Obtaining an education loan is often a necessary step for Indian students planning to pursue higher studies, regardless of whether it is in India or internationally. Parents are concerned that either their low CIBIL score or their child’s low CIBIL score will lead to a complete rejection of a loan application. Most lenders want a co-applicant, such as a parent, to have a score above 650, but the parents’ score does not exclude them from potential accommodations in receiving funding if they have a lower score. There is a workaround and practical options available for students who want to obtain government or private funding.
It can be extremely helpful to understand how lenders assess creditworthiness in today’s competitive education environment. Banks and NBFCs will look at multiple areas such as, but not limited to, income, existing debt, repayment history, not just the CIBIL score. International lenders typically focus on different areas beyond the parents’ credit history, such as the students’ attendance at a recognized institution, the student’s earning potential post-graduation, etc.
In this blog, we will cover all the factors you need to consider for applying to an education loan when your parents have a low CIBIL score. We’ll cover practical approaches to increase the likelihood of your loan being accepted, potential alternative financing approaches, and tips on education loans for study locally or oversees. In the end, you’ll have a clearly defined process in whatever you need to know to navigate a low CIBIL score and get the resources your child needs for education funding &zips, without a lot of unnecessary stress.
What is CIBIL Score?
A CIBIL score is a numerical representation of your creditworthiness, and it is derived from your credit history. It is a three-digit number formulated by TransUnion CIBIL, which is one of India’s premier credit bureaus. It ranges from 300 to 900, a higher score indicates a better financial history, and Credit Card approvals/loans are likely.
A CIBIL score is calculated based on various parameters including repayment history of loans taken, credit card spending, previous debts, and the duration of time you have had credit. Banks and financial institutions check an individuals CIBIL score to determine whether they are a risk to lend money.
For education loans, lenders often take into account the possibility of having a co-signer (most of the time a parent or guardian) whose CIBIL score is above 650, because a score this high demonstrates a solid chance the loan will be repaid. Alternatively, you aren’t left out of getting an education loan if your score is lower than that. Many banks or NBFC’s will often look at other factors like income levels, stability in employment, and that the student has admission in a recognized institution.
Understanding Credit Scores
A credit score is a numerical representation of an individual’s creditworthiness, ranging from 300 to 900. It helps lenders determine how likely a person is to repay borrowed money. While a score above 650 is generally preferred by banks and financial institutions, students applying for education loans often have little or no credit history. In such cases, lenders give more weight to the co-applicant’s credit profile usually a parent or guardian along with the student’s academic background and admission to a recognized institution. Here’s a breakdown of credit score ranges and their implications for education loans:
| Credit Score Range | Creditworthiness | Implications for Education Loan |
|---|---|---|
| 800 – 850 | Excellent | High chances of approval with favourable terms and lower interest rates. |
| 740 – 799 | Very Good | Likely approval with good terms and competitive interest rates. |
| 670 – 739 | Good | Approval is possible, but terms may vary depending on other factors. |
| 580 – 669 | Fair | Loan may be approved with conditions, such as collateral or a strong co-applicant. |
| 300 – 579 | Poor | Low approval chances; lenders may require collateral or an exceptionally strong co-applicant. |
| NA / NH | No History | Lenders rely on the co-applicant’s credit profile and student’s academic credentials to make a decision. |
Can Students Still Get an Education Loan If Parents Have Low CIBIL?
Having a low CIBIL score does not mean that a student is automatically disqualified from an education loan. While banks and NBFCs like to have co-applicants with a strong credit profile above a CIBIL score of 650, latterly, families will always have options with low CIBIL scores. After recently reviewing policy of lenders are conducting a holistic assessment and not necessarily based on CIBIL score, but other critical factors like student admission, studying in a recognized college and the co-applicants income and financial position. After all, educators and institutions want to see students receive an education loan. Hence, while some functions will vary depending on the lender, here are a few ways a student can improve the chances of an education loan with a low CIBIL score:
- Providing a strong co-applicant: If one parent has a good credit history, their profile may bolster a lower CIBIL score of the other parent.
- Providing collateral or security: Some lenders may approve a loan if tangible collateral (property, fixed deposit) is provided.
- Apply through NBFC or find a specialist lender: Private NBFCs often have more relaxed criteria in fair access to private loan compared to banks.
- Demonstrate a clear repayment plan: Demonstrating least stable income and ability to repay the loan through the co-applicants income will certainty build confidence in lenders.
Government Schemes That Can Help for Education Loan with Low CIBIL Score
For students whose families have a poor CIBIL score, some of the educational loan programs backed by the government may help. These programs exist solely to help missed-out students with an educational loan when their credit history is worrying.
1. Central Scheme to Provide Interest Subsidy (CSIS)
- The CSIS scheme is provided by the Government of India for students from lower economic sections. Therefore, the scheme:
- will provide loans at subsidized interest rates for families where the annual income is below ₹4.5 lakh (UG/PG course).
- For the moratorium period (course + 1 year) an interest subsidy is paid.
- This scheme will not be especially punishing for the low CIBIL score when the students’ academic and financial standing passes.
2. Credit Guarantee Fund Scheme for Education Loans (CGFSEL)
- The CGFSEL will allow the banks to offer educational loans up to ₹7.5 lakh without collateral. The key features include:
- Loans guaranteed above by the government induce a much lower risk to the banks.
- A student [whose co-applicants may (e.g., spouse, parents)] has a low CIBIL score will still qualify for an educational loan.
- For domestic courses only or select foreign courses, this educational loan’s versatile nature can be of great help to a student whose course would take finance on education in a foreign country.
3. Padho Pardesh Scheme
- This scheme exists in several states, and it supports students going abroad for higher studies.
- You will either get a partially funded loan or fully funded loan, and states may offer a collateral-free loan option.
- It may also enhance your chances of getting approved when your co-applicant’s CIBIL score is above acceptable scores.
4. Other State Education Loan Subsidy Programs
- Many states like Maharashtra, Karnataka, and Tamil Nadu have programs for students coming from families with low incomes.
- The schemes often include interest subsidies, flexible repayment options, or the government guarantees about a partial loan, all of which can help students avoid a direct inquiry of their CIBIL score.
Real Solutions for Students When Parents Have Low CIBIL Score
If a parent or guardian’s CIBIL score is low, getting an education loan may seem difficult, but it is possible. There are some practical steps students can take to try and mitigate the situation and increase their chances of getting the loan.
1. Go with Government Programs
- As mentioned before, programs such as CSIS, CGFSEL (Central Government Fund for Students Education Loans), and Padho Pardesh are specifically designed for students even with parents and guardians with lower CIBIL scores.
- These loans are either collateral-free or somewhat relaxed on collateral, and offer subsidies on interest to help borrowers repay the loan.
2. Third-Party Co-Applicants
- If possible, select a third-party co-signer or co-applicant with a strong profile and credit score. This can be some other family member, like a grandparent or siblings, and their income and credit profile are typically reasonable to strong.
- Every lender sees the third-party co-signer the same as the student and tends to give the co-signer more weight than the student, generally speaking.
3. Use International Lenders
- For students looking to study abroad, there are international education loan providers such as Prodigy Finance, MPOWER Financing, and Stilt to help students find and qualify for collateral-free loans with less emphasis on the co-applicants cibil.
- International education loan providers care more about someone being accepted into a university that is recognized, and also cared about academic record and a potential for future income.
4. Provide Strong Academic and Admission Proof
A student who has received a admission offer from a reputable university or program and has achieved high academic marks with a detailed cost has improved chances with lenders, even if parents’ CIBIL is low. You should include:
- Admission offer letters
- Fee structure and estimates of expenses
- Any scholarships or assistantships
5. Offer Partial Collateral
- If a lender does not offer a full collateral-free loan, you can offer to provide partial collateral, which will further reduce their risk of lending.
- Even a fixed deposit, property, or mutual fund units in the name of a family member could substantially improve your chances of approval.
6. Provide Transparency to Lenders
- If possible, state upfront that your CIBIL score is low and share the circumstances. Banks and NBFCs do not like fake documents and will consider conditional approval if other aspects of the application are strong.
7. Build a Strong Loan Application
A strong loan application, including but not restricted to the following will help your case:
- A breakdown of the total cost of the course showing the various components
- The loan request vs the total as best as possible
- Proof of scholarship, stipend or assistantship (if applicable)
- The co-applicant, or any member of the family detailed outstanding liabilities depending on income.
FAQs: Can Parents with Low CIBIL Get Education Loan for Child?
Q. Can students get an education loan if their parents have a low CIBIL score?
A. Students can get an education loan when their parents have a low CIBIL score. Lenders will look at other factors like the student’s academic performance, admission to a recognized university, profile of the co-applicant, and any government-related schemes to approve education loans.
Q. Which government schemes can help students whose parents have low CIBIL scores?
A. Schemes such as CSIS (Credit-Linked Subsidy Scheme), CGFSEL (Credit Guarantee Fund Scheme for Education Loans), and Padho Pardesh are specifically designed to assist the students who may or may not have the funds for their higher education or have low parental CIBIL scores. Generally, these schemes offer collateral-free loans or a more lax collateral score.
Q. Can international lenders provide loans without considering parental CIBIL?
A. Prodigy Finance, MPOWER Financing, and Stilt, for example, are international education loan providers that will provide collateral-free loans based on the student’s academic credentials, university admission process, and earning potential in the job market instead of the parent’s CIBIL.
Q. Is having a co-applicant necessary for education loans when parents have low CIBIL?
A. Generally yes, but potentially, with international lenders, you may be able to get loans without a co-applicant if there are issues concerning co-applicant approval.
Q. Can partial collateral improve loan approval chances for parents with low CIBIL?
A. Providing partial collateral such as property, fixed deposits or mutual funds – may give some assurance to the lender thereby decreasing risk for the lender and increasing the possibility of a loan for the student.
Q. Will low CIBIL affect the interest rate of the education loan?
A. If your CIBIL score is low, the rate of the education loan could be slightly higher or you might have some extra prerequisites with regard to getting the loan. However, utilizing governmental schemes, having some collateral to back the loan, or having a co-applicant with a strong CIBIL score can help secure a lower interest rate.
Q. How early should students start the loan application process if parents have low CIBIL?
A. The recommendation is to apply for the education loan four to six months before the course start date. Doing this will allow ample time to research the lenders, document procurement, and resolve any credit issues before course start date.
Q. What is the key takeaway for students whose parents have low CIBIL scores?
A. Low parental CIBIL is not an obstruction to attaining an education loan. Students can access an excellent education loan if they utilize government schemes, have a strong co-applicant, apply for loans with international lenders, and have adequate documentation processed.