13 Rejection Reasons for Education Loan
Educational loan is a good business for lending institutions as cost of pursuing studies in India or abroad has risen significantly. Because of this more and more students take help of educational loan to fulfil their dream. But at the same time, to a bank, there is a risk associated with it because it is not possible to keep a track of students after they complete their studies especially those who default on the loan which increases the non-performing assets of the banks. So before approving any loan, banks scrutinize the application very minutely and then take decision to approve or deny.
Check out details on Vidya Lakshmi portal under the Pradhan Mantri Vidya Lakshmi Karyakram scheme. Through this portal student can search for educational loan and scholarships available by multiple banks.
So listed below are the reasons for rejection of education loan.
- CIBIL Score of Student: One of the most important factors taken into consideration by any credit lender is the CIBIL score. A good score will create no hindrance for you and chances of getting a loan of any type (education, home, car etc.) are higher. But at the same time, a poor CIBIL score will go against you and there is a higher chance of educational loan getting rejected. Lenders verify your previous repayment history in order to decide on whether to approve or reject the loan application. So if you have frequently defaulted on payment of any type of credit card or loan then be prepared for the denial. Although students who are fresh out of their college do not have any credit record but still there are students who start earning while studying and buy credit card and spend heavily and do not pay monthly bills on time. But they do not realize the fact that failure in making regular due payment is affecting their credit score. So when such students apply for educational loan for pursuing further studies then their credit score creates a road block. Read more on improving credit score in India.
- CIBIL Score of Parent: While taking educational loan banks also check CIBIL score of parent since they are the guarantors who will repay the education loan in case student is ineligible to pay. So as mentioned above, if your parent also has a poor CIBIL score then also educational loan can be denied.
- Poor academic performance: If you have got admission in a reputed college but under management quota due to poor academic performance then you may not be fit into the eligibility criteria of the bank. This is because banks assume such applicants would be non-perfomers in the future as well and may not earn enough money to repay the loan EMI.
- College Recognition: If you are planning for an admission in a college which is not well recognized and has poor placement record then denial chances increases. So if you get an admission into reputable institution such as IIMs, IITs, NITs and other good colleges than you have got a higher loan approval chances.
- Course applied for: If you apply for engineering, medicine, management and other courses from which earning potential after completion is assumed to be high then you have higher chance of getting loan approved. On the other hand, if you apply for loan for pursuing courses such as arts then you might face a rejection, as income is considered to be on a lower side after course completion.
- Fake documents: If you provide fraudulent documents to the banks such as marksheets, degree, college approval letter then straight away your application will get rejected. You may also bear legal consequences for your act.
- Type of course (Full time/part time): Most of the banks will deny the application if you apply for education loan for distance learning/part-time/correspondence course. Lending institutions ideally offer loans to students who are applying for full time course only.
- Loan amount: Collateral of suitable value and joint borrower are must when applying for a loan amount greater than 7.5Lacs. If you are not able to submit the same then banks will disapprove your application. This is because failure in loan repayment will force the bank to sell the security for recovering their lost money. However if the loan amount is less than 4 Lacs then there is no need to submit any kind of collateral but parent/guardian are required to be your joint borrower. For loan amount ranging from Rs. 4 – 7.5 Lacs, collateral and joint borrower is must.
- Income of parent: Your chances reduce when parent’s income is less. Because as mentioned above, when a student fails to repay the loan amount then banks will ask parent to repay the money.
- Service area of bank: If applicant’s residential address is not in the service area of the bank then also the application can be rejected. However RBI has asked banks to not consider this as a mandatory condition and not reject the educational loan.
- Citizenship: If you are an NRI or student from foreign country then banks will deny your application. Only Indian citizens are offered the loan.
- Age limit: Although this is surprising as many individuals apply for a education loan after taking industry experience but still banks many a times set a age criteria to less than 30 years.
- While applying for a loan, you do not have admission letter from the college.
Although not every lending institution will take into consideration each and every above mentioned and reject education loan. So always ask your bank to provide reason for denial, if it all you face it.
Now students can register on Vidya Lakshmi portal, and search and apply for educational loan and scholarships available by multiple banks. This portal is a part of Pradhan Mantri Vidya Lakshmi Karyakram scheme.