Are private universities the next NBFC crisis?

What happens when a university exists more on brochures than on campuses, more in land registries than in lecture halls? In India’s rapidly expanding private higher education sector, this question is no longer hypothetical, it is structural.

India's private university boom bears an uncanny resemblance to the reckless expansion that triggered the 2018 NBFC collapse; only this time, the toxic assets aren't bad loans, but the futures of millions of students. What was once celebrated as educational liberalisation now shows troubling signs of becoming a speculative bubble, one that risks leaving millions of students stranded.

Since 2014, over 150 private universities have been approved in India under progressively liberalised norms. The University Grants Commission (UGC)’s 2016 amendment reduced the requirement for ‘deemed-to-be-university’ status from 10 years of operation to just five, triggering a wave of new entrants. This policy shift led to a 153% increase in private universities, compared to a mere 12% rise in public institutions over the same period. However, 40% of these private universities now report enrolment below 500 students, falling significantly short of financial viability benchmarks (CRISIL 2023). The financial stress doesn’t end there.

According to the Reserve Bank of India, the education sector has accumulated over ₹9,200 crore in non-performing assets (NPAs), with private universities contributing nearly 60% to this figure. Debt servicing has reached alarming levels: CRISIL notes that one in three private institutions carries debt over five times their EBITDA, a clear red flag for solvency. At the same time, private university enrolments have declined by about 4% annually since 2020, leading to higher dependency on tuition fees and more aggressive asset-based revenue streams.

This overexpansion mirrors the asset bubbles that doomed NBFCs, with one critical difference where financial institutions gamble with money, universities gamble with human potential.

In many cases, the core business of education has been overshadowed by real estate speculation. One example comes from a private university in Uttar Pradesh that acquired 250 acres of land in 2015 at ₹1 lakh per acre under state policies. Today, that same land is valued at ₹2 crore per acre due to nearby infrastructure projects, according to UP RERA. Yet, the institution operates with fewer than 400 enrolled students, functioning at under 10% of its declared capacity.

This is not an isolated case; publicly available financial reports of some large education groups indicate that up to 85% of revenue stems from non-education ventures, such as hospitality and retail.

In parallel, there are institutions that exist primarily on paper. For instance, Pragyan International University, granted recognition by the Jharkhand legislature in 2016, never established a campus and was delisted by the UGC in 2025. Similarly, Eastern Institute for Integrated Learning in Management (EIILM) in Sikkim was shut down after a UGC investigation revealed gross irregularities; degrees issued post-2014 were declared invalid. Even earlier, Dnyaneshwar Vidyapeeth in Pune was declared illegal by the Bombay High Court in 2005, having operated for years from residential buildings, issuing thousands of unrecognised degrees.

These examples highlight a broader regulatory failure. The UGC currently has no mandatory mechanism for periodic financial disclosures, enrolment-linked accreditation, or emergency student protection protocols.

In contrast, SEBI being the market regulator imposes strict compliance rules on NBFCs, including credit ratings, investor disclosures, and contingency reserves. A parallel framework for higher education could involve the creation of ‘Student Protection Bonds’, which would require universities operating at less than 60% enrolment to set aside 10% of annual revenues in an escrow fund. These funds could be used for tuition refunds, transfer support, and data preservation in case of closure.

Moreover, just as SEBI assigns institutional ratings, the UGC or a parallel accreditor could develop a public university rating system based on financial solvency, student retention, and governance metrics. The goal is not overregulation but accountability in a sector that shapes national productivity and civic life. After all, even IPL franchises are required to furnish financial guarantees. Why should private universities, entrusted with students’ futures, face less scrutiny than sports teams?

The stakes are too high for passive regulation. India has over 15 million students entering higher education annually, and as the National Education Policy (2020) sets ambitious targets for gross enrolment, the risk of institutional failure grows proportionally. The closure of a university in Andhra Pradesh in 2022, which stranded over 1,200 students’ mid-degree, showed the human cost of misgovernance. There were no refunds, no transitions and no accountability.

The lesson from the NBFC crisis is clear: unchecked expansion coupled with poor oversight leads to systemic collapse. In finance, that collapse leads to liquidity crises and investor panic. In education, it could mean wasted years, lost earnings, and eroded social trust.

The comparison with NBFCs is not just rhetorical, it is diagnostic. Both sectors involve risk intermediation, both rely on public confidence, and both are systemically important. India can no longer afford to treat education as a speculative venture. The need for student-centric regulation, rigorous financial transparency, and operational accountability has never been more urgent.

If markets need protection for investors, surely classrooms need protection for learners. The question is not whether private universities should be regulated, but how urgently, and how well.

(Debdulal Thakur is Professor and Dean, Vinayaka Mission’s School of Economics and Public Policy, Chennai.)

Disclaimer: The views expressed here are the author's own. They do not necessarily reflect the views of DH.