Can You Use Agricultural Land as Collateral for Study Abroad Loan

In India, higher education is seen as a passport to a well-settled career. However, with the cost of education inflation currently pegged at 10%, pursuing higher studies has become increasingly challenging. Education loans come as a blessing for students who need financial help to chase their dreams. Since its introduction by SBI in 1995, education loan firms have disbursed INR 23,640 crore in education loans during the 2021-22 year. 

Now before we start, you need to understand the types of Overseas Education loans, which are Secured and Unsecured. 

Secured Loan – A loan backed by collateral, reducing lender risk and offering lower interest rates. 

Unsecured Loan – A loan without collateral, relying on the borrower’s creditworthiness. Higher risk for lenders, resulting in higher interest rates and stricter eligibility requirements.

This article explores whether agricultural land can be used as collateral for securing an Overseas Education Loan and the alternatives available to students.

Agricultural Land as Collateral – A Practical Possibility?

Despite RBI’s suggestion that banks sanction education loans to farmers and their children, public banks, private banks, and NBFCs have mentioned that agricultural land is not accepted as collateral for education loans. One possible reason could be the inability to raise security from agricultural land if the loan becomes a Non-Performing Asset. Consequently, it is practically not possible to use agricultural land as collateral.

Alternative Collateral Options for Securing Education Loans

In case you are looking for a secured loan, and agricultural land is not a viable option as collateral, students can consider the following alternatives:

  1. Immovable collateral: Lenders accept various types of tangible collateral such as flats, houses, plots with boundaries, or shops. Third-party collateral can also be attached if the owner agrees to mortgage the property on behalf of the student.
  2. Movable collateral: Students can pledge intangible assets such as Fixed Deposits, Government Bonds, Mutual Funds, National Savings Certificates, or Life Insurance Policies. The assets could be in the student’s or a relative’s name.
  3. Gold ornaments: Students can mortgage gold ornaments for their education loans.

The worth of the assets offered as security must be equivalent to or surpass the requested loan sum.

Secured Overseas Education Loan and Unsecured Education Loan Options

For students planning to study abroad, a Secured Overseas Education Loan can be obtained using the same alternative collateral options mentioned above. Additionally, they can avail of Education Loan Tax Benefit on the interest paid on their education loans under Section 80E of the Income Tax Act.

No worries about collateral. Unsecured loans get sanctioned and disbursed quickly, based on the applicants’ profile. Looking at the demand of students requiring finances to study abroad, some private banks, NBFCs and even Public banks have raised their loan limit for unsecured education loans. 

Assessing Your Alternatives & Making the Right Choice

Understanding the available options for education loans is crucial for students and their families. It is essential to evaluate the loan offers from various banks and NBFCs, considering factors such as interest rates, repayment terms, and processing fees. Additionally, students should be aware of the documentation requirements and the timeframe for loan processing to ensure a smooth application process.

In conclusion, the landscape of education loans in India presents a myriad of possibilities for students aspiring to pursue higher studies, despite the challenges posed by the rising cost of education. While agricultural land may not be accepted as collateral for education loans, students have numerous alternative collateral options to secure a loan, ranging from immovable properties to movable assets, and even gold ornaments. For those seeking overseas education, secured loans and Education Loan Tax Benefits are available to ease the financial burden. Unsecured education loans remain a viable choice for meritorious students who may not have collateral to offer. By diligently evaluating loan offers and understanding the intricacies of the application process, students can confidently navigate the path to obtaining the financial support they need to turn their dreams into reality.