This week investment bank Goldman Sachs announced a partnership with US-based fintech provider MPOWER Financing to open up a new US$150 million financing facility for educational loans.
The partnership is part of a growing investment portfolio from Goldman Sachs in education products, which already includes Prodigy Finance, which raised over US$2.1 billion in seven rounds of investment from funds like the Canada Pension Plan.
Growing venture capital investment in fintech and lending in the education sector is attracting a wide range of new and existing players into the market, looking to diversify their income streams.
Martin Basiri, one of the founding partners of ApplyBoard, recently attended the ASU-GSV conference promoting the imminent launch of a new loan-comparison platform called Passage, expected to come online later this year and attract investors.
“Four in five students [in India] actually ask for extra funds”
Increased outbound student mobility, especially from India, to the major anglophone destinations has been fuelled by improved access to loans to pay for tuition fees and expenses.
The provision of globally secure student loans is being seen as the way to open up the potential from markets linked to rapid population and socio-economic growth in the next 25 years, including Indonesia and Nigeria.
Sasidhar Sista, co-founder of GradRight, which is part of the growing breed of ed-financing companies in India that combine application counselling with financial products, spoke to The PIE about the growing demand.
“Four in five students [in India] actually ask for extra funds,” Sista explained.
“There’s a huge pressure on scholarships and loans and [in the meantime] the tuition fees are increasing. There is an immense pressure on finding loans for bright students.”
GradRight has witnessed ‘significant growth’ across the student finance sector even as new players ‘jump in’, speculating a 35% compound annual growth rate of disbursements of funds for student loans, to the tune of $1 billion.
Financial loans offered by GradRight are backed by financial institutions such as Yes Bank, IDFC First Bank and ICICI Bank in India and are open to eligible applicants seeking to study abroad.
In the first quarter of 2022 the number of Indian students applying for education loans through Prodigy Finance grew by 98%, the company said last year.
Loans can take up to 30 days to be approved and require the involvement of family and often collateral.
Despite the proliferation of loan products and growing choice for students from India, Sista was quick to point out the narrow terms of financial products for students relating to their graduate earnings.
“There is literally a lack of innovation in financial products for students and different programs have different kinds of outcomes in their careers,” he said.
“There is literally a lack of innovation in financial products for student”
“We are still working within the loan segment but I think there is an ample opportunity to bring in income sharing agreements and a lot of different formats of funding schemes.”
Just this week, US president Joe Biden, extended measures to erase $42bn in student debt for people who had completed 10 years career service in the public sector, in recognition that student loan systems require flexibility on repayments relating to graduate career outcomes and earnings.
The education-loans market in India is split by providers who simply curate financial products from other sources, and providers who use capital investment to create their own funding systems. Similarly, not all companies are backed by venture capital, instead raising debt-funded capital that will need to be repaid.
Leverage works with institutions such as State Bank of India, Canara Bank, Syndicate Bank, InCred and Allahabad to provide loans. KC Overseas has invested in a fintech division called ÉLAN Loans, while UniAcco tied up with the largest institutional lender in India for student loans in 2020.
Leap Finance, which had generated $150m in funding from venture capital funds such as Owl Ventures by 2022, classifies itself as a neo-bank, an online-only provider of its own unique student loans that reflect favourable interest rates seen in other parts of the world, for Indian students.
In Africa, 8B Education Investments recently announced plans to provide up to $30m in loans to help African students access higher education abroad.
The partnership between MPOWER Financing and Goldman Sachs is part of a wide portfolio of investors in the company totalling $500m, that also includes ETS Strategic Capital, the investment division of the leading educational research, assessment and learning company.
