A Guide to Education Loans Without Security in India

Generally, education loans are classified into secured and unsecured loans. The secured education loans are those loans which are given by banks or lending institutions after the borrower keep immovable property such as land, house etc. as mortgage with the lender. That is why such loans are sometimes also referred to as mortgage/secured loans.

Unsecured education loans, on the other hand, are those loans which do not require a borrower to keep any immovable property with the lender (banks or lending institutions) as a mortgage.

For long, the demand for education loans in India has been met primarily by public sector banks which accounted for nearly 95% of education loans taken for higher studies. Since 2001, the education scheme formulated by Indian Banks Association (IBA) which classified loans of up to Rs 4 Lakhs for higher education as priority sector loans.

However, despite that, the growth rate of education loan for international students in India remained, at best, uneven. It hit air-pocket when the growth rate dipped to 2% from 17% in the financial year 2015 (Care Ratings Report 2018). It also witnessed the rise of NPAs (Non-Performing Assets) ratio in education loans segment to 7.67%. This was primarily due to the reason that most of the loans (nearly 90%) taken fell in the category of priority sector loans (less than Rs. 4 Lakhs) which required no security or margin.

For education loans between Rs. 4 lakhs to 7.5 Lakhs, commercial banks usually demand that the loan application be accompanied by third party guarantee. For those above Rs. 7.5 Lakhs, creditworthiness of the borrower along with tangible assets of equal or nearly equal value as mortgage is a must.

In the last couple of years, specialist financial institutions in NBFC (Non-Banking Financial Company) category have emerged which offer high volume unsecured education loans to students for studying in India or abroad. Student Cover works in tandem with such NBFCs to provide unsecured education loans to students going abroad to countries like the US, Germany, Ireland or Canada for higher education. The volume of unsecured loans sanctioned by NBFCs which applied through Student Cover could be as much as Rs 40 Lakhs for higher studies in foreign universities.

The volume of unsecured loans sanctioned by such NBFCs is determined on the basis of a number of factors. They are as follows:

• The creditworthiness of the borrower – The creditworthiness of a borrower is determined by a number of factors such as his or her source of income, his past record of loan repayment, any default regarding repayment of loans in the past, debt servicing time duration, past loan settlements, utilization of credit limits etc.

Usually banks and NBFCs seek CIBIL (Credit Information Bureau (India) Limited) Score in order to assess the creditworthiness of the borrower. The CIBIL score takes into account the above mentioned factors in preparing the credit score of an individual. The scores range from 300 to 900 with 300 being worst and 900 being the best.

• Course applied to – Since borrower is expected to repay the loan after getting a job, the lender tries to assess the likelihood of the borrower getting a job after completing the course for which he or she has taken the loan. Those students who apply abroad in courses in Science, Technology, Engineering or Mathematics (STEM courses) are more likely to get high volume education loans.

This is because the knowledge and skill acquired through these courses are in high demand all over the world and hence, they are likely to get better paying jobs after completion of the course.

• The reputation of the institution – The institution where the student has applied for the course plays a major role in determining the volume of unsecured loan. Institutions of repute which have proven track record of providing quality education are given preference over the ones that are not as the student who completes the course from such institutions is more likely to get a good job with substantially higher pay.

However, getting admission in top ranked institutions is not easy. Some of the most prestigious institutions also have a very high rejection rate. In addition to that, the fee, especially for courses in technology and management is higher in many of the highly reputed privately owned colleges and universities.

• The country where the institution is located – Those students who apply for courses in developed countries are given preference, albeit exceptions, while sanctioning the education loan, by NBFCs. This is due to the fact that in developed countries, there are more and better employment options for students after graduation as compared to under-developed countries. However, in recent times, the protectionist policies adopted by several European and North-American countries have made getting jobs difficult in those countries. Therefore, one should always keep an alternative plan ready in case one does not get a job in the country of his or her choice.

For the last several years, Student Cover has been actively involved in providing education loans to students going abroad for higher studies. We provide education loans at lowest interest rates for both tuition fee and living expenses. To know more about Student Cover’s education loans, you can visit loan products page by clicking the following link. https://studentcover.in/education-loan-study-abroad