Exploring Shift From Degree-backed to Skill-based Education Loans In India
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In India, education loans have long been associated with degree-focused financing, primarily funding traditional programs in engineering, medicine, and management. However, the education landscape is shifting, with increasing emphasis on practical skills and industry relevance. This evolving trend is driving demand for skill-based education loans, as students and young professionals seek faster, more affordable paths to employment.
Why the Shift to Skill-based Loans?
Traditional education models are struggling to keep up with rapidly changing industry requirements. As automation and AI, and other technologies, increase, employers are changing their value proposition from degrees to skills. This is in line with the National Education Policy (NEP) 2020 of India that prioritizes vocational training, digital literacy, etc. Students are pursuing skill-oriented courses to upskill and increase the chances of landing better job opportunities.
The skill-based education offers flexibility, relevance, and increases the chance to access better jobs, therefore students are able to respond to the demand of a dynamic market. As a result, loans are not only to finance a long-term course but are increasing to provide access to courses in how to gain skills, get certified, and retrain.
Growing Demand for Skill-based Education Loans
As per the Ministry of Skill Development and Entrepreneurship, the demand for skilled labor in India could rise to 109 million by 2025. This is creating a demand for skilled-based training in IT, healthcare, leisure and logistics. One advantage of skill-based loans is the relatively low cost and short duration of these courses, making them appealing to students from lower and middle-income families. Although it takes many years to finish traditional degrees, skill-based training allows students to finish within a few months and get into the job market sooner, thereby enabling them to repay their loans sooner.
Factors Driving the Shift
1. Changing Employer Preferences: Today’s employers give priority to practical experience and specialized skills in comparison to degree-based knowledge. The skill-based education courses make it easy for candidates to respond to all these demands quickly and a significant proportion of employers prefer to hire candidates with high skillsets rather than candidates with a traditional degree.
2. Affordability and Accessibility: Skill-based training is typically less expensive and is becoming more accessible via the internet. This makes them available not only to university students at remote places but also other categories of users such as students in the remote areas, thus opening up new access and attracting different demographics.
3. Government Support and Policy Initiatives: The Indian government, through the National Skill Development Corporation (NSDC) and the NEP 2020, has made considerable efforts to promote skill-based education and financing. These initiatives aim to boost “Skill India” by making education loans more conducive to vocational training.
Benefits of Skill-based Education Loans
1.Shorter Tenure, Faster Returns: Short-term programs have a consequence of a shorter loan term, thus reducing the interest burden on students.
2.Flexible Loan Amounts: The cost of skill-based programs is lower, hence students have less money to borrow and repayment is easier as there are manageable EMIs.
3.Reduced Financial Burden on Families: For families who cannot afford the high-cost impact of conventional education, skill-based loans provide a more affordable route to career advancement.
Role of Financial Institutions and NBFCs
With the increasing demand for skill-based education, financial institutions and Non-Banking Financial Companies (NBFC) are increasing their portfolio with the new loans. There are many institutions working together to offer flexible installment of credit at a market rate of interest to education platforms. This partnership not only benefits the students but also the industry need for skilled people in India.
Additionally, some institutions are partnering with educational providers, giving students access to financing and quality resources, creating a beneficial ecosystem for education and skill development.
Challenges and the Way Forward
Despite the promising transition to skill-based loans, there are challenges. Even today, students and families specially in the rural and semi urban areas have the belief that degree-based learning is the inevitable route to success because of the longstanding societal perception. Securing skill-based loans can be challenging in Tier 2 and Tier 3 cities where financial literacy and accessibility still remain limited.
To overcome these issues, financial institutions, governmental agencies, and educational institutions should collaborate. Awareness campaigns, faster credit approval, and government aid to skill-oriented education may all help to eliminate these hurdles, allowing people to take on loans for skill-oriented education.
India’s education loan market is slowly moving away from a degree-driven model towards a skill-oriented model, based on the changing job market demands. As India aspires to be a global talent powerhouse, this shift will guarantee that its future workforce is competitive and agile. Skill-based loans are also enabling students from a variety of backgrounds with high-quality education to provide them with job-relevant, practical skills. This trend towards competency-based financing is leading to a more competent, productive and employable work force in India.
The author is CEO & Co-Founder of Varthana
