Reasons why the student loan application may be rejected


Students who are already using credit and have a bad credit history indicated by a low credit rating will have a hard time getting a loan approved in the first place.

Normally, when there is doubt about the borrower’s repayment capacity, lenders can refuse the loan. It can also come from low income or an attempt to take out a loan that is disproportionate to one’s income, have higher borrowing risks due to other concurrent loans, and not being able to provide the collateral required by the lender. These reasons also apply to student loans.

In this article, we take a closer look at why lenders can turn down a student loan.

For students who are new to credit, the lender may consider looking at factors other than their credit history. Gaurav Aggarwal, Director of, said: “Lenders consider the applicant’s academic background, type of course, future employment prospects, ability to repay after placement, type and value the guarantee offered, the reputation / rating of the educational institution concerned and the income and credit profile of parents / guardians who acted as co-borrower or guarantor during the assessment of a loan application studies. Failure to meet lenders for any of these eligibility criteria may result in rejection of the loan application. “

Aggarwal further explains that education loan lenders typically require a margin of 5% for study in India and 15% for study abroad. Most lenders also require tangible material collateral for student loans exceeding Rs7.5 lakh. No collateral / guarantee required for education loans up to Rs4 lakh, while a third party guarantee may be required for education loans between Rs4 lakh and Rs7.5 lakh. “Therefore, those who are considering availing student loans should have the required margin money, collateral or guarantor before submitting their education loan application,” he said.

Likewise, the rating of educational institutions and courses offered can vary widely from one lender to another. The credit risk assessment of the loan applicant based on their credit profile and / or co-applicants / guarantors as well, can vary considerably among lenders. The difference in the credit risk assessment processes followed by various lenders can cause the chances of a student loan to be approved or rejected.

Adhil Shetty, CEO of, said: “Beyond the creditworthiness of the applicant, the loan could also be rejected for technical reasons. For example, there are problems or errors in the application or the educational institution for which the loan is requested does not have the necessary accreditation with the UGC or the AICTE, or the course n is not eligible for financing under the terms and conditions of a lender. “

Thus, students must check the eligibility criteria for taking out a loan before applying.

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