Collateral Security for Education Loan in 2023 (Complete Guide on Collateral)

An education loan with collateral is a loan where the applicant attaches security along with the loan application. This security can be movable (FDs, LIC Insurance, etc.) or immovable assets (non-agricultural land, house, etc.). Most public banks in India require collateral security to sanction a loan application over INR 7.5 Lakhs.

Collateral helps a lender recover its dues in case the borrower fails to repay his/her educational loan. Educational loans are increasingly becoming an NPA (Non-Performing Asset) for banks and other lenders. An asset becomes an NPA if it stops generating income for the lender. In the financial year that ended in 2017, seven Public Sector Banks had a gross NPA ratio in double digits. And, this trend is not new and has been constantly on a gradual rise. For Engineering courses, 9.76% of education loans became NPA, while for MBA, 5.59% of education loans became NPA. Hence, lenders have become cautious in providing education loans without collateral for bigger amounts. 

There is no definitive answer for it as the amount of collateral required differs from lender to lender and from scheme to scheme. 
Below mentioned is a brief comparison of a few leading lenders to help you estimate:

• *PSBs like SBI sanction 70% of the collateral value as loan amt. BoB sanctions almost 100% of the collateral value as loan amt. E.g. if the property value is estimated to be INR 1 Cr, the loan amount sanctioned by SBI would be INR 70 L and by BoB would be INR 1 Cr. Whereas, private bank, Axis, sanctions 65%-70% of the collateral value as loan amt. @ higher interests, which is why GyanDhan suggests PSBs if you have collateral security to offer. 
• *The collateral value is evaluated by authorized property evaluators, and is generally lower than the market value but in compliance with the Govt. rules and regulations of property evaluation.
• *The education expenses covered by PSBs like SBI are generally up to 90% of the tuition fee + living costs breakdown, e.g. if the fee + living cost breakdown presented by a student is INR 77L, the student is only eligible for a loan up to INR 69,30,000, for which he’ll need property worth INR 1 Cr (approx). The remaining 10% has to be arranged by the student. An exception here would be the Bank of Baroda, which can cover 100% of the expenses for a few selected colleges. However, Axis Bank, a private bank, usually only covers 85% of the total expenses, which can be viewed as another downside.

There are mostly three types of collateral accepted by the lenders in a secured education loan - 

1. Immovable Property - Lenders accept immovable property such as an independent house, flat, or plot, or any non-agricultural land with a clearly defined boundary. Agricultural land is not accepted as collateral. A bank-appointed evaluator will evaluate the property. All the original property documents are required to pledge collateral, such as registered sale deed, approved plan or map, link or chain documents. The rest of the document checklist is shared with you on applying for the loan via GyanDhan. 
2. Liquid Assets -  It includes assets like Fixed Deposits (FD), Life Insurance Policies (LIC), or Government Bonds. These assets are taken at the exact value as they can be converted into cash immediately. Some of the things that borrowers should keep in mind - FD should be with the same banks from where you are taking the loan. The loan can be taken on an existing FD or a new FD can be made for the purpose. The holder of the FD will earn interest on it as usual. LIC should be a maturing policy with a fixed maturity date to be pledged as collateral. 
3. Third-party Collateral - If in the case, a borrower does not own collateral, they can pledge third-party collateral belonging to a friend or a relative. The original documents of the collateral have to be submitted in this case as well. If a bank official is denying third-party collateral, just get in touch with us and we will get it resolved for you. 

Public and private banks, as well as NBFCs, provide education loans with collateral to Indian students. Let us take a look at a few popular ones and also discuss the maximum loan amount for such a loan. Other details can be compared by clicking on the lender's name or requesting a call back from our education loan expert.

The education loan eligibility again varies from lender to lender. The eligibility requirements are stricter for nationalised banks as compared to NBFCs as they offer loans at much less interest. You can check your loan eligibility at GyanDhan to know how much loan amount you can acquire as per your profile. 

Let us take a look at some common eligibility criteria for applying for an education loan with collateral.

• The applicant must possess all the collateral papers of the security he is planning to attach. 
• The applicant (student) must be an Indian national. NRIs holding Indian passports can avail of education loans too. OCI students can get a loan for studies in India but not for foreign studies as they are no more Indian citizens.
• The applicant must have secured admission to a recognized institute. Most lenders ask for a copy of the acceptance letter with the loan application.
• The applicant must have had a good academic history. The lenders ask the applicant to attach relevant mark sheets with the loan application. 
• A good CIBIL score is a desirable criterion of most lenders when sanctioning an education loan. In case your CIBIL score is low or your academics aren’t great, you should get in touch with GyanDhan’s education loan counsellors right away. They can guide you through the steps that need to be taken.