More and more students are counting on an education loan to study abroad after rising tuition and living expenses. Inflation and depreciation of the Indian rupee have also pushed the overall costs higher in recent years.
About 1 in 3 Indian students took a loan to fund overseas studies in 2024-25.
But, as you might expect, some education loan applications, especially of students from Tier 2 or 3 towns, get rejected for reasons that could have been avoided.
When I speak to students who come to GradRight, the pattern is painfully clear.
You do everything to secure your admission and then the loan file is rushed or under prepared, usually when collateral is involved.
My goal here is to help you reduce avoidable rejections on collateral loans. So that when you do borrow, it’s for the right amount and from the right lender.
Let’s look at the main reasons that get your education loan rejected and how to avoid them.
Why do collateral education loan applications get rejected?
From the outside, rejection feels random. But it’s almost never that.
When we look at students who came to GradRight after a bank or NBFC said no, the reasons repeat in a very predictable way.
Education loan rejections usually boil down to a handful of repeatable issues. Here are 10 such reasons:
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Applying in a Rush
This is the single most avoidable reason for collateral loan rejection and also the most common.
Families often start the loan process 2 to 4 weeks before the visa appointment and file the application without proper documents. They assume that banks will fast track when the intake is near. But secured loans involve:
- Legal verification of the property
- Technical valuation
- Credit checks on co-applicants
When you compress all this into a few weeks, any missing paper or query can push the file past your visa deadline. This effectively turns a delay into a secured loan rejection.
So, try not to treat your loan application like a last-minute visa document and more like a project you plan months in advance.
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Collateral Type Not Acceptable
Most rejected collateral files I see at GradRight are not about “no property”. They are about the wrong kind of property for that lender.
Agricultural land is usually a hard no for almost all lenders in India. For instance, SBI’s Global Ed-Vantage information specifies that acceptable security is non-agricultural land, flat, building or approved liquid assets.
For a lot of Indian families, the first big education loan rejection is due to collateral, they have plenty of land but not the kind banks can safely enforce under SARFAESI.
So, if your main asset is agricultural land, you can explore:
- Public sector banks that sometimes allow it under narrow rules, or
- non-collateral loans if your academic and income profile is strong enough.
Get in touch with experts at GradRight to evaluate your eligibility for unsecured loans.
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Unclear Ownership and/or Title
Another reason your education loan might be rejected is offering a disputed land or incomplete documents. From what we have seen in rejected files, education loan property documents rejection issues include:
- missing link documents in a 20-30 year chain of ownership,
- property transferred by an unregistered will or family settlement,
- no formal mutation after inheritance,
- or a pending civil dispute between co-owners.
What we advise at GradRight is to consider taking a local lawyer’s title opinion before you offer that property as security. If the property was inherited, make sure legal heir/partition issues are resolved on paper.
You must also fix obvious issues like mutation, name mismatches and missing tax receipts.
Above all, be realistic. If two siblings are in court over the same building, this is not a good collateral candidate.
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Property is Already Mortgaged
The next big cluster of collateral loan rejection causes is about how much your property can safely support, not just its type. Here are some cases where your property might get rejected:
- An existing home loan, loan against property, or business loan already secured against the same house,
- A previous equitable mortgage that was never formally closed in the records,
- Or a second charge that would push total borrowing beyond the bank’s comfort LTV (loan-to-value) ratio.
Some banks do allow a second charge, but only if the combined exposure stays within a strict LTV band (about 65-75%).
So, if your education loan requirement overshoots that, you’re looking at a textbook example of why a collateral loan gets rejected.
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Collateral Value is not Enough
Drawing into the above is the issue of property valuation in the education loan. You might get a bank valuation lower than your own estimate of the market price.
First, understand that your approved loan amount is always a fraction of the property’s assessed market value, not the full amount.
So a ₹1 crore “emotional value” house can easily translate into only ₹40-60 lakh of lendable value, depending on age, locality, and existing mortgages.
Assume that the lender will use the lower end of your expectations by default. And adjust your study abroad financial plan if the collateral can’t support your full cost of study. You can:
- Reduce the sanctioned amount and combine with scholarships, family savings or a partial non-collateral loan.
- Switch to a different property with better resale value, if your family has options.
If nothing works, explore non-collateral loans for a smaller amount plus a more cost-effective university.
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Week Profile (low credit score)
For most secured education loans, the bank is actually underwriting your co-applicant more than you.
A CIBIL score above 700-750 for the parent/guardian is what many large lenders call “comfortable.”
Repeated delays or write offs in past loans are among the most common education loan rejection reasons even when collateral is strong.
You can reduce these risks before you file the loan application.
- Pull a CIBIL report for your co-applicant before applying.
- Clear overdue credit cards / EMIs and get updates reflected in the report.
- Avoid multiple loan applications within a short period as too many enquiries hurt scores.
You can also consider a second co-applicant with better history if one parent’s CIBIL is weak.
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Unstable Co-applicant Income
Income stability also matters as much as the score.
Your education loan can get rejected if your co-applicant’s salary keeps changing, business income is highly seasonal, or existing EMIs already consume a big share of their pay.
One of the more common mistakes students make in a collateral education loan application is not choosing their co-applicant properly.
- Use a co-applicant with a steady salary or well-documented business income.
- Organise ITR, salary slips, bank statements for at least the last 6-12 months.
If your primary co-applicant has variable income, you can add a secondary co-applicant with more predictable earnings
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Co-owned Property Issues
If the property you put up as collateral is jointly owned, all owners must agree and sign as mortgagors.
Last-minute refusal by one sibling or relative often turns into a classic collateral mismatch loan rejection.
So, before you pick a property, write down the exact ownership split from the documents. And have frank conversations with all co-owners about using it for your education loan.
If even one key co-owner is clearly against it or unreachable (NRI, estranged), choose a different asset.
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Below Average Academic Profile
Even in a collateral loan, your marks still matter. Repeated backlogs, long gaps, or barely clearing the minimum marks are very common but rarely acknowledged reasons for secured loan rejections.
It is best to make your application stronger with:
- Strong standardised test scores (GRE/GMAT/IELTS/TOEFL).
- Clear SOP and placement statistics for the program.
If your academics are weak, target courses with strong job outcomes and universities with good placement records to reassure lenders.
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Unapproved Course/University
Another collateral loan rejection cause can be where you are going. Public banks and many NBFCs work off approved lists of countries, courses and universities.
For example, SBI’s Global Ed-Vantage and Bank of Baroda’s bank collateral rules for study abroad loans have lists of premier institutions and eligible programs. If your admission is to a very new or unaccredited college, your application can be perfectly documented and still get declined.
If your course is niche or new, you may need:
- An NBFC or international lender that is more flexible, or
- To provide extra documentation on outcomes and accreditation.
This is where course choice, quality and loan size have to be looked at together.
The safest way to avoid collateral loan rejections is to treat your loan application with the same seriousness as your university application.
Start early, check credit and property documents, cross-check whether your course and university appear on mainstream lenders’ eligibility lists, and run a realistic EMI plan against expected salaries in your destination country.
At GradRight, our job is to make that homework easier.
“I am immensely grateful for the support that GradRight and Prodigy Finance have extended to help me realize my aspiration of studying at my dream university in the USA. Platforms like these bring hope in the lives of students who find the current financial system cumbersome. The entire process was unbelievably easy to follow,”
— Rohit, who used FundRight to secure funding for his master’s in the US.
You shouldn’t have to run from branch to branch or face rejection. Compare education loan offers online without visiting multiple banks in person.
GradRight has already helped process around $2 billion worth of loans in the past two years and helped tens of thousands of Indian students compare lenders, negotiate better terms and avoid costly mismatches between course choice and borrowing.
