Education Loan on Government Bonds, FDs & SGBs

Dreaming to study abroad often comes with financial challenges. Education Loans are a lifeline for students with higher academic goals, helping them achieve their dreams. However, Education Loans against securities are often convenient for students, as they offer faster approval.

The Liquid securities accepted in Education loans include Government bonds, Sovereign gold bonds, Insurance Policies, Fixed deposits, and Mutual funds. In this blog, we will cover what Liquid securities are, in Education Loans, and which Lenders are accepting securities against Education loans.

What is an Education Loan against Liquid Securities?

• An Education Loan against Liquid Securities is a Loan where students borrow money from Lenders by using existing Securities as Collateral. These loans are also referred to as Secured Education Loans. The Securities could be Government bonds, Insurance policies, Sovereign gold bonds, Fixed Deposits, or Mutual Funds.
• The interesting part is, here you do not have to sell your Securities; instead, you can pledge your Securities as Collateral and get the Education Loan. The Lender evaluates the value of the security pledged and then determines the eligible Loan amount.
• Many Public and Private Banks and NBFCs offer Education Loans against Liquid Securities. The loan amount depends on the Lender, the security involved, and the student's profile.

Types of Liquid Securities in an Education Loan

Below is the given list of securities that are accepted for an Education Loan.

Government Bonds: Government bonds are one of the secure forms of investments. These are the bonds issued by the state or central government to raise funds to spend on public and infrastructure development. Applicants can use these bonds as collateral to apply for Education loans. Most Public and Private banks and NBFCs accept Government bonds as security against the loan amount. To decide the loan amount, lenders consider the face value of the Government bonds.

Fixed Deposits: Fixed deposits are one of the Liquid securities used to get Education Loans. This is a Secured Loan where students pledge Fixed Deposits as Collateral to get Education loans. Lenders consider the Principal amount of the Fixed deposit to decide the loan amount the student gets. Fixed deposits are accepted by many Public and Private banks and NBFCs.

Insurance Policies: Lenders also accept a Term Insurance policy as security against the loan amount. The Surrender Value of the Insurance policy is considered by the Lenders to decide the Loan amount offered to the student. Many public and private banks, and NBFCs, offer Education Loans using Term insurance as Liquid security.

Sovereign Gold Bond(SGB): Many lenders in the Education Loan Market are offering Education Loans against Sovereign Gold Bonds. Lenders consider the loan-to-value (LTV) ratio to decide the Loan amount. The LTV ratio varies from lender to lender. However, students must conduct thorough research on the lenders offering loans against these securities, including their terms and conditions.

Mutual Funds/Shares: Mutual funds are also another form of security that lenders accept as Liquid security for Education Loans. The loan amount offered to the students depends on the loan-to-value(LTV) ratio and the type of Mutual Funds(Equity funds or debt funds) that are pledged. But students need to understand that only some lenders are offering an Education Loan against Mutual Funds.

Pros and Cons of Pledging Securities as Collateral against Education Loans

Using securities as collateral against Education Loans comes with both advantages and disadvantages. Understanding these can help students make informed choices about Education Loans. Below are a few of the advantages and disadvantages of using securities.

Benefits of using Liquid Securities as collateral to get Education loans

The following are the few benefits associated with the education loans against Liquid Securities.

Faster Loan Process: This is one of the key benefits associated with pledging Liquid securities as collateral. The process becomes faster in Education Loans with Liquid securities than in unsecured loans. Liquid securities can be easily converted into cash, which reduces the legal and valuation process, resulting in faster loan processing

Lower Interest rates: We previously discussed that Education Loans against Liquid Securities fall under Secured Education Loans. With some Securities, lenders provide loans at lower interest rates because the security involved reduces the risk to the lender. This is where lenders tend to offer education loans at lower interest rates compared to unsecured loans.

Minimal Documentation Required: Education Loans against Liquid securities often require fewer documents than other loans. Unlike tangible securities, these loans require less documentation. Along with basic documents, applicants have to provide security-related documents to proceed further.

Investment Growth: As we previously discussed, the students do not have to sell the Liquid securities. This means that the Liquid securities, such as mutual funds, shares, and SGBs, continue to grow even though they are pledged to the lenders.

Disadvantages of Using Liquid Securities as Collateral for an Education Loan

The following are the disadvantages associated with Education Loans against Securities.

1. Loan-to-value(LTV) Effect on loan amounts: As we previously discussed, Education loans are given based on certain values of the securities. Loan-to-value ratios are considered to decide the loan amount in some securities, such as Mutual Funds and Shares, which can range from 50% to 80%. This clearly shows that the loan amount is influenced by LTV.
2. Let us understand this better with an example,

• • Supposing a student who is pledging a Mutual Fund unit worth 30 lakhs. After a thorough evaluation by the Lender, the student is eligible for a 60% LTV of the Mutual Funds.
  • Then the loan amount the student gets is  60% of 30 lakhs 
  • I.e., 18 lakhs, which is less than the student expected.

Market Fluctuations: A Few Liquid securities are subject to market risks; they are affected by market conditions. This ultimately reduces the chances of high Loan amounts for students.

1. Collateral risk: If the applicants cannot repay the Loan for any reason, Lenders are authorized to liquidate the pledged securities. Lenders may even lose the pledged security.
   Limited access: A few lenders would not accept some Liquid securities, such as mutual funds, shares, SGBs, government bonds, etc., because, as previously mentioned, they are subject to market risk. Hence, it becomes difficult for students to get Education Loans against some Securities.

Valuation of Liquid Securities

The following table demonstrates which value of security is considered by Lenders as collateral.

Security	Value considered
Fixed deposits	Principal value
Insurance policy	Surrender value
Government bonds	Face value
Mutual funds/shares	Loan-to-value ratio
Sovereign Gold Bonds	Loan-to-value ratio

An education loan sanction is crucial for funding the education of many students. However, students often struggle to get their loans sanctioned without the right guidance. WeMakeScholars can help you in such situations. Our team is dedicated to assisting students in receiving Education Loan approvals on time. We provide complete Education Loan assistance to students applying through us. Request a callback today, and one of our experienced financial officers will contact you as soon as possible.

Eligibility criteria for an Education Loan against Liquid Securities

The eligibility criteria to get an education loan against Liquid securities vary from lender to lender and depend on the security pledged. However, the basic eligibility criteria lenders generally ask for are education loans against security are as follows

Co-applicant: Lenders generally ask for a co-applicant while offering an education loan. This strengthens the student profile and makes them eligible for the loan

Citizenship: Both the applicant and co-applicant have to be Indian citizens.

Academic performance: Students should have a decent academic background. This enhances the chance of loan approval.

Admission: A student must secure admission to a recognized university

Securities: The security that  is pledged must be owned by the applicant or co-applicant 

Age: the student's age should range from 18-35.

Documents required for an Education Loan against Liquid securities

KYC Documents: Identity documents of the applicant and co-applicant

• Photo ID (Aadhaar, Voter ID, Driving License, etc.)
• Passport
• PAN Card.

Loan Application Form: The student has to submit the loan application form to apply for an Education Loan.

Admission letter: An admission letter from a recognized university serves as proof of acceptance from the university.

Academic Records: The student must produce all the necessary documents that demonstrate their academic track record, such as 10th, 12th, and undergraduate.

Test Score: If the student has taken any test such as GRE, TOEFL, IELTS, CAT, etc...score card of the respective tests.

Security Documents: Students have to submit the respective documents of the security that the applicant is pledging against the Education Loan.
Please note that the required documents may vary from case to case.

Read: Documents Required for an Education Loan - Latest Checklist

Conclusion

To sum up, in this blog, we have learned about  Education Loan against Liquid Securities. How do they work, and what are called securities in education loans? Apart from this, we have also discussed the pros and cons of pledging Liquid securities against Education loans. However, pledging some Liquid securities is associated with risk, which is why lenders are very keen on the type of security that is being pledged. It is advised to do thorough research and seek expert advice in choosing the right security.

At WeMakeScholars, we have a dedicated financial officer who can guide and support you throughout the Education Loan process. Reach out to us to get expert support on choosing the right security against an Education Loan.