The increasing cost of education across the world has led several students to seek help from lenders such as Public and Private Banks and Non-Banking Financial Companies (NBFCs). Higher education is not financed by the state in countries such as the US and the UK. In other words, universities need to manage a hefty portion of their expenditure through tuition fees.
Every year, hundreds of thousands of students apply to seek Education Loan to finance higher education either in the home country or abroad. Banks lend money to those students in the form of unsecured and secured Education Loan. Notwithstanding, an Education Loan application does not inevitably lead to sanctioning of the loan by the banks or NBFCs. There are various instances where students’ loan applications get rejected due to one reason or the other. Why Education loan gets Rejected?
Here, we will cover some common reasons that lead to the refusal of education loan applications
- Submission of false information
It is both lenders’ and borrowers’ duty to present legitimate and factual information while getting into a loan agreement. If the data filled by the borrower such as name, educational qualification, address, the nationality of the borrower or the guarantor, court cases, etc. are found to be untruthful, the lender has every right to dismiss the education loan. The borrower is, thus, recommended to give only reliable and factual information, upheld by valid documents.
- Collateral requirement
While applying for a secured education loan, the lender wants the borrower to keep the documents of assets, such as the property, land, or any other fixed asset, as a mortgage. This guarantees the lender against any probable default by the borrower in the future. At times, banks commence verification exercises to secure the credibility of the documents submitted by the borrower. The false documents can be one of the reasons why education loans get rejected.
- Incomplete documentation
While sanctioning education loans, banks request borrowers to submit verified copies of a specific set of documents that includes Passport, PAN card, address proof, birth certificate, certificates of educational qualification, identity proof, etc.
If the borrower is incapable to submit all the documents mandatory by the lender, the education loan might get refused. In some cases, borrowers also have to present character certificates and NOC from concerned authorities.
- The creditworthiness of the borrower
Various banks and NBFCs in India administer unsecured loans to students to finance their higher education. These loans are provided based on the creditworthiness and monetary strength of the borrower.
The creditworthiness of the borrower hinges on several aspects such as past loan repayment record, source of income, CIBIL score, the prospect of employment after finishing the course, etc. If the lender, in its wisdom, decides that the borrower does not meet the appropriate criteria of creditworthiness, the education loan application of the borrower may get rejected.
- Nationality and tax status of the co-applicant
Banks and other lending institutions provide secured and unsecured education loans only to the residents of the country. This is the same for co-applicants and guarantors as well. If the guarantor, in case, is a foreign national, the education loan application would be rejected.
For the loan application to be approved, the applicant, co-applicant, and guarantor must be residents of the country and should come under the range of income tax laws. However, people who are currently living abroad but if their income falls under the jurisdiction of income tax authorities are qualified to be guarantors or co-applicants.
- Institution not recognized
This is mostly relevant in the case of unsecured education loans. Before sanctioning the education loan, the lenders pursue to authenticate the credentials of the university where the student has enrolled for a course. Educational institutions that are top-ranked or are highly accredited are given priority over the ones that are neither top-ranked nor accredited. Almost all banks and NBFCs maintain a list of recognized institutions and universities worldwide.
- Country of the institution
While accrediting loans, not only the university but also the country where the university is located plays a major role. Candidates applying to universities located in North America and Western Europe have more chances of getting their education loan approved. It is because those countries have maintained a good reputation in administering quality education and great job prospects after the course completion.
- Past repayment record
If a borrower doesn’t have a good track record in repaying the previous loans, there are very less chances that his or her education loan will be approved. Banks and NBFCs never want to take the risk of providing loans to those who have defaulted on preceding loans.
- The course applied
Definite courses such as in the field of Science, Technology, Engineering, and Mathematics are considered to have better career prospects than those that fall under the division of Humanities or Arts. Lending institutions and banks usually reject loan applications, specifically for unsecured education loans to candidates who have taken admission in courses that do not fall under the STEM category.
- Language requirement not fulfilled
English is the most common language of Commonwealth and North American countries. Anyone applying for a course in universities in those countries needs to hand over proof of their expertise in both written and spoken English. Students usually do this by appearing for TOEFL & IELTS tests. If the student is inadequate to secure satisfactory grades in those exams, he or she is not qualified to pursue higher education or work in those countries.
Don’t let any of these inaccuracies or mistakes prohibit you from receiving education loan approval. These mistakes might sound minor, but almost all education loan borrowers get rejected because of any of these reasons.