Ever wondered how lenders assess your profile for a student loan?

In simple terms, lenders invest in you, the student, when they fund your higher education. But investment comes with risk. As of March 31, 2019, the number of students able to secure loans fell to 2.5 lakh from 3.34 lakh students four years earlier. Moreover, the percentage of defaults on education loans rose to about 9% from 7% in the same period. (data courtesy CRIF High Mark, IBA).

Because of the sheer amount of applications they get and to mitigate risks of non-payment, lenders need to be extra careful before sanctioning a loan. Hence, they scrutinize each loan application and subject it to stringent conditions before making a decision.

While lenders may offer you terms based on your specific circumstances and unique profile, there are some common factors they consider before sanctioning a student loan. These include:

Academics

Great test scores don’t just help you get into grad school; they also help you get through it. They indicate your commitment and effort.

Like universities, lenders also recognize effort. As a result, they tend to offer loans with better terms (like a lower interest rate or higher loan amount) to students with higher GRE/GMAT and language test scores or higher percentage/GPA in their Bachelor’s degree. The higher your scores, the better your chances of getting good terms.

School Reputation

When you search for universities, you probably don’t just look at academics. You also pay attention to past placement history, average salaries, and industry connections. Lenders do the same.

For lenders too, an offer from a reputed graduate school serves as a strong indicator of your earning potential and future career success as a professional. As a result, they favor students holding offers from institutions they feel are better. Interestingly, each lender prefers a different set of institutions - sometimes they are disclosed on their website and sometimes they aren’t.

Program Type

We’re living through a new industrial revolution, where automation is already a norm and super-specialization is steadily gaining relevance among graduates. Naturally, certain fields have become more popular than others and in today’s job market, seemingly provide a more stable guarantee of a good career.

Just as they estimate your potential for success based on your institution, lenders also analyze whether you will be able to pay off your loan. For this, lenders determine your program’s related benefits and the relevance of your subject in the near future. Additionally, lenders assess your program’s learning outcomes to predict your Return on Investment (ROI), i.e. your ability to pay back. This also serves as a method of risk-aversion for them. However, you should note that not all banks are well equipped to differentiate profiles based on this factor yet.

Creditworthiness

This is perhaps the most important factor of all for a majority of the lenders. Lenders pay special attention to your and your co-signer’s (if available) financial capacity and intention to repay. Creditworthiness is determined by looking at credit history reports and job profiles (if applicable) of either the applicant or the co-signer. Nearly all public sector banks and some private sector banks & NBFCs will only give you a loan based on whether collateral is being offered. But ultimately, a good credit history translates to better loan terms.

Finding a loan with good terms is hard, but not impossible. It is merely a matchmaking process. Lenders want to invest in good students. Also, some offers may only be made to a particular student by a particular lender. Therefore, it is very important for you to ask as many of them if you suit their criteria. You can learn more about student loans and scholarships here