By Ajay Sharma, President and Founder – Abhinav Immigration Services
Many students choose to have an unsecured student loan to fund their higher education abroad because the application process is simple, requires less paperwork, and does not require pledging any assets as collateral.
The option is ideal for people who do not have high market value assets but need an education loan.
However, students may encounter typical difficulties during the student loan application process.
Unsecured Student Loan Challenges
The article highlights some of the biggest challenges applicants face when applying for an unsecured student loan.
CIBIL score issues
Almost all private lenders, such as NBFCs and private banks, assess several areas of your profile and that of your co-applicant. And they are particularly demanding on one metric, the CIBIL score.
Now, students face complications whether their score or a CIBIL co-applicant’s score is low on the CIBIL report. The cause of a low CIBIL score can be anything from failing previous loan repayments to applying for too many credit cards.
Financial Co-Applicant Income Issues
Private lenders carefully consider your co-applicant’s financial situation when approving unsecured student loans. This is because private lenders want interest payments during the moratorium period. And when the student is abroad, the co-applicant must make these payments.
Also, unlike secured loans, where the lender can use the pledged collateral to recover the amount in case of default, in an unsecured student loan, the lender cannot use the collateral to recover the amount. The financial co-applicant is responsible for repaying the loan if the student fails to do so.
Problems arise when your co-applicant’s income is low. Additionally, requirements for salaried and self-employed co-applicants vary by lender. In addition to income, private lenders often consider the age of co-applicants when deciding whether or not to approve a loan application.
Student Loan Disbursement Problems
When a bank sends money for a student loan to a student’s account (fees to the university and the remainder to the student), it is called an “outflow”.
Students find it difficult to travel to countries like Canada, Germany, Australia, etc., where embassies require them to transfer their tuition fees or living expenses one year prior to their visa application .
When students request a disbursement from their lending bank, the bank refuses and first requests a visa. This creates complications for students. But it would help if you had the disbursement for the visa, and the banks are not willing to release the funds without the visa.
Fortunately, the list of problems facing students with college loans is not particularly long. And that shouldn’t stop you from pursuing your educational goals with financial aid.