Are you eligible for education loan? 3 points to note to gain big benefit

There are some state government schemes that gives education loan up to Rs 4 lakh at a mere one percent interest. Separately, the central government recently has approved an increase in the outlay for making educational loans interest-free for students with modest financial means. While such developments are good, a vast majority of students are not eligible for interest-free education loan or repayment at ultra-low 3-4% rates.

With the 12th exams now over, lakhs of students aspire to join colleges but not everybody will be welcomed in an elite engineering or medical institute. With most such families having limited financial resources, educations loans are their true saviour. DNA Money tells you about the most important things to consider before applying for a loan.

Ideal borrower profile: Everybody wants education loans disbursed quickly. Amit Gainda, CEO of Avanse Financial Services says verification of student profile is vital for any lender to disburse an education loan for higher education.

The first criterion is the admission, meaning the student should have qualified the entrance test and should have secured admit card/ admission in an approved professional course. Secondly, it is important for the institution offering the course to be accredited and of good repute.

“The academic background and the qualification also play a critical role. The past records of all the marks, credits and achievements are also considered,” notes Gainda.

Next, comes the employability of the course. It should enhance the student’s placement and job prospects so that he/she can repay the loan in a timely manner. An Indian student with a good academic track record, going for a course from an institute that has higher employability record, is an ideal profile.

“Good credit history of parents adds immensely to the chances of quickly getting an education loan. A student with average or below average academic track record may pursue skill development courses that can give them employment opportunities,” says Prashant Bhonsle, CEO, Education and Housing Loans, InCred.

Also, students generally apply for an education loan with their parents, or relatives as their co-borrower. While the student may not have a credit history, it is vital for the co-borrower to have a steady job profile and decent credit score.

Common delay/rejection reasons: If you know the most common reason for education loan delays or rejections, then you can always steer clear or totally avoid such situations. A big area of problem is with the institute in which the student is planning to join.

The institute may be accredited, but the course can be a stumbling block. If the quality of education and chances of employability after the course is not good there can be problems, warns Bhonsle of InCred.

Poor or sub-par academic performance of the student is also a red flag. Sometimes in the hurry to secure the education loan, many student borrowers and their parents submit wrong details. “Incomplete documentation of the student and co-borrower is a problem,” says Gainda.

Lastly, low income and an unhealthy CIBIL score of student, co-borrower or guarantors can emerge as a challenge. Poor credit histories of parents, especially for below average students, is a problem, says InCred’s Bhonsle.

Sudden margin money requirements too are a hindrance. “While the new NBFCs like InCred do not require margin money, banks may decline education loan if the student and parents cannot give margin money,” he added.

Quick fixes: If the student/parent profile has some deficiencies, some quick-fixes can be attempted.

If the issue is creditworthiness, then the student and the co-borrower should improve the credit rating, by paying off all old loans, says Gainda. “Alternatively, the students can arrange for third party co-borrower with a good income base and credit rating. This would instill credibility of the borrower amongst lenders,” he added.

Applying early also helps. “They should simultaneously apply to their own bank and all other NBFCs that are providing education loan. Only depending on banks or applying to one provider can create stress if the loan gets declined after processing. Also, the details and paperwork required are similar so, students and parents can make copies of the same loan application for different loan providers,” Bhonsle says.

Potential borrowers should search for courses and institutes/colleges that already have education loan tie-ups with banks, NBFCs that are doing education loans.

By Kumar Shankar Roy, DNA Money