But enabling education for everyone is difficult. Schools need help. Adding instructional capacity and improving facilities require significant investment. Enrolling new students is even more daunting, as many families do not have savings sufficient to pay for years of school.

The problem is a mismatch of cash flow timing. Schools need the money now to reinvest and expand. Students and their families only receive income after graduation. The solution requires affordable credit.

Financing has always been the key barrier for enrolment and retention and is a top-of-mind issue for schools. Otherwise, students, who need education the most are left without options, and the seats in the physical (and virtual) classrooms are left empty.

Fintech platforms are the ideal partners to help schools address this issue. Through collaboration, fintech platforms can help schools drive their three main goals: expansion, efficiency, and equity.

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Expansion and scale to reach more students

As schools scale their operations, the biggest limiting factor is their ability to redeploy their cash flows. Capacity planning is challenging when enrolment numbers are unpredictable, due to a significant portion of students deferring payments or dropping out.

Schools are in a predicament. Operating costs cannot be deferred, and investing in teachers, classrooms, and campuses is costly. Fintech can address this timing mismatch.

By providing affordable lending solutions to students, fintech provide schools with the predictability needed to expand. They no longer worry about students dropping out due to affordability issues because the balances for the semester have already been paid.

As more students remain enrolled, schools become better positioned to invest for long-term growth and for improvement of instructional capacity.

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Efficiency and focus on core educational services

The early version of education financing in Southeast Asia was run in-house by schools. These schools provided deferred instalment plans, and was a shared function across the schools’ finance, student recruitment, and scholarship functions.

Given the increasing financial challenges of many students, however, schools have seen these internal financing plans take up a large portion of their balance sheets. The complexity magnifies as the number of students adds up: collections, financial risk management, and asset-liability management are all cumbersome for a school to run in-house.

Fintech platforms are the perfect partners to address this issue. Schools, no matter their size, are better off focusing on core education services rather than operating as financial institution. By offering the expertise of tech-enabled underwriting, loan management, and collections, fintech can run this process more effectively and efficiently.

Schools can go one level deeper to address these affordability barriers. Through tighter fintech partnerships, they can commit part of their balance sheet (whether in the form of interest-free or subsidised loans), while letting their fintech partner manage the operational aspects of lending.  This arrangement allows schools to provide affordable, quality education to more students.

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Equity and access to those who need education the most

Students in the lowest income households are those who can benefit from education the most. This segment is where willingness to enrol is the highest, but the capacity to pay is low. They often do not have access to traditional credit, and savings are limited. Especially not enough for four years of schooling.

This phenomenon is why only a third of youths in Southeast Asia manage to enrol in higher education, and less than half of them graduate on time (if at all). Schools do want to help because providing access to these students bolsters enrollment count, drives up tuition revenues and supports their mission of educating future generations. But they have no capacity or expertise to finance the two-thirds of un-enrolled youths in Southeast Asia, at least not alone.

Here’s how fintech platforms can help. The payoff of education is back-ended, but has tremendous lifelong value. Fintech platforms can provide that bridge to get students through their multi-year journey. Affordable lending can correct the timing mismatch of the tuition cost and eventual employment. By bridging the timing gap, these partnerships can improve equity and access in the education system.

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Fintech will make ‘education for everyone’ a reality

The future of education in Southeast Asia will be powered by fintech. Developing human capital to support the region’s evolving economy requires educating everyone. We need to find ways to broaden educational access for over 60 million new students—those who traditionally cannot afford to go to school.

The case for affordable education financing is clear: schools can expand and reach more students, and every student can receive access to quality education.

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Riche Lim is the Co-Founder & CFO / CSO of ErudiFi

This article was originally published on e27: How fintech is Asia is enabling and making education affordable for everyone on 19th of March 2022.

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