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. Currently, there are around 98,000 students from India pursuing advanced degrees in the United Kingdom.
Facing rising budget deficits, US and UK universities aggressively seek to enroll Indian students. Many of them pay $5,000 or more to admission consultants and agents in India for every student they help enroll.
Most US universities offer scholarships to try and recruit some foreign applicants. But they cover only 10 percent to 20 percent of the fees. Also, such teaser funding is given to applicants with work experience who are likely to find jobs upon graduation and hence boost a course’s job placement rate. The universities expect the applicants, feeling honored to receive the scholarship, will eagerly borrow money to pay for most of their fees and expenses.
Most students from India studying abroad are not from wealthy families. Typically, they borrow $100,000 to $200,000 from Indian banks to pay for the fees and expenses in the US, depending on whether they are pursuing one-or-two year-Master’s degrees. Education loans of Indians studying in the UK range from $35,000 to $70,000.
Each year, banks in India lend an estimated two billion dollars to Indians pursuing degrees in foreign countries. Since 2017, such loans are estimated to total more than $11.4 billion, according to PIE, a UK based education information business. The bulk of 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.
The loans by the Indian banks are effectively a big source of funding for foreign universities, mainly in the US and UK. Students from India account for nearly a third of all foreign students and more than 1.5 percent of all students at US higher education institutions.
For reasons not made public, the Reserve Bank of India does not disclose the total foreign education loans made by Indian banks. Nor does the central bank disclose the default rates on the foreign education loans. 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 Reserve 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 $100,000 fees and other restrictions on work visas for foreigners while the UK has stopped the automatic issuance of three-year work visas to foreign graduates.
The annual 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. This 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.
Indian banks can halve their foreign education loans and instead provide annual funding for at least ten new institutes in India, which offer advanced AI and related skills to 10,000 undergraduate students. Also, with each new AI institute receiving twice the funding as an IIT, they can hire top quality faculty and install some of the latest equipment.
Creating an advanced pool of AI and related talent will lead to formation of startups, enable domestic companies to expand into AI-related businesses, attract jobs from foreign companies and modernize defense capabilities.
The bank funding to the new institutes can be in the form of loans backed by the government. Even if the entire loan has to be written off by the government, it will be only three percent of the $30 billion in annual non-performing commercial loans made by the banks.
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