How to avoid your study abroad education loan application from getting rejected?

Macro trends on enablers of Study Abroad Dreams:

We often engage with students seeking loans to support their dreams of studying abroad. Due to various factors listed below gaining admission to foreign universities has become easier than it was a decade ago.

1. New-age career counselling startups
2. Increasing awareness about possible options
3. The rising cost of education in India

However, securing funds to accomplish this task remains a challenge. The primary reasons include:

1. Banks and NBFCs which contribute over 90% of education loans in India have seen limited innovation in study abroad loans except advent of Credila.

2. Education Inflation:The cost of education is growing at twice the rate of normal inflation for study abroad programs. This education inflation is making self-funded or family-funded education challenging for aspiring families.

Disparity in demand?and supply can only be plugged by preparing well in advance for?your education loan.? Despite counsellors addressing this matter early in the application process, there is still a significant rejection rate of approx. 50%-60% in the education loan segment.

Understanding Why Financial Institutions Reject Student Loan Applications:

1. Non availability of Co-borrower:

Many students and parents are unprepared to have a financial co-borrower.

Ideally, close family members such as parents, siblings, or uncles are acceptable co-borrowers.

Unrelated parties like friends, friends' parents, or distant relatives are not accepted as co-borrowers.

2. Low Income of Co-borrower:

A co-borrower should ideally have an annual income of at least INR 5 lakhs.

Annual income must be proven with salary slips, Form 16, and / or ITR filings.

Lack of this documentation can lead to rejection of the application.

3. Poor CIBIL Score:

A poor CIBIL score for both the co-borrower and student is a significant obstacle.

This can be mitigated by adding collateral against the loan or introducing another co-borrower with a higher CIBIL score and good income.

Existing default by any of the parties as part of the application would likely lead to rejection.

4. Low Repaying Capacity:

Repayment capacity per month is calculated for the co-borrower or co-borrowers of the loan.

Repayment capacity per month = Per month in hand post tax income - EMIs paid - household expense per month.

This is also called as FOIR?score by financial institutions.

FOIR - Fixed Obligation to Income ratio. Lower the FOIR, higher is the repayment capacity.

Banks provide loans to customers with consistent cash flow and not high net worth but no cash flow.

5. Incomplete or Fake Documents:

The list of required documents for an education loan application is extensive but non-negotiable.

For the list of documents you can reach out to us Peaceful-Loans

6. Country of Destination:

Countries like the USA, UK, Australia, Germany, New Zealand, Canada, Ireland, and France are easier to get education loan approvals for, while banks often consider countries like Russia, China, Afghanistan and Uzbekistan as high-risk loans.

7. Type of Course:

STEM (Science, Technology, Engineering and Mathematics) courses are easier to get education loans for.

Other courses like MBBS, arts, fashion are difficult to get an education loan for.?

8. Students' Past Academics:

Poor academic performance in the past, such as below 60% in 10th, 12th, and graduation, is considered a risk factor by the financial institutions. So increases the chances of rejection of the education loan application.

A drop year, a KT or back-log are not perceived as healthy signs for education loans.

9. Unrecognised Institution for Future Studies:

If the University, where admission is secured, is not a top ranked and / or a recognised?university by the financial institution, loan approval becomes a tricky task.

Each financial institution maintains their own list of recognised universities and courses allowed for loan sanction.

To know more, connect with our team Peaceful-Loans

10. Numerous Loan Inquiries:

Multiple loan inquiries at various financial institutions can lower the CIBIL score, affecting the chances of getting a loan.

It is advisable to connect with the Peaceful-Loans team early in the application process to avoid this and apply only with the right financial institutions.

11. Age of the Student:

A student's age beyond 35 or a co-borrower's age beyond 60 can be hurdles in getting an education loan approved.

While the co-borrower's age can be mitigated by adding a younger co-borrower, the student's age remains a non-solvable issue.