You're not alone if you've recently applied for an education loan and discovered it was rejected. There could be several reasons why your loan application was denied, and it's essential to understand them so that you can take the necessary steps to improve your chances of approval next time. This blog will review why education loan applications are rejected in India.
Reasons why Loan Applications can be rejected:
Low CIBIL Score of the Student or his/her Guarantor
Credit lenders consider the CIBIL score as a crucial parameter. A student with a good CIBIL score indicates that they have repaid their prior loans on time, improving their chances of securing an education loan. Additionally, the CIBIL score of the applicant's guarantor(s) or parents are also taken into account by banks to ensure that they can repay the loan if the student cannot do so. Therefore, a good CIBIL score of the guarantor(s) or parents increases the chances of loan approval for the student and vice versa.
Past Academic Performance of a Student
Banks consider a student's past academic performance crucial when sanctioning an education loan. Those who have consistently performed well and secured admission to reputed institutes have higher chances of loan approval. On the other hand, students with average or below-average academic records or those who have secured admission under the management quota may have a higher chance of loan rejection. Banks believe such students may have lower employability and need to earn more to repay their loans after completing their courses.
An Unrecognized or Unaccredited Educational Institute
Banks often only accept education loan applications if students seek admission to unrecognised institutes or institutes with poor placement records. Therefore, students must ensure that they apply to recognised institutes only to increase their chances of getting an education loan. This is also important for the recognition of their degree by prospective employers and, ultimately, their employability.
Incomplete or Fake Documents
When applying for an education loan, a significant amount of paperwork is involved, and the banks carefully scrutinise each document. To enhance their chances of obtaining an education loan, students must be diligent in providing all of the documents requested by the bank and ensure that they provide accurate documentation. Failure to do so increases the likelihood of loan application rejection. Additionally, banks reject loan applications for students who submit fraudulent documents, which is taken very seriously, resulting in outright rejection of the loan application.
Type of Loan
An education loan secured by collateral is generally easier to obtain than an unsecured loan. Non-collateral education loans can be challenging to obtain, mainly if the loan amount is high. Such loans are only sanctioned if the student meets certain conditions, such as a high CIBIL score, excellent academic scores, admission to a reputable institution, and submitting original and complete documents. However, even students applying for secured loans may have their applications rejected. Common reasons for rejection include using agricultural land or land under Gram Panchayat jurisdiction as collateral, disputed properties, failure to submit past sales deeds for properties owned for less than 30 years, and other issues.
An Absence of Admission Letter from the Recognized University or Institute
Before sanctioning an education loan, banks require a letter of admission. The absence of this document can decrease the student's chances of being approved for a loan. It is sufficient to provide a soft copy of the letter of admission.
Documentation Required for Bank Education Loan
Here are the documents required by Banks to be considered for an education loan:
- KYC documents of co-borrower and student
- Mark sheets of 10th, 12th, undergraduate courses, and entrance exams
- Admission Letter
- Fee structure
- Co-borrowers Income Proof
- Non-agricultural Residential and commercial property plots
- Fixed deposits
- Income proof (required only for specific courses)
The following documents are sought against the varied categories:
Passport, Aadhaar Card, PAN Card, Driving Licence, Voter’s ID Card, Photo Credit Card, Central and State Govt. issued Photo ID Proof, and Central and ID Card.
Aadhaar Card, Passport, Ration Card, Voter’s ID Card, Bank Account Statement, Letter from any recognised public authority, Electricity Bill, Water Bill, and Telephone Bill.
Salary Slips (not more than 3 months old), Bank Statements (not more than 3 months old), and ITR, Form-16.