The estimated spend by Indian students on higher education stands at Rs 1 trillion. With only about 20% penetration on education loan, this market is bound to grow since Indians are increasingly opting for specialized courses for their children. The parents are today pushing their wards to undergo higher education so that they can have a better start in their career and over a period establish their employability. Since the cost of professional education is high, more and more people will take the borrowing route to fund the expenses.
We have come across various queries on what would be the fate of education loan application if the parent has had a bad run with finances and has defaulted on the loans in past. Will the student be able to secure a loan despite week credit profile of parent or will he have to forego the dream of completing the education with having a masters or professional degree.
As per common understanding, the answer to this is "NO". However, from our perspective, the answer to this query would have a "YES" as well. To put is simply, there may be conditions that would help securing a student loan irrespective of parent being a loan defaulter. Let us understand this little better.
It is a commonly known fact that one needs to have a good credit profile to be able to secure a loan. In case one has impaired credit history, access to loans would be an issue and one may be required to look for a personal loan for low CIBIL score. But the loan is being extended to the student so why would the parents' default plague his chance of securing the loan? The answer to this is that one of the parents becomes co-applicant in the loan application and if he/she has defaulted in past, it is most likely that the bank will reject this application as well.
The education loan is be perceived to be repaid either by the student himself or by the parent. In case of repayment being committed by parent, his default in past becomes a difficult task for the underwriter to give a positive decision and in case the repayment is to be made by the student on getting employed, the underwriter believes that the tendency of default may be there in the child as well. And with no guarantee of job (unless it is a high end course that is in demand) the loan request is bound to get rejected.
Reasons why the answer will be YES
However, there may still be a chance to get the loan despite the parent having an impaired repayment history. The following factors may lead to approval of loan.
While the possibility of getting funded for higher education exists despite bad credit history, it is always advisable to repay the loan in full and have the negative flags removed from the report. In the event of these negative flags’ existence the future of child may get jeopardize.