Degrees on credit: Will students fund their education with shares?

As per the just-out NEET UG 2025 results, more than 12 lakh students have made it to an MBBS seat in India, and 11 lakh other candidates have cleared the JEE Mains 2025 for engineering. MBAs are also much in demand, with almost seven lakh students joining postgraduate management courses every year.

THE LOAN TRAP

Those days are gone when the savings of a parent were enough to fund education at the higher level. Now it is seen that families opt for huge loans, they borrow money from friends and relatives, or are forced to sell houses on the hope that a degree from a well-known institution for their children would culminate in a fat career prospect. As per RBI, the outstanding student loan balance stood at Rs 1.31 lakh crore as of November 2024. 17% up from last year. The Indian Banks' Association also mentioned that loan disbursements have increased at a 10% CAGR between 2015 and 2023, over 25,000 crore per annum.

Alas, repayment is an issue. Education loan NPAs (non-performing assets) were 7.61% in FY20, showing that most borrowers find it hard to repay what they borrow.

ALTERNATE MODELS

A number of nations are looking into new models of finance, including crowdfunded investment in education, skills-based repayment arrangements, equity-based financing of education, Human Capital Contracts (HCCs), and even Income-Share Agreements (ISAs). This involves the student agreeing to pay a fixed percentage of their future earnings rather than paying a conventional loan.

"In 2019, a study by Forbes revisited Milton Friedman's 1955 concept of Income-Share Agreements," says Dr. Girish Jain, Chairperson of Admissions and Professor of Finance at BIMTECH, Greater Noida. He refers to Purdue University's 'Back a Boiler' program, which started in 2016, where one engineering graduate opted for an ISA instead of a traditional loan, promising to repay 8% of his income for 10 years, up to a reasonable cap.

THE NEP OPPORTUNITY

Dr. Jain opines that to make these models operate in India, financial literacy needs to be integrated into higher education coupled with scholarships, boot-camps, and government subsidies. The National Education Policy (NEP) 2020 with its vision of achieving 50% gross enrolment in higher education by 2035 could become the model for these funding concepts.

India Inc. can also take a game-changing initiative. Dr. Jain has a compelling vision: "Picture this: TCS finances 1,000 tech students every year through income-based repayment terms. Graduates repay 5–7% of their salaries over eight years, but only if they are placed. It's not charity — it's a smart bet on talent. CSR gets smarter — synchronized with ESG objectives and talent needs."

Even HDFC was able to finance management students, who pay through a share of their bonuses. Risky? Maybe. But revolutionary? Absolutely.