Reasons Why Student Loan Application May Be Rejected


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

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

In this article, we take a closer look at why lenders may refuse 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 take into consideration the applicant’s educational background, type of course, future job prospects, ability to repay after placement, type and value guarantees offered, the reputation/rating of the educational institution concerned and the income and credit profile of the parents/guardians who acted as a co-borrower or guarantor when evaluating an application for a loan from Failure to satisfy the lenders for any of these eligibility criteria may result in the rejection of the loan application.

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

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

Adhil Shetty, Managing Director of, said: “Beyond the applicant’s creditworthiness, the loan could also be refused 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 UGC or AICTE, or the course n is not eligible for financing under a lender’s terms and conditions.

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

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