How to Apply for a Student Loan Without Collateral

For students hoping to pursue further education at esteemed institutions in India or abroad, an education loan is a tremendous asset. The cost of higher education continues to climb, making it more difficult for parents to spend their money to fund their children's education.

Herein lies the role that student loans play. These loans provide students with financial assistance so they can pursue higher education in India or abroad.

Overview of Education Loans in India

In addition to college scholarships for worthy students, taking out education loans has become a common strategy to pay for higher education. In India, the procedure for acquiring student loans has become easier over time.

Families may now apply for educational loans online and get the money swiftly and hassle-free.

In India, there are many banks and NBFCs that provide student loans. Parents and students can evaluate and compare different education loan options to find the best offer.

Benefits of Education Loans

·        Extended moratoria

·        Simple online form

·        Benefits from taxes under Section 80E

·        Payment terms that are adaptable

Collateral Requirements for Education Loans in India

To lower the risk of the loan, banks and NBFCs want a guarantee from a third party or collateral. In the event that the borrower defaults on the loan, the lender will use the collateral to recoup its losses collateral security is frequently in the form of real estate, including houses, apartments, bungalows, and land, as well as other assets like life insurance, fixed deposits, etc.

Small education loans up to Rs. 4 lakhs are exempt from collateral requirements, according to RBI standards. Most lenders want a third-party guarantee when the loan amount reaches Rs. 4 lakhs, which is typically provided by the parent (s). When the loan is for a higher amount, lenders additionally demand that students provide collateral.

Loan Amount

Collateral Requirements

Up to Rs. 4 lakhs

No collateral is needed.

Rs. 4 lakhs to Rs. 7.5 lakhs

Usually, no collateral is needed but lenders ask for a third-party guarantor.

Above Rs. 7.5 lakhs

Collateral is needed.

How to get an education loan without collateral? 

1.      Request an education loan through the CGFSEL Scheme.

When applying for an education loan that is more than Rs. 4 lakhs, the majority of lenders demand that the borrower put up collateral. However, borrowers are not required to put up any security in order to secure loans through the CGFSEL (Credit Guarantee Fund Scheme for Education Loans) program.

The CGFSEL was launched by the central government on April 1st, 2019 to provide students with uncollateralized education loans. The program provides a guarantee for student loans issued by the IBA (Indian Banks Association).

In general, collateral is not needed for student loans up to Rs. 4 lakhs. Loans obtained through the CGFSEL, however, offer loans up to Rs. 7.5 lakhs without a requirement for collateral or a third-party guarantee.

Characteristics of Education Loans Backed by CGFSEL

To assist deserving students who want to pursue higher education in India or abroad, the IBA (Indian Banks Association) has developed a Model Education Loan Scheme. The characteristics of student loans under this program are:

·        In accordance with the model higher education loan program, a student may borrow up to Rs. 10 lakhs for an education loan. It costs Rs. 20 lakhs for education abroad.

·        There is no need for collateral for student loans up to Rs. 7.5 lakh. This lending cap may be changed by the fund as necessary.

·        No margin is required for loans up to Rs. 7.5 lakh.

·        15 years is the maximum repayment period. 

·        The highest rate of interest for loans awarded under this scheme is 2% above the base rate. If the interest rate charged by the lender exceeds this cap, the loan is not covered by the CGFSEL.

·        After their studies are finished, students are given a one-year moratorium on repayment.

·        This program covers all education loans provided by the IBA (Indian Banks Association) to qualified borrowers. For education loans made under this program, the IBA offers general rules. But keep in mind that it is up to each bank to carry out the project in reality.

·        Loans issued under this program must comply with the NCGTC's requirements.

·        Education loans offered by all major lenders, including SBI, HDFC, PNB, Axis Bank, and ICICI are covered by the CGFSEL.

The list of educational institutions and programs for which this guarantee of collateral-free education loans is provided has been released by the government.

What loans for higher education are not covered by this program?

• Unreliable loans for schooling that don't fit the guidelines established by the RBI and the federal government are not acceptable.

• If an education loan has an interest rate that is 2% higher than the base rate, it is not eligible for this program.

• Under this program, a case is not qualified for assurance if it is deemed dangerous for the government. 

2.      Apply for an Education Loan with a Private Lender 

Recently, a number of private banks, including Axis Bank, ICICI Bank, and NBFCs, began giving meritorious students uncollateralized education loans. Here are a few of India's top private lenders for student loans:

Axis Bank Education Loan 

For students wishing to continue higher education in India or abroad, Axis Bank offers educational loans ranging from Rs. 50,000 to Rs. 75 lakhs. This is an appealing choice because of the quick disbursements, online loan applications, and flexible payback.

Interest rates for student loans at Axis Bank

Loan Amount

Effective Interest Rate

Up to Rs. 4 lakhs

15.20%

Loans above Rs. 4 lakhs but lesser than Rs. 7.5 lakhs

14.70%

Loans above Rs. 7.5 lakhs

13.70%

2.      ICICI Bank Education Loan

For further overseas Study loan, ICICI Bank offers loans up to Rs. 1 crore, and for higher education in India, up to Rs. 50 lakhs. The key characteristics of ICICI Bank's student loans are:

• Loans up to Rs. 20 lakhs have no margin.

• The loan amount covers tuition, housing fees for students, and other unrelated expenses including laptop, visa, and travel charges.

• Interest rates for graduate programs begin at 11.25% annually, while those for undergraduate programs begin at 11.75% annually.

However, contacting a private lender has a number of disadvantages, including hefty interest rates that start at 11%. Borrowers can reduce the interest charges assessed on them by posting collateral.

Alternatively, applicants may provide a third-party guarantee when requesting an education loan without collateral. However, take note that in the event the principal borrower defaults, the third-party guarantor will be responsible for repayment.