling their strategies. They are focusing on geographies with clearer job pathways, tightening underwriting standards, and in some cases, requiring higher collateral.
Regional Trends and National Data
Data from the Reserve Bank of India (RBI) highlights the scale of the education loan market. The southern region of India accounts for almost half of all outstanding education loans in the country.
- Tamil Nadu: Leads with Rs 8,785.66 crore in outstanding loans as of 2024.
- Kerala: Follows with Rs 8,293.14 crore.
- Maharashtra: Holds Rs 6,715.22 crore.
- Karnataka: Has Rs 5,812.43 crore in outstanding loans.
While the market has been large, the pace of growth had already started to slow. Overall lending to the education sector grew by 15% in 2025, down from the 19-24% range seen in 2023 and 2024.
On a positive note, the asset quality of these loans has improved recently. The gross Non-Performing Asset (NPA) ratio for education loans fell from 5.8% in March 2023 to 2.7% by September 2024. Repayments have remained stable for now, but there are concerns this could change if fewer graduates secure high-paying jobs abroad.
Leading NBFCs currently report strong asset quality, with Credila's gross NPAs below 1% in March 2025. This resilience is partly due to structural safeguards, such as having earning co-borrowers on over 70% of their loans. However, the medium-term risk is clear: if the trend of declining overseas placements continues, it could lead to stretched repayment cycles and rising delinquencies.
