Father Seeks a Loan for Son's Education Without Collateral Using Daughter's Income

Ans: Funding your son's higher education in the USA without collateral is a significant financial challenge, but it’s not insurmountable. Your daughter’s current CTC of Rs 4.5 lakhs and her CIBIL score of 630 are important factors in this situation.

Evaluating the Situation
Loan Requirement: Rs 40 lakhs for higher studies in the USA.
Daughter's CTC: Rs 4.5 lakhs per annum.
CIBIL Score: 630, which is considered a low score.
Given these details, the primary concern is securing an education loan of Rs 40 lakhs without collateral and improving your daughter's CIBIL score.

Recommendations for Securing the Education Loan
1. Improving Your Daughter’s CIBIL Score
A CIBIL score of 630 is below the threshold most banks require for unsecured loans. Here’s how your daughter can improve her score:

Timely Bill Payments: Ensure all existing loans, credit card bills, and EMIs are paid on time. Late payments significantly impact credit scores.

Reduce Credit Utilization: Keep credit card usage below 30% of the available limit. High utilization can lower the credit score.

Limit Hard Inquiries: Avoid applying for new credit cards or loans until her score improves. Each application can lower the score further.

Check for Errors: Regularly check the CIBIL report for errors or discrepancies and have them corrected if found. Even small errors can impact the score.

2. Alternative Education Loan Options
Given the need for a loan without collateral, consider the following:

Non-Banking Financial Companies (NBFCs): Some NBFCs offer education loans without collateral, though interest rates may be higher than banks. These companies might be more flexible with lower CIBIL scores.

International Loan Providers: Some international financial institutions offer education loans specifically for students studying abroad. These loans may not require collateral but could have stricter eligibility criteria.

Co-Applicant Option: If her CIBIL score doesn’t improve quickly, consider having a co-applicant with a higher CIBIL score, such as a relative, to enhance the chances of loan approval.

3. Government Schemes and Scholarships
Central Sector Interest Subsidy Scheme (CSIS): This scheme provides interest subsidy for students from economically weaker sections for a moratorium period. Check eligibility based on family income.

Scholarships: Encourage your son to apply for scholarships available for Indian students in the USA. Scholarships can significantly reduce the need for loans.

4. Employer-Sponsored Loans
Approach Employers: Some companies offer loans or financial assistance to employees' children for higher education. Your daughter's employer may have such provisions.
Other Important Considerations
1. Budgeting for Repayment
Loan Repayment Plan: Before taking a loan, ensure there is a clear repayment plan in place. The EMI on a Rs 40 lakh loan could be substantial, depending on the interest rate and tenure.

Part-Time Work: Consider the possibility of your son working part-time during his studies in the USA. This income can help with living expenses and reduce the loan burden.

2. Financial Planning for Your Daughter
Given her current CTC of Rs 4.5 lakhs, here’s how your daughter can manage her finances better:

Increase Savings: Encourage her to save a portion of her income every month. These savings can be used for emergencies or to pay off any existing debt, which will improve her CIBIL score.

Avoid New Debts: Until her CIBIL score improves, she should avoid taking on any new debt. This will also help in managing her financial obligations better.

3. Consider Family Support
Family Contributions: If possible, family members can contribute towards the education fund. This could reduce the loan amount needed and ease the financial burden.

Liquidate Non-Essential Assets: If your family has any non-essential assets that can be liquidated, consider using these funds for education.

Final Insights
Securing an education loan of Rs 40 lakhs without collateral and with a low CIBIL score is challenging, but it can be managed with careful planning. Focus on improving your daughter’s CIBIL score, explore alternative loan options, and consider any available scholarships or financial assistance. A clear repayment plan and family support will also be crucial in managing the financial burden effectively.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in