Education Loan

Know the Reasons Why Your Education Loan Application Got Rejected

Know the Reasons Why Your Education Loan Application Got Rejected

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Want to save your education loan application from rejection? Be aware of te reasons pf education loan rejection and avoid them while applying for your abroad education loan.

GyanDhan
Yogender Panchal
Updated on:  11 Sep 2023  | Reviewed By: 
Aman 
| 15.2K | 7  min read

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.

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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. 

  • list items Secured education loans have more chances of acceptance since collateral is involved to guarantee the loan’s recovery. 
  • list items 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.

  • list items The CIBIL (Credit Information Bureau (India) Limited) scores are numerical representations of an individual's creditworthiness in banking measured on a scale of 800. 
  • list items 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.

Note: The income requirement is flexible depending on lenders and factors like course, country, CIBIL score, etc. For instance, GyanDhan had negotiated with many lenders in the past for co-applicants with slightly lower incomes from the scale. Also, you can apply for education loans without collateral or co-applicant from international lenders like Prodigy Finance and MPOWER Financing if your university/college is eligible.


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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. 

  • list items 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. 
  • list items 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.

  • list items For many lenders, deficient academic scores will be your black mark only if the scores are less than a minimum of 50 - 60%. 
  • list items 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. 

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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. 

  • list items In the lender’s view, a less reputed institution has restricted future job prospects and academic standards. 
  • list items Many lenders keep a list of eligible institutes for an education loan to keep a standardized evaluation process for all education loan applications. 
  • list items 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. 

  • list items 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. 
  • list items 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.

  • list items 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. 
  • list items An Axis Bank or ICICI Bank education loan rejection can be because of the chosen college or university. 
  • list items 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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Frequently asked questions

Should the co-applicant be a blood relative of the applicant?

Many lenders mandate that the co-applicant must be a close blood relative of the applicant. However, if the co-applicant has a good profile and earns a higher salary, lenders may agree with negotiations even if the co-applicant is not the applicant’s blood relative.

Is admission to top institutes mandatory for education loans?

No, but many lenders keep a list of eligible courses and universities to give education loans. The applicant must adhere to the eligibility criteria prescribed by the lender and should study in a course or university that the lender supports. 

Can the collateral value influence the rejection of education loans?

No, but the loan amount will be lesser than what is required of you. 

How can I avoid a loan rejection if I don’t have proper documents?

In case you don’t have proper documents, your chances of getting an education loan will be lower. In this case, you can consider lenders who will be negotiable with documents. 

Is there any chance for an education loan if my application is rejected?

You can apply for more education loan options if you meet the eligibility criteria set by them. It is better you research the available options so that you can explore them if the first application is rejected. 

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