A Rising Trend in the Non-Performing Assets in the Education Loan Category: A New Concern for Indian Banking Industry

Education loans play a vital role in providing financial support to students, and surmounting Non-performing assets (NPAs) could affect credit growth, hindering access to quality education and impacting the economy's productivity. Understanding the relationship between macro factors and defaults will help predict future possibilities and mitigate risks in the education loan sector. Against this backdrop, this study investigates the relationship between the macro conditions of the country on the NPAs, in the context of India. While education loans are crucial for skill formation and enhancing productivity, the increasing NPAs are concerning, as they may lead to potential dropouts due to financial constraints. The study focuses on macro factors like gross enrollment ratio, the number of higher education institutions, and the unemployment rate to explain the defaults in educational loans. However, the study does not find a statistically significant impact of these macro factors on surging NPAs. It suggests future research should explore borrower-specific and loan category-specific factors, such as gender, course opted, interest rates, collateral, credit risk analysis, and loan duration. Banks can use the findings to reassess their lending strategies and risk assessment models for educational loans. Policymakers can utilize the results to design targeted interventions and policies to address NPAs and ensure access to education for meritorious students. Students may benefit from improved loan terms and increased availability of educational funding options.