How US and UK Universities Get Funded by Indian Banks

Indian government-run banks should reduce foreign education loans and fund advanced AI institutes in India

December 21, 2025

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In the 2024-25 academic year, there were 363,000 students from India at colleges and universities in the United States, according to a report released last month by the New York based Institute of International Education. This year, there are around 98,000 students from India pursuing advanced degrees in the United Kingdom.

Last year, students from India spent at least $24 billion on fees and other costs to study in the US. This is based on the $67,000 cost of pursuing an MS degree at a state school such as Arizona State University. The costs are higher at private schools. In the case of the UK, this year students from India will spend at least $4 billion. This is based on $40,000 annual fees and other costs for pursuing an MS degree at the University of Manchester.

Most Indians who study abroad are not from wealthy families. They borrow $65,000 to $200,000 from Indian banks to pay for the fees and other expenses in the US, depending on whether they are pursuing one-or-two year-Master’s degree. Indians studying in the UK borrow loans ranging from $40,000 to $90,000.

US and UK universities face large, rising budget deficits, with even some major ones having to cut faculty and staff. To raise more fee revenues, they aggressively pursue several strategies to try and enroll more Indian and other foreign students. They have rapidly expanded the number of Master’s programs, especially in science, technology, engineering, and math (STEM). Some universities, especially in the big cities, offer more than a hundred MS programs.

MBA programs, including at the top schools in the US, have been transformed into STEM degrees. This is to increase their appeal to foreign students, since, upon graduation, they will qualify for a three-year practical training work visa, compared to a one-year visa for those with non-STEM degrees - assuming they can find a job.

Many US and UK universities have boosted the capacity of STEM Master’s programs, which have better job prospects and are hence popular with foreign students. To fill up the capacity, they have lowered admission standards, including not requiring scores on even the basic Graduate Record Examination, let alone advanced test scores. As a result, the class size of popular STEM MS programs at some universities exceed one thousand students, mostly foreigners. The universities ignore the fact that this sharply reduces the chances of a foreign student finding a job upon graduation.

A key part of the marketing strategy of many US and UK universities is paying $5,000 or more to admission consultants and agents in India for every student they help enroll. Typically, receipt of such payments are not disclosed by the consultants, who also charge the applicants a fee.

Another strategy of many US universities is to offer scholarships. Typically, in programs with large class sizes, they are given to students with work experience who are likely to find jobs upon graduation. This helps boost the program’s job placement rate and makes it more appealing to future applicants. The scholarships though are similar to teaser discount coupons offered by a detergent maker trying to sell more soap - they cover only 10 percent to 20 percent of the fees. And yet, many Indians, feeling honored to win a scholarship award, eagerly borrow large sums to pay for 90 percent of the fees and all the expenses.

According to an estimate by Zerodha, an Indian finance company, foreign education loans made each year by Indian banks total two billion dollars. The current annual lending may likely be more than $14 billion, based on spending by Indian students for their education in the US and UK. It is odd that the Reserve Bank of India, the country’s central bank, does not disclose the total foreign education loans made by Indian banks. The loans are made by the State Bank of India, Indian Bank, Bank of Baroda, and other major banks, which are owned by the Government of India. They effectively provide a big source of funding for foreign universities, mainly in the US and UK.

Even assuming a low $2 billion estimate, the foreign education lending by Indian banks is more than one and half times this year’s $1.3 billion total budget of the 23 Indian Institutes of Technology (IIT). In the current academic year, these world-renowned engineering colleges admitted 18,200 undergraduate students - one in 80 applicants - based on rankings on entrance exams from a pool of 1.4 million applicants.

The Reserve Bank of India also does not disclose the default rates on foreign education loans made by Indian banks. In 2024, two percent of loans outstanding, borrowed by students at both foreign and Indian institutions, were in default, among the highest default rates on consumer loans made by banks, according to the central bank.

Starting this year, more Indian students will likely default on their education loans. Far fewer of them will find jobs upon graduation in the US or UK, which typically helps them repay their loans. This is because the US has imposed a $100,000 fee and other restrictions on work visas for foreigners while the UK has stopped the automatic issuance of three-year work visas to foreign STEM graduates.

By now, the Reserve Bank should have enough data to identify courses, degrees and universities in the US and UK, which enroll students from India, that have rates of default on education loans. Combining this insight, with the impact on job prospects for students from India under the new US and UK work visa policies, should enable the government run Indian banks to sharply reduce their lending for foreign education loans.

Indian banks can halve their foreign education loans and provide annual funding for at least ten new institutes in India, which offer advanced artificial intelligence (AI) and related skills to 10,000 undergraduate students. With each AI institute receiving twice the funding as an IIT, they can hire top quality faculty and install some of the latest equipment. The bank funding to the AI institutes can be in the form of loans backed by the government.

Commercial loans made by Indian banks which are currently in default, or non-performing commercial loans, total $30 billion. Almost all such loans are on the books of government-owned banks. Typically, more than 80 percemt of such loans are written off as losses by the banks. In the case of the government-run banks, the losses are effectively absorbed by the government.

Even if the entire loan, made by the government-run banks to the new AI institutes, have to be written off, it will be only three percent of the defaulted commercial bank loans. Meanwhile, the funding will create an advanced pool of AI and related talent, catalyze the formation of startups, enable domestic companies to expand into AI-related businesses, attract jobs from foreign companies seeking AI talent, and modernize defense capabilities.

The story was updated 1.15.2026.

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