H1B Visa cost hike could further dampen demand for overseas education loans

Representational image

The steep hike in H-1B visa application fees from $100 to $100,000 announced by US President Donald Trump is likely to intensify the slowdown already weighing on India’s overseas education loan market.

Industry sources told Moneycontrol that demand for loans tied to the US fall academic season of 2025 has dropped sharply compared with Fall 2024, marking the first such prominent decline in decades. “August, which is the main season for overseas loans, has been much weaker this year. We have never seen such a decline in premium borrowers,” one source said.

Bankers, speaking off the record, attributed much of this weakening to the US policy environment under Trump, whose administration has consistently targeted the H-1B program, which is the primary route for international students to transition into the American workforce.

While the proclamation exempts students already in the US or those switching from student visas to H-1B, the message is clear enough to deter new applicants, according to a Moneycontrol explainer.

“This decline is largely voluntary and not because of visa or application rejections,” said another industry executive. “We are finding that students who are choosing to stay back in India are often those with very good test scores and strong academic potential, and candidates who, in earlier years, would have gone abroad and secured high-paying jobs.”

Importantly, the fall in demand is not being offset by a shift to other countries.

“It is not that this demand is migrating elsewhere,” another source explained. “The US remains the largest overseas education loans market from India’s perspective. But the uncertainty around post-study work opportunities is making families pause.”

After years of double-digit growth

The slowdown comes after a period of rapid expansion. Since 2018, the education loan business, particularly for overseas studies, had delivered consistent double-digit growth, outpacing most other retail categories. A rising aspirational middle class, combined with India’s large pool of English-speaking students, ensured that universities in the US, Canada, the UK, and Australia were top destinations for Indian graduates.

According to Credila Financial Services, the first NBFC to specialise in education finance, nearly two-thirds of its assets under management as of March 2025 were linked to students pursuing higher education abroad.

Similarly, Avanse Financial Services has crossed Rs 10,000 crore in AUM, with overseas-bound students forming the bulk of its portfolio.

Yet despite diversification into Canada, Europe, and Australia, the US market has remained the most critical, and it is here that the stress is most visible.

Regional spread and credit trends

RBI data shows that education loan outstanding in India’s western region rose by 43.7 percent between 2016 and 2024, while the north grew by 37.7 percent. The southern region dominates, accounting for nearly half of all outstanding education loans. Tamil Nadu leads with Rs 8,785.66 crore as of 2024, followed by Kerala (Rs 8,293.14 crore), Maharashtra (Rs 6,715.22 crore), and Karnataka (Rs 5,812.43 crore).

From a banking perspective, however, growth has already slowed.

Lending to the education sector expanded by just 15 percent in 2025, down from 19–24 percent in 2024 and 2023.

Asset quality, though, has improved.

The RBI’s Trends and Progress of Banking report notes the gross NPA ratio for education loans fell from 5.8 percent at end-March 2023 to 3.6 percent at end-March 2024, and further to 2.7 percent by September 2024. For now, sources have indicated that repayment remains stable but could weaken if placements abroad decline further.

NBFCs most exposed

For education-focused NBFCs like Credila and Avanse, the risks are sharper.

Both have built their businesses on financing overseas studies, particularly master’s programs in STEM and management. Credila disbursed over Rs 15,000 crore in FY25, serving more than 6 lakh students. Avanse has expanded aggressively in Tier 2 and Tier 3 cities to tap aspirational demand. Together, NBFCs lifted their share of the education loan market from 11 percent in 2016 to nearly 45 percent by 2024, outpacing banks with faster processing and flexible products.

But this reliance may leave them vulnerable when US demand falters.

Credila’s net loans grew at a CAGR of over 36 percent between FY21 and FY25, but disbursements to US universities fell by double digits in FY25 as students increasingly looked at Europe and Australia.

Avanse, meanwhile, flagged that rupee depreciation has raised effective costs by 10–15 percent.

“FY26 loan growth for the education loan market is expected to decline in double digits,” one source said. “Most companies are already remodeling their overseas exposure, looking at geographies where job pathways are clearer. At the same time, the rupee’s depreciation is weighing on families’ decision-making.”

Repayment risks ahead

So far, asset quality at leading NBFCs remains strong, sources affirmed.

Credila reported gross NPAs below 1 percent in March 2025. Much of this resilience stems from structural cushions, with over 70 percent of Credila’s loans backed by earning co-borrowers, ensuring repayment capacity even if a student struggles abroad.

According to Credila’s disclosures, however, the medium-term risks are clear.

If fewer students secure overseas jobs, repayment cycles could stretch, leading to rising delinquencies. To manage this, they are exploring tighter underwriting, higher collateral, and greater diversification into Canada, Europe, and Australia, which are actively courting Indian students with more generous visa regimes.