Education Loan Eligibility Criteria Guide For Indian Students

There is nothing better than a degree from abroad to make your CV look attractive to headhunters from around the world.
A foreign degree, from an accredited institution, can open doors, get you the best internships, and position you among the best and brightest. What follows is a quick climb up the corporate ladder and a seven-figure salary.
The sole problem for most students is that education abroad can be costly. A degree from the USA can cost more than ₹ 50 lakhs.
Where would you find that kind of money if you were not born with a silver spoon in your mouth?
It’s easy with education loans from banks and financial institutions. We discuss different education loan eligibility requirements. Read on to know more.

Education Loan Eligibility – a look at the different factors

Before you can obtain a loan first check if you fulfill the criteria for an education loan. This is a generalized list that covers various education loan eligibility factors we have gleaned from different financial institutions.
Of course, the details might slightly vary between Bank A and Bank B. The first might accommodate a loan application (not disbursal) without proof of admission and Bank B might allow a loan for a vocational diploma (e.g. culinary skills).
But these remain the basic criteria for education loans in India.
● The loan applicant must be an Indian citizen.
● The applicant must be a resident of India. If the applicant is a Resident Not Ordinarily Resident (an Income Tax benchmark for those who have spent several months abroad) banks would look at the status before granting the loan.
● The applicant must not be less than 18. Usually, the cut-off age is 35 years. Those who want to pursue a doctoral degree from abroad after 35 can request special consideration.
● The applicant must currently be a student in India at a college or university recognized by UGC or AICTE and a similar body.
● They should have proof of admission to a foreign university or college. The admission cannot be after the loan has been granted.
● They must have a solid educational background. This is more or less a must have criteria for an education loan.

Education Loan Eligibility Table

Applicant’s Age

Between 18 and 35 years

Nationality and Citizenship

Indian

Age Range

18 to 35 years

Academic Qualification

Secured good score in Grade X and XII and pursuing undergraduate, post graduate or doctoral course

Admission Courses

Bachelor’s, Master’s and Doctoral Courses

Income source

Family

Admission Status

Confirmed admission to a foreign institution

  

What documents are necessary?

A loan is a legal agreement. The bank or lending institution has full right to scrutinize paperwork submitted by the loan applicant and co-signer.

ID Proof

PAN card, Passport, Aadhar Card, Voter ID card, Driver’s License

Age Proof

PAN card, Aadhar Card, Passport, Birth Certificate, Bank Passbook, Driver’s License

Address Proof

Aadhar Card, Voter ID card, Driver’s License, (rent receipt or utility bill in own name is valid address proof but not many 20 year olds have them)

Documents of Co-signer

Form 16, past three years (for salaried co-signer)

 

Salary Slip, past one year (for salaried co-signer)

 

P/L Account, Balance Sheet, past three years (for co-signer owning business)

 

Bank Statement, past three years

 

Income Tax Return, past three years

Documents related to collateral

Title Deed of house, property or document showing ownership of asset.

  

Do I get the loan before I get admission?

One of those chicken and egg situations. Which comes first?

When you want admission to a foreign university many would like to see proof of funds before they admit you and issue a SEVIS ID (for the USA, other nations have similar documents).

After all, the university would like to be assured that you would show up and pay the required fees. Otherwise, in the middle of the first semester, they would have to hunt for new students.

The bank would want proof of admission before they disburse the fund. They consider it the primary criteria for an education loan.

Quite a Catch-22.

Private players such as Avanse offer a pre-approved higher education loan. HDFC Credila provides educational loans without any proof of admission.

But for the rest, there is no other way.

You could arrange for a private source to temporarily show sufficient balance. Otherwise, it is best to explain the situation to the disbursing officer of the bank. They are no stranger to this question and ask if it can be solved with a Letter of Credit, Bank Guarantee, or an escrow account (account from which you cannot withdraw the amount for private use).

When you take help of FundRight, you don’t have to bother about such niggling details. Our partners understand your dilemma and would sort it out.

Who is a co-signer?

Banks like assured returns. They want loans to be paid off in full.

A co-signer is a co-borrower who is there to make sure the loan is paid back. They sign the loan contract alongside the applicant.

If the bank cannot recover the loan EMI from the applicant they would ask the co-signer to pay. Banks cover their downside and having a co-signer is a necessary criteria for an education loan.

The co-signer has to be an Indian citizen who agrees to repay the loan in full including all levies and penalties.

But there is a catch. Only a family member is accepted as a co-signer. Usually parents, spouses, or parents-in-law. In some cases, banks would allow a sibling (e.g. elder brother) to be a co-signer.

But they do not allow uncles, cousins, or grandparents. Friends are also not allowed to be co-signers.

Note that a parent or anyone else cannot sign on as a co-signer without having the ability to repay.

They have to demonstrate that they have a suitable income stream that is stable and reliable. It is a key factor in education loan eligibility.

Someone who has defaulted on a loan in the past but has a steady income now cannot be a co-signer either since they would have reduced the CIBIL score.

Can a bank provide a loan without a cosigner? It all depends on how they view the situation.

If you are going abroad for a STEM course and have received admission to a top university and the only thing lacking is a co-signer, a bank might overlook that aspect.

Your parents would have to sign on as a co-applicant but not be liable for repayment.

When it comes to education loans much depends on the student, course, the school opted for, and future earning potential. A bank is hardly likely to refuse someone’s loan when they might very well turn out to be a huge customer after six years.

Without worrying so much, why not sign up for FundRight? Our experts would help you get a loan within a week.

Which details do banks scrutinize most?

Banks pay a lot of attention to the following details and decide your education loan eligibility:

The past academic record and future earning potential of the student are paramount. Goes without saying that someone wanting to do a Master’s in Data Science from Purdue University would have an easier time than someone studying Fine Arts at Piedmont University.

Banks like to audit the papers submitted by the co-signer. If the co-signer is a businessperson then the examination is greater. In the eyes of a lending institution, a job is seen as more stable than a business.

Banks also like to know the other outstanding loans of the applicant and co-signer. More loans translates to a greater EMI burden. If someone with an annual income of ₹ 15 lakhs is repaying a car loan and home loan, they would find it difficult to service an educational loan on top.

Do all banks grant a moratorium?

Yes, they do.

Banks realize that it is impossible to pay EMI while studying. That is why there is a moratorium of 1-3 years before you have to start paying the EMI.

In the meantime, the loan goes on collecting interest. Few banks allow the parents to clear the interest component since it can be recovered under Section 80E of the Income Tax Act. It makes sense to pay the interest since 80E can only be applied for 8 years, notwithstanding any moratorium.

How early should I start to look for loans?

Let’s take an example.

Raj Arora wants to study MS in the USA in 2024.

Typically, academic sessions in the US begin in August-September after Labor Day weekend.

He has to appear for the GRE in September 2023. The test results take a month. Then he can look at schools for admission in the 2024-26 session.

He should start to search for loans from January 2024. The first part is research and application.

Raj must receive admission by April and the loan shortly after.

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