Imagine a student from a humble background who works hard to pass BCom. After graduation, he applied for admission to a reputed business school abroad. Since his application is excellent, he gets selected and gets the admission letter. Now he has to arrange money for airfare, visa, course, and accommodation. However, he could not collect the funds he needed with the help of his family. In such a situation an education loan is one of the lifelines he has left. However, if the education loan gets rejected, then he may lose all hope and may even consider letting go of his dreams of getting a higher education.
It is important to note that loan rejection is not a permanent phenomenon. If you act wisely, prudently and remain conscious of the dos and don’ts, then you leave a minimum scope for the loan rejection. In the article below, we have provided effective solutions to make sure your loan application is not rejected. Here you will also find alternatives to education loans which can help you cover your education expenses if your loan request is getting rejected over and over again.
Understanding the Reasons for Education Loan Rejection
Before we start finding the solution to your education loan rejection we have to first identify the root cause of it. To find out what’s wrong with your education loan application you can read about the common mistakes students make which leads to rejection by the banks.
Meeting Eligibility Criteria
One of the common mistakes made by students when applying for an education loan is not reading the eligibility criteria. If you do not meet the eligibility criteria then your application will be rejected by the NBFCs and banks.
For example, there are two Punjab National Bank education loans which have similar eligibility but the approved college list is different. For example, the PNB Pratibha scholarship scheme is offered to students studying in premier institutions like IIMs, IITs, NITs, CNLUs, etc. Another scheme is PNB Saraswati which is offered to students who are pursuing higher education in any reputed university or college. So if you study in a regular college and apply for the PNB Pratibha scholarship, then your loan application will be rejected.
Also, some banks require the education loan candidate to have a certain percentage of marks in the most recent qualification. For example, they may need you to have 60% or more marks in Class 12 to get the education loan. So if you fall short, then your application will be rejected by the banks.
Also Read: Education Loan Eligibility Criteria – Complete Guide for Students
Incomplete Application
Sometimes students make silly mistakes when filling out the application form like misspelling their names, missing out mentioning parent’s occupations, missing educational certificates, etc. These may seem honest mistakes but they result in education loan application rejection. The banks and NBFCs do not entertain incomplete and incorrect loan applications.
There have been cases where students have submitted fake documents to pass the screening process of the banks. Doing this is illegal and you may face legal consequences if found guilty and your loan application will be rejected.
No Collateral
Students who require a substantial loan amount for their education are required to pledge collateral of the same value or more. A collateral is an asset that has some monetary value and can be sold in the open market. For example, a piece of land, a vehicle, a house, a shop, jewellery, etc. Banks need collateral as a guarantee that you will repay the education loan on time. In case you do not repay the loan then the bank has the right to auction off the collateral to recover the loan amount.
Students often do not offer collateral or offer low-value collateral which does not cover the loan amount. This is the reason why their loan gets rejected during the underwriting process.
Note: The underwriting process is the method that is used by the banks and NBFCs to process the loan application and evaluate it on multiple criteria.
Also Read: What is a Collateral? – Understanding its Meaning, Purpose, Types and Importance
Requirements of A Co-Signer
When applying for an education loan students are required to have a co-signer. A co-signer is someone who will take up the responsibility of repaying the loan along with you. That is why there are certain requirements for the Co-signer. For example, a Co-signer can be a parent, legal guardian, sibling or any blood relative. Also, they must have an income which can easily cover the loan EMI. Their credit history should be positive and must not have loans which exceed their income. By not meeting these eligibility criteria, the banks will not process the education loans.
Steps to Take to Pass the Underwriting Process
Now that you understand the mistakes made by students which lead to education loan decline, it is time you learn how to solve these issues to pass the underwriting process. Below we have mentioned the solutions to the issues.
Also Read: What is Education Loan Underwriting?
Check the Eligibility Criteria
The very first thing before you start your education loan application process is checking the eligibility criteria of the loan. Check whether you meet the marks requirement for the loan on the NBCF’s or bank’s official website. Then make sure that your college is eligible for the education loan. You can check that by checking the approved college list on the bank’s website. After that make sure that your course is eligible for the education loan. For example, some bank loans for education are provided for job-oriented courses only such as BTech, MBA, BBA, etc. So if you are pursuing a BSc, BA, MA, etc then your loan may get rejected. So you need to find an education loan which finances your course.
Impeccable Study Loan Application
When you apply for an education loan make sure that you fill out the application form correctly. The mandatory parts in the application form are marked with red asterisks (*). Besides that, you need to fill all the sections which are not marked and you think will help you boost your chances of loan sanction. When you come to the part where you need to upload your educational documents, make sure that you upload clear images which the evaluator can see clearly. Also, do not ever upload fake or altered documents to ensure that your loan application is accepted.
Also Read: Education Loan Application Form
Evaluate the Collateral
Before you apply for an education loan you must evaluate your collateral. Banks usually consider 80% to 90% of the collateral value against the loan amount. This means if your collateral value is ₹1 crore then you will get an education loan of up to ₹80 to ₹90 lakhs. Thus you must find out the actual value of your asset before you put it up as collateral. So for example, if you are planning to use your house as collateral you must contact a real estate agent to find its market value. Once you have evaluated that you can ask for the 80% of the assets value as a loan. This will decrease the chances of your education loan rejection.
Meeting Co-Signer’s Requirements
When you choose the co-signer for your education loan you need to be very careful. Make sure that your co-signer has an income from a job or business. Also, their income should be more than enough to cover the EMI of your loan. If they have an existing loan then their income should be able to cover your education loan EMI after paying their own loan EMI. A person who has ever skipped paying EMIs or ever absconded a loan then they would not qualify as a co-signer in an education loan. Therefore, you need to be very careful and follow these instructions when you choose a co-signer for your education loan.
Also Read: Dos and Don’ts to Avoid Educational Loan Application Rejection
Exploring Alternative Funding Options For Your Education
There are times when you are in a position where you can not apply for an education loan. For example, if you do not own an asset which is valuable enough for a study loan, or you do not have an eligible co-signer then there are ways you can still get financial assistance to pay for your education.
Scholarships are the best alternatives to education loans. But you need to meet the scholarship criteria to get selected for it. For example, sports scholarships are offered to students who excel in any recognised sports. Similarly some scholarships are offered to meritorious students who want to pursue job-oriented courses. Therefore you need to check the scholarship eligibility criteria when you apply for it. With the help of the scholarship amount you can partially or entirely cover your course fees.
Students can also get help from friends and family for funding their education if their education loan is rejected. Informal loans are still a popular choice among students if they do not have to pay interest on their loans.
Another viable option for students who do not get an education loan is crowdfunding. This is a risky option but if you can successfully reach potential donors and convey your message then there is a possibility that they may donate some money for you to complete your education. With the help of social media you can successfully conduct a crowdfunding campaign.
Conclusion
It is important to remember that not getting a student loan for your education is not the end of the road. You can make changes to your loan application, add a collateral asset, upload relevant documents, etc to ensure that the bank does not decline your education loan request. The key is to read and ensure you meet all the requirements of your education loan.
Also Read: Common Education Loan Problems and Solutions for Study Abroad
FAQs
Q. What should I do if my educational loan application is declined?
If your educational loan application is declined, you should first try to understand why it was rejected. Common reasons include incomplete application, low credit score of the co-applicant, collateral asset value is not enough, etc. Once you identify the issue, you need to rectify it and then reapply for the study loan.
Q. How to fund my education if my loan is denied?
Yes, there are several alternatives, including scholarships, grants, crowdfunding, informal loans from family and friends if your education loan is declined. Additionally, you can work part-time or internships to cover some of your expenses.
Q. How to choose a co-borrower for your education loan?
A guarantor or co-borrower for an education loan is mandatory and you must be careful who to choose. Firstly a co-signer can be your legal guardian or blood relative. Their income must be enough to pay your education loan EMI if needed. Also, their credit history should also be positive.
Q. How can I improve my chances of securing a loan in the future?
To improve your chances of getting an education loan you must maintain a good academic history, your co-signer must have a positive credit history, you should have a valuable asset for collateral, and fill the application form carefully.
Q. What happens to an education loan if a visa is rejected?
If your visa gets rejected after your loan is approved then you can reapply for your visa and inform your bank about the changes. The bank may not decline your loan amount if the issue is genuine and is resolvable.