An education loan is a great instrument for pursuing higher education. With the cost of education rising every day, arranging for a massive amount for their child’s education is difficult and loans can ease that burden.
However, banks do not offer loans to everyone. Education loans have a high rejection rate.
Reasons why your child’s education loan can be rejected
1. Academic performance
The academic performance of your child plays a vital role in deciding whether the loan can be approved or not.
A student is usually expected to have average and above average marks on their report card to get a grant or a loan.
The consistent score in the past few semesters and their performance in co-curricular activities are considered. Those students who have shown exemplary results in academic areas are given more preference for the grant of loans.
2. Missing documents
Incomplete information is one of the primary reasons for rejecting your child’s education loan. You must present all the documents the bank mentioned for the verification procedure.
Also, you must ensure that you add the correct information while filling out the form. Check the form multiple times after you have filled it out.
None of your documents should be fake. Make sure you get help from a bank professional if you do not know the steps. They will guide you with the further procedure.
3. Admission to an unrecognized university
Banks often do not approve loans if they find the university unknown. They conduct a verification process on their level to know about the university.
If unsatisfied with the data, they might cancel your child’s education loan application. On the contrary, they also ask for details from the parents to get a better view of the whole scenario.
4. Low credit score
A low credit score is another critical reason for canceling your child’s education loan application. The banks consider the score of your parent or the guarantee who will be signing the form.
The application gets rejected if the guardian has not been good with repayments or has defaulted in the past. To increase the chance of the loan getting passed, it is advised that the parent or the guarantor should have a good record of repayments along with a healthy CIBIL score.
Type of education loan
The type of education loan is yet another factor that should be considered. Rejection rates are lower when you opt for a secure education loan (collateral-attached education loan).
The unsecured education loan tends to get rejected during the verification process. You have to provide collateral such as agricultural land, your house, or some asset the bank can keep to get their money back in the case of fraud or non-payment.
In the case of an unsecured loan, the pledged collateral is seized by the bank if the person taking the loan cannot pay the amount back.
Everything you need to know about education loans
Things to keep in mind while applying for an education loan
a) Keep an account of the loan amount and policies
You should check the loan amount and guidelines provided by the banks. The procedures will vary with different principal amounts that are being borrowed.
The interest rates also vary depending on the total amount of the loan.
b) Check the course, university, and eligibility
Make sure that the course and the university your child chooses are recognized. If the banks do not find them to be known, they might as well reject the plea for an education loan.
Take proper guidance from an expert or professional to understand the course structure properly.
Next, check whether the university and course are eligible for the loan. Not only that, you must ensure that your child crosses all the eligibility factors, including citizenship, academic performance, and so on.
c) Interest rates offered by the banks
Make sure that you look at the interest rates and moratorium carefully so that you do not encounter any issues later.
Some key points that require proper research are the duration of repayment, late payment fees, moratorium period, and so on.
Usually, the interest rates for education loans lie somewhere around 9% to 15% of the principal amount. Do proper research on the long-term and short-term repayment periods to understand better what to choose.
FAQs
What are the reasons for education loan rejection?
- Poor academic score
- Lack of co-applicant
- Poor borrowing history of the co-applicant
- Courses that offer low employment options/ROI
- Choosing obscure universities that they not be accredited
- Type of education loan
- Incomplete documents
- Fake documents
- Country selection for the loan
- Insufficient income of the co-applicant
How do you avoid loan rejection?
To avoid loan rejection, you need to ensure all your documents are in place. Speak to the bank of your choice or take guidance from an education loan expert in getting all the documents, understanding the process, and the costs involved.
Some tips are to make sure your financial history and your co-applicant’s financial history are sound, your documents are real and your marks are on-point.
Is an education loan easily available?
Education loans are easily available in India. There are many lenders such as government banks like SBI, private banks like HDFC, Axis Bank, etc, and NBFCs like Avanse and Prodigy Finance.
