Active educational loan accounts in Tamil Nadu declined drastically in last decade

Although students from Tamil Nadu remain the leading recipients of educational loans across India, there has been a significant decline in the number of active loans they hold. Given that this student group has been the most active borrower in the country in the last decade, this sharp downward trend warrants a closer analysis.

The chart below shows the number of active educational loan accounts in lakh across India between FY16 and FY25. The number decreased from 27.4 lakh accounts to about 20.1 lakh in the period. The fall can be mostly attributed to the fall in Tamil Nadu’s numbers.

The chart below shows the number of active educational loan accounts in lakh in Tamil Nadu between FY16 and FY25. The number drastically reduced from 9.1 lakh accounts to 3.1 lakh in the period. It is important to note that these are active loan accounts and so they do not include those which were completely repaid or written off.

The decline in active student loan accounts across India is primarily driven by the sharp contraction in such accounts in Tamil Nadu.

This is due to the fact that students from Tamil Nadu initially accounted for a disproportionately large share of education loans nationwide; consequently, even after a significant reduction, their borrowing volume remains high enough to dictate the overall trend.

The chart below shows Tamil Nadu’s share in active educational loans over the years. Between FY16 and FY20, about 30-35% of India’s educational loans were garnered by students in Tamil Nadu.

Notably, in this period, only Kerala came close with students in the State forming about 12% of the outstanding educational loans in the period, followed by Maharashtra and Karnataka, each at about 8%. Even after the decline, Tamil Nadu’s students formed 15% of India’s outstanding education loans in FY25, the highest share for any State.

Notably, when borrowing by Tamil Nadu students is excluded from the national total, the number of active loan accounts in India remains remarkably stable.

The chart below illustrates this trend between FY16 and FY25. It shows that, barring a temporary dip during the pandemic years, loan volumes across the rest of the country have held steady rather than declined.

Notably, the decline in active loan accounts in Tamil Nadu is not only because of the pandemic, with numbers trending downward consistently since FY16. This raises a critical question: is this sustained decline a result of sharply reduced accessibility within the State, or is it a market correction — a return to the ‘expected volume’ after an era of arguably inflated figures driven by overly liberal lending policies?

While the number of active loan accounts may have decreased, the amount of outstanding loans has increased. This essentially means that while the number of loan takers reduced, the loan taken per borrower has increased.

The chart below shows the amount of outstanding educational loans in crore between FY16 and FY25. The amount increased from around ₹55,000 crore to over ₹1,15,500 crore.

Consequently, the loan disbursed per account increased from about ₹3 lakh to ₹6 lakh in the period, as shown in the chart below.

A report published in December last year by a parliamentary standing committee argued that these figures collectively suggested a decline in accessibility of educational loans over time despite rising educational costs. It also recommended efforts to ensure access to educational loans to the maximum number of students in the country, and to accord priority to families Below Poverty Line.