What Makes Securing An Education Loan So Challenging For Students

Taking an education loan to fund your higher studies is undoubtedly a better choice when in a financial crunch, but there are some aspects that might get in your way while applying and being approved for the loan. The number of documents, the requirement of collateral, interest rates and volatile world conditions all have a role to play. 

According to data published by the rating agency Crisil, education loan is the fastest growing asset class for non-banking financial companies (NBFCs). Assets managed by NBFCs for education loans are stated to reach Rs 80,000 crore in March 2026. 

Despite this growth, there are multiple obstacles that may prevent a student from getting an education loan. A Reddit user (Odd-Reach3784) posted a query asking for advice regarding some difficulties he is currently facing with documentation and eligibility criteria. 

The user states that due to him scoring lower in the 12th standard than what banks ask for to be eligible for an education loan, he is not getting the total loan amount to cover his tuition fees. His parents are also not able fund the whole course and he himself is financially dependent on them. 

This brings us to the question: What are some of the most common but unnoticeable hurdles that students face while trying to acquire an education loan for higher studies?

Documentation And Verification

A student is normally required to provide an admission letter, fee schedule, academic records, identity proof, and parent/guardian income statements. Any missing or invalid document can cause a hold-up in loan approval. Some lenders call for foreign study particulars like visa status or cost breakdown, which introduces steps. These hold-ups can impact joining timelines or create ambiguity for students and families.

Collateral Or Co-Applicant Requirements

For large-value loans (generally more than Rs 7.5 lakh), lenders also demand collateral in the form of property, fixed deposit or other valuables. Students from family backgrounds with few assets to their names can find it hard to meet this requirement. 

A co-applicant (generally a parent/legal guardian) with good income or credit history is generally required as well. When either requirement isn't satisfied, the loan will either be declined or approved at less favourable terms.

Interest Rates And Additional Costs

Interest charges on education loans are different. For inland studies, the rates range between 8 per cent and 15 per cent per annum. For study abroad loans, the lowest rates quoted are about 9 per cent and may vary with lender, course, security, etc., and might go up to 16 per cent per annum.

Additional fees like processing fees, margin money (requirement of student/family to provide portion of cost), currency risk for studies abroad and interest accretion during the course period add to the real burden. If repayment is initiated shortly after the study without a moratorium period, the borrower incurs a bigger liability than expected.

Limited Awareness And Unequal Access

Students from smaller towns or less-resourced backgrounds might lack complete awareness of loan types, eligibility and repayment terms. Some lenders or schemes might not be extensively available outside major cities. The absence of proper information or financial guidance may result in students applying for loans with incomplete knowledge or making decisions they may reverse if they had access to complete information.

Global Uncertainty Slowing Growth In Overseas Loans

Although total education loan growth continues to be positive, the pace has slowed on account of considerations such as visa uncertainty in key destinations. For example, Crisil states that sector growth is likely to moderate to around 25 per cent in the current fiscal year, a significant drop from 48 per cent last year and 77 per cent the year before.

With fewer students studying abroad or postponing courses, those considering overseas study may experience increased hesitation, and lenders may make the requirements more stringent for such situations. The same report by Crisil also states that education loan disbursements to the US have declined by around 30 per cent post-Trump's announcement regarding the H-1B visa.

What This Means For Students

If you are to take an education loan, you may face obstacles you hadn't anticipated: gathering required documents, fulfilling collateral/co-applicant requirements, dealing with higher interest and other charges, and identifying repayment duties in the wake of international study plans. Being aware of such potential challenges will help in better planning, deciding on the institution and course wisely, evaluating loan terms, planning for the complete cost, including accommodation, and making repayment arrangements.