Know the Reasons Why Your Education Loan Application Got Rejected

Education loans in India are facing a concerning rise in Non-Performing Assets (NPAs), as reported by the Ministry of Finance, India. As of June 2022, about 8% of education loans granted by public sector banks, including SBI, Canara, UBI, and IOB, have turned into NPAs, amounting to INR 6,246.42 Crores.

Due to this growing issue, lenders have become more cautious during the loan application process. Unfortunately, many applicants experience disappointment when their education loan applications are rejected due to small errors made unknowingly. To help our readers, here are some key reasons for education loan application rejections that can be avoided through careful planning.

8 Reasons Why Your Education Loan Application Can Be Rejected

1. Unsuitable type of education loan

An education loan application may be rejected for its failure to meet the terms and conditions prescribed for the loan type being applied for. 

• Secured education loans have more chances of acceptance since collateral is involved to guarantee the loan’s recovery. 
• Education loan without security is sanctioned only if the student is able to meet conditions like high CIBIL score, high academic scores, admission to a reputed institute, original and complete documents, etc. 

Some common causes for this are attaching agricultural land as collateral or land that falls under Gram Panchayat’s jurisdiction, students attaching a property that is disputed, not submitting past sales deeds if the property has been owned for less than 30 years, and others. 

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2. Low CIBIL score of the co-applicant 

If your co-applicant has a low CIBIL score, it can lead to the rejection of your education loan application.

• The CIBIL (Credit Information Bureau (India) Limited) scores are numerical representations of an individual's creditworthiness in banking measured on a scale of 800. 
• For an education loan, the minimum CIBIL score of the co-applicant must be 650+ to get an education loan from banks and NBFCs. 

To avoid rejection, find someone with a very good CIBIL score as your co-applicant for an education loan adhering to the conditions of who can be a co-borrower. 

3. Limited income of the co-applicant

Failure of the co-applicant to meet the minimum salary requirement can be a reason for your loan application’s rejection. Most lenders keep an income limit (mainly for unsecured options) for the co-applicant while granting an education loan. 

Lenders generally calculate the FOIR (Fixed Obligation to Income Ratio, a financial metric to calculate the repayment capacity), and the co-borrower must submit salary proof and ITR return showing a minimum monthly earning of INR 30,000 - 35,000 for education loans from private banks or NBFCs.

4. Incomplete or fake documents

A common mistake students make while applying for an education loan is incomplete documentation or the submission of fake documents. Lenders make it clear in their regulatory requirements that proper documentation is a must for successful education loan applications. 

• When proper documents are missing, lenders spend more processing time verifying the information provided, which leads to issues with the student’s financial evaluation and loan eligibility. 
• Submitting fake documents has legal and ethical consequences and is a quick step for rejecting your loan application.

Educate yourself on the documents required for an education loan application to avoid issues with documentation. 

5. Low academic scores

A student who has consistently performed well in the past and has gained admission to a premier institute has increased chances of getting an education loan. On the contrary, a student who has been average or below average or has received admission into a premier institute under the management quota will have a higher chance of his/her education loan application being rejected. This is because banks believe that such students have lower employability and that they might not earn enough money after their course to repay their loans.

• For many lenders, deficient academic scores will be your black mark only if the scores are less than a minimum of 50 - 60%. 
• Those banks that value the student’s past academic track in loan sanctioning would be more likely to grant interest concessions for top scorers.

6. Ineligible country selection

Like, in the case of universities and courses, student loans are targeted to a selected list of countries with a guarantee of better academic outcomes and job opportunities. Your education loan application faces immediate rejection if you don’t adhere to country-specific eligibility. Applications for countries like the US, the UK, Canada, Germany and other European countries, Australia, New Zealand, etc., are easily accepted, while those to developing countries are rejected. 

7. Admission to an unrecognized or unaccredited institute

Getting an education loan becomes a herculean task if your university or college abroad is unrecognized by major government agencies or regulatory bodies (like QS). Banks often reject an education loan application for students seeking admission to unrecognized institutes or institutes that do not have a good placement record. 

• In the lender’s view, a less reputed institution has restricted future job prospects and academic standards. 
• Many lenders keep a list of eligible institutes for an education loan to keep a standardized evaluation process for all education loan applications. 
• This is also important for their degree to be recognized by prospective employers.

Banks require a letter of admission (a soft copy is enough) before sanctioning the education loan, the absence of which decreases the student’s chances of getting an education loan. However, students can also get an education loan approved before securing admission, which is known as a pre-approved sanction. 

8. Poor course selection

To avoid disappointment after loan rejection, every applicant must know before applying that education loans are not available for all the subjects of your interest. The course of study must have high job prospects and better-earning potential to repay the loan within the repayment tenure. Banks easily sanction an education loan for courses that have a high earning potential. 

• Courses such as engineering, management, etc., have a high earning potential after graduation, and banks assume that students pursuing such courses will be able to repay their education loans on time. 
• Banks usually do not sanction loans for correspondence courses, part-time courses, and distance learning.

Many lenders keep a list of eligible courses to facilitate easy filtering of education loan applications. If your course seems contrary to the lender’s expectations, chances are more likely for a rejection of the loan application. 

Now that you know the common reasons why an education loan application might get rejected, apply wisely. Of course, you can always apply for your education loan at GyanDhan, and let us worry about securing that loan approval - at no cost to you.

• An SBI or BOB education loan rejection can be because of wrong/incomplete collateral papers. This would require you to submit the right property documents. 
• An Axis Bank or ICICI Bank education loan rejection can be because of the chosen college or university. 
• HDFC Credila, InCred, or Avanse education loan rejection can be because of the co-applicant profile or CIBIL score.

Whatever may be the reason for rejection, it will be singled out and corrected before the application reaches the lender, ensuring the loan application is approved. Get your abroad education loan application approved the first time! Check your eligibility now. 

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Read also:

• Education Loan for Abroad Studies
• SBI Education Loan
• Education Loan Interest Rate
• Eligibility Criteria and Basic Documents Requirement

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