Banks and NBFCs need collateral to limit credit risk. Because students have no source of income or have
to leave their jobs to pursue higher education, banks have collateral that can be seized to recover their
losses if they cannot pay the loans.
Loans without collateral can be obtained from banks and non-bank financial companies if certain criteria
are met. There are some points that you should know about using a loan without collateral:
- As per the RBI guidelines, all banks have their rules & regulations for providing unsecured education
loans of up to INR 7.5 lakhs if the borrower has a cosignatory. If you want to get an education loan
above INR 7.5 lakhs, Non-Bank Financial Corporations (NBFCs) offer loans of up to INR 20 lakhs without
- Interest paid on a student loan is eligible for tax breaks under Section 80E. But watch out! Not all
unsecured loans qualify for this.
- The interest rate rises by 1-2% if no collateral is provided, but getting a loan is faster because the banks
do not need to check the collateral.
- Your profile is most important if you can't make guarantees. Banks consider your employability based
on your academic status, college reputation, standardized test score (GRE/GMAT), income of your
cosignatory, etc. Banks will only increase their student loan limits if they are confident in your job
stability. Normally the bank offer unsecured loans above INR 7.5 lakhs to Ivy League colleges (in the case
of foreigners) and prominent institutions like IIMs and IITs (in the case of India).