The aspiration for an American degree has inspired generations of Indian students. Each year, thousands travel to the United States to pursue master’s degrees, MBAs, or PhDs, largely financed through substantial education loans from Indian banks and non-banking financial institutions (NBFCs). However, this surge in outbound students is accompanied by a growing and concerning financial risk—one that could soon lead to a significant crisis of non-performing assets (NPAs) for Indian lenders.
Disbursal is Booming — And So is the Risk
In the fiscal year 2023-24, Indian banks disbursed ₹36,448 crore in education loans. The total outstanding amount for education loans reached ₹90,000 crore. A significant portion—estimated to be over 50%—is allocated for financing foreign education, with the United States being the most popular destination. Most of these loans are unsecured, meaning they are not backed by assets but rather by the expected future income of the student. This credit model is based on the assumption that earning a degree from a U.S. institution guarantees high-paying employment and the ability to repay the loan within a few years. However, this assumption no longer holds true.
Why Indian Banks are Staring at Massive NPAs?
- US Job Market Contraction
The sectors that traditionally absorbed international graduates, particularly tech and finance, are now shrinking or stagnating. Since 2022, US-based tech giants have implemented mass layoffs, and startups have frozen hiring. As a result, the overall demand for international talent at the entry level is declining. Thousands of Indian students, after spending between $50,000 and $100,000 on tuition and living expenses funded by loans, are graduating into a job market that cannot absorb them.
- H-1B Visa Uncertainty
Even when students manage to secure jobs, they face a challenging visa lottery system for long-term employment. Many capable graduates are forced to leave the US after exhausting their Optional Practical Training (OPT) period without securing H-1B status. Without a job in the US, they lack the USD income necessary to repay USD-denominated loans. This leads to increasing delays in repayment for Indian banks, ultimately resulting in defaults.
- AI Automation Impact
Generative AI tools like ChatGPT, Copilot, and Claude have begun automating roles in software engineering, data science, technical writing, and even analytics—fields that many Indian students often target. As entry-level opportunities vanish or become saturated, international graduates are becoming less employable, even with expensive US degrees. The return on investment (ROI) of a US degree is eroding, while loan liabilities remain unchanged.
- Growing Hostility and Safety Concerns
There has been an alarming rise in racist incidents, hate crimes, and anti-immigrant sentiment in the US, making it harder for Indian students to integrate socially or professionally. Several students have died under suspicious or violent circumstances in recent years, and reports of housing or workplace discrimination are increasing. This growing hostility negatively impacts mental health, limits access to local networks, and further undermines employment prospects. Many students are returning home earlier, often without jobs and burdened by large unpaid loans.
The Financial Fallout: Non-Performing Assets (NPAs)
The current education loan model is creating significant challenges for Indian banks. Financially, these loans are high-risk and offer low control. With over ₹90,000 crores in outstanding loans, even a modest default rate of 10-15% could lead to non-performing assets (NPAs) ranging from ₹9,000 to ₹13,500 crores. In reality, the delinquency rate in US-bound education loans could be much higher. Most banks do not publicly break out foreign education NPA rates, but NBFCs have already raised red flags about slow repayments and rising restructuring cases.