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Tamil Nadu has accounted for 45% of all incremental education loans between FY13 and FY15. Of the total loan growth of Rs 6,597 crore in these two years, loans in Tamil Nadu have grown by 2,969 crore.

The data released gains significance in light of the recently-elected AIADMK's election manifesto promise to waive off student loans and farm loans. The election manifesto coincided with the rise in defaults which had compelled to State Bank of Travancore to sell some of its defaulting education loans to asset reconstruction companies. A large part of the education loans in the state are advanced by the troubled Indian Overseas Bank and Indian Bank.

The numbers were provided in a reply to a query in the Lok Sabha, minister of state for finance, Santosh Gangwar on July 22. In his reply the minister said that banks were not allowed to seek collateral for loans up to Rs 4 lakh and the government has launched a Credit Guarantee Fund Scheme wherein no collateral or third party guarantee were required for loans up to Rs 7.5 lakh.

May this year, Reserve bank of India governor Raghuram Rajan had cautioned against unscrupulous institutions mushrooming to take advantage of this collateral-free loan. "Given the need to broaden access to all the deserving, we have to make degrees affordable. One part of the solution is student loans, but we have to be careful that student loans are repaid in full by those who have the means, while they are forgiven in part for those who fall on bad times, or those who take low paying public service jobs. We also should make sure that unscrupulous schools do not prey on uninformed students, leaving them with high debt and useless degrees," Rajan had said.

According to the data, education loans outstanding as on March 2015 stood at Rs 59,336 crore - an increase of 12% from March 2013. Topping the list of states with the highest growth in absolute terms is Tamil Nadu which has grown 22% to Rs 16,313 crore. The state - which ranks number six in terms of population - has seen its share to total education loans in India rise to 27.5% from 25.3% in FY13. Other states which have shown high growth in education loans are Bihar (Rs 842 crore), Andhra Pradesh (Rs 744 crore), Maharashtra (Rs 458crore) and Kerala (Rs 434 crore). West Bengal and Rajasthan, despite their sizeable population do not make it to the top ten in terms of education loan portfolio.

Interestingly, barring HDFC Bank and Lakshmi Vilas Banks, all private banks are aggressively growing their education loan portfolio between FY13 and FY15. The bank's with the highest market share are SBI (22%), Canara Bank (9%), Punjab National Bank (7%), Indian Overseas Bank (6.5%) and Indian Bank (5%).

Even as banks complain about rising bad debts in unsecured education loans, private lenders such as Credila and Avanse are seeing a big opportunity in lending for higher education particularly for reputed institutions. According to specialised lenders, PSU banks are unable to recover their student loans because of their lack of engagement with student and because they do not have the wherewithal to appraise international institutions.