Education loans make higher education more accessible by helping students cover their entire educational expenses in India or abroad. Pledging government bonds as collateral offers higher loan amounts at lower interest rates.

Education loans against government bonds allow students to obtain the funds required for their studies without liquidating their investments. 

In this article, we will walk through what education loans against government bonds are, a;pmg with their pros and cons. We will also learn the eligibility criteria and the documents required for a student loan against government bonds.

Education Loan Against Government Bonds

An education loan against government bonds is a type of LAS (Loan against Securities) where applicants involve their government bonds as collateral for the loan. Collateral refers to the assets of the applicants that are pledged as security for the loan amount. 

Many public and private banks in India accept government bonds as collateral for secured education loans. The loan amount offered for a student loan against bonds depends on the lender and the face value of the government bond. 

Things to Consider Before Taking a Loan Against Government Bonds

  • By pledging government bonds as collateral for the education loan, students can obtain the necessary funds required for their education without having to liquidate or sell the bonds.
  • The bonds should be in the applicant’s or co-applicant’s name to pledge them as collateral for a student loan. 
  • Banks consider the face value of the government bonds for processing the education loans.
  • Banks will hold the government bonds until the loan is fully repaid.

Pros and Cons of an Education Loan Against Government Bonds

As already discussed, a student loan against a government bond is a type of LAS or secured education loan. Just as with any loans against securities, these government bond loans for education also come with certain pros and cons. The following are several pros and cons of LAS that students should consider before opting for a loan against government bonds for their education.

Advantages of a Student Loan Against Government Bonds

  1. Quick Access: This is one of the major benefits of involving government bonds as collateral for education loans. Students get quick access to the loan funds without having to monetize their investments. 
  2. Higher Loan Amounts: Banks offer higher loan amounts for education loans against securities, such as government bonds. Depending on the bank and the bond value, you can obtain up to ₹3 crores for an education loan against government bonds.
  3. Lower rate of Interest: Secured education loans are often offered at a relatively lower rate of interest.
  4. High Approval Rate: Involving government bonds as collateral security reduces the risk for the lenders. This increases the chances of approval for your education loan against government bonds.
  5. Continued Earnings: As we have discussed, students can access the loan funds without monetizing the government bonds. This means that the investments continue to earn interest, even while they are pledged as collateral for the student loan.
  6. Low Processing Fee: Public banks have a relatively lower processing fee for education loans against securities. 
  7. Flexible Prepayment Policies: Another major advantage of an education loan against government bonds from government banks is their flexible prepayment policies. Most public banks do not charge any prepayment penalties even if you close your secured education loan before the tenure ends.

Disadvantages of a Government Bond Education Loan

  1. Inflation: Government bonds are highly volatile to inflation. This means that the value of the government bonds changes accordiing to inflation. This ultimately affects the students' chances of getting a higher loan amount.
  2. Limited Access to the Collateral: Students cannot fully access the pledged government bond investments until their education loan is fully repaid and the loan is closed.
  3. Collateral Loss: If the applicants are unable to repay their education loans, banks can liquidate the pledged bonds to recover the loan amount.
  4. Limited Availability: As discussed, government bonds are affected by inflation. This is why not all banks accept government bonds as collateral for student loans. This makes it hard to find a lender offering education loans against government bonds.

Obtaining an education loan against government bonds can be quite challenging without the right guidance. Contact WeMakeScholars, an organisation dedicated to providing expert education loan support for students. When you apply for an education loan through us, our experienced team will help you find the most suitable lender for you to get an education loan against government bonds. Request a callback today to contact our team.

Eligibility Criteria for an Education Loan Against Government Bonds

The eligibility criteria for an education loan against government bonds vary from bank to bank. However, the basic eligibility criteria laid out by the banks for an education loan with collateral  are: 

  1. Co-applicant: An eligible co-applicant should sign the loan agreement alongside the student. The co-applicant eligibility for education loans varies by bank. 
  2. Citizenship: Both the student and the co-applicants should be Indian citizens.
  3. Admission Status: The student should have secured admission to a recognized university.
  4. Academic History: Students are expected to have a good academic history with at least a 50% score in their previous academic records.
  5. University: The university that the student is going to should come under the designated list of universities of the lender. 
  6. Government Bond Requirements: The government bonds should be owned by the applicant or the co-applicant.
  7. Age: Students generally aged between 16 to 35 can apply for a secured education loan from most banks. However, private lenders typically don’t accept co-applicants aged more than 60 years or nearing their retirement age.

Documents Required for an Education Loan Against Government Bonds

The following documents of the student and their co-applicants are required by banks for an education loan against government bonds:

  1. KYC Documents: 
    Copies of the documents proving the identity and address of the applicant and the co-applicant, such as:
    • A photo ID proof(Aadhaar card, Voter Id, Driving license, etc.), 
    • PAN card, and 
    • Passport. 
  2. Admission Letter:
    Students should submit an admission letter from the university as proof of their acceptance into the university. 
  3. Academic Records:
    Students should provide their academic records, such as the 10th,12th, and undergraduate marksheets, according to their lender.
  4. Collateral Documents: 
    Applicants should submit all the documents of the government bonds specified by their lender. 
  5. Financial Documents of the Co-applicant:
    Documents that prove the financial condition and creditworthiness of the co-applicant are required. These documents can vary depending on whether the co-applicant is salaried or self-employed.
  6. Additional documents:
    Lenders can also require other documents such as:
    • Passport-size photos of the applicant and the co-applicant
    • Applicable test score results, such as CAT, IELTS, TOEFL, and GRE.

Conclusion

Using education loans against government bonds allows students to get the loan without liquidating their investments. It is a type of student loan against securities that offers higher loan amounts at lower interest rates compared to unsecured education loans. Involving government bonds as collateral increases the chances of loan approval. However, finding the right lender can be quite challenging, as government bonds are affected by inflation. 

Contact WeMakeScholars to find the best lender offering education loans against government bonds. Our team will carefully evaluate your profile to help you find the most suitable loan according to your eligibility and manage your entire student loan process. Get in touch with our team today to have a stress-free education loan journey.