Education Loan Guarantor: Meaning, Role & Responsibilities

Higher education opens pathways to new, high-calibre opportunities. However, acquiring higher education today is somewhat cost-intensive, especially when you enrol in top universities or opt for a foreign education. This is where an Education Loan helps provide hassle-free access to funds that can be used to finance the cost of everything from tuition fees to gadgets.
In some cases, where the loan amount is high or the lending risk is high, an Education Loan guarantor plays a crucial role in qualifying for the loan. A guarantor provides a formal guarantee to the bank or financial institution that the loan will be repaid on time. In this blog, we will understand the meaning, role and responsibilities of an Education Loan guarantor.

What is an Education Loan Guarantor/Co-applicant?

An Education Loan guarantor is an individual who signs the loan application with the primary borrower and shares equal financial and legal responsibility of repaying the loan. The guarantor agrees to repay the loan if the primary borrower defaults. As Education Loan tenures are often longer, guarantors reduce the risk of lending.

The guarantor’s credit history, income stability, and financial standing play an important role in the application by assessing the repayment capacity. It helps the primary borrower get higher loan amounts.

The guarantor’s financial obligations and accountability are homogenous to those of the borrower. This is the reason both must completely understand the specific eligibility criteria, including the importance of their financial stability.

Why Do Lenders Ask for a Guarantor?

High loan amount education loans, e.g., for overseas studies, entail significant sums and long repayment tenure, often requiring collateral from the borrower. Banks and Non-Banking Financial Companies (NBFCs) face a fundamental risk because the borrower is commonly a student without a regular income. Here are the key reasons why lenders require an Education Loan guarantor:

• A guarantor offers financial support, which lessens the risk of the lender in case the borrower fails to repay.

• A guarantor with a good credit score and stable income enhances the credibility of the borrower and the likelihood of getting loan approval.

• In case of default of the student or the primary borrower, the guarantor can be held responsible for repaying the loan balance.

• The lender's internal policies require a guarantor on loans over a specified limit (typically over ₹7.5 lakh).

A guarantor reduces that risk for the lender (banks and NBFCs). The lender estimates the guarantor’s credit history and financial position. It also includes their credit profile and income proof to ensure reimbursement is guaranteed.

Who Can Be an Education Loan Guarantor?

While preconditions may change across lenders, the guarantor is usually a financially steady person related to eligible students. Here is everyone who can be a guarantor for an Education Loan:

• Siblings or close relatives

• Parents or legal guardians

• Spouse/Companion (for working professionals)

• Close family friends with a strong financial record

Eligibility Criteria for an Education Loan Guarantor

Here is an eligibility criterion that an individual must meet to qualify as an Education Loan guarantor:

• Citizenship: Should be an Indian citizen and resident.

• Age: Usually between 21 and 65 years.

• Income: Must possess a consistent, verifiable income from a job or business.

• Credit Score: A Good credit score of 700 and above.

• Relationship: A parent, guardian or close relative of the student.

• Financial Stability: Should demonstrate the capacity to repay the loan in case the borrower defaults.

• Documents: Evidence of income (salary slips, ITRs), bank statements, and ID/address evidence.

Roles and Responsibilities of an Education Loan Guarantor

Here are the important roles and responsibilities of an Education Loan guarantor:

• Guarantee the lender that the loan will be repaid even in case the student is unable to repay it.

• Become legally responsible to pay the loan outstanding in case of default by the borrower.

• The loan will be reflected on the credit report of the guarantor, and default will impact their credit score.

This is why you must examine the Education Loan agreement carefully to understand legal liability and prevent any financial burden. A guarantor must demonstrate strong financial stewardship by ensuring that all loan repayments are made on time.

Financial Consequences for a Guarantor

If you are a guarantor, it means that the lender is checking your financial records to ensure you can pay. The loan impacts your credit report and worthiness for future credit scores.

Influence on Credit Profile

Credit bureaus such as CIBIL keep a record of the guarantor’s name against the borrower’s loan. Any failed EMI payment will affect both credit scores.

• Influence on Credit Profile: Credit bureaus such as CIBIL keep a record of the guarantor’s profile. Any failed EMI payment will significantly reduce your credit score.

• Influence on Future Borrowing Capacity: If the borrower becomes a defaulter, the lenders may consider you a high-risk individual.

• Capital Debt: In critical situations, lenders can proceed with legal recovery from the guarantor’s assets.

An Education Loan guarantor plays a crucial role in supporting a student’s educational journey. Their financial credibility provides the borrower support to access quality education and get opportunities that may otherwise remain beyond reach. For students, having a reliable guarantor can open doors to better loan terms and higher approval chances.

If the lack of funds is preventing you from achieving your academic goals,  apply for an Education Loan with Poonawalla Fincorp. You can get a high loan amount of up to ₹1 crore without any collateral and secure admission in your dream university, whether within the country or abroad. Apply now and explore more benefits on the official website.

Frequently Asked Questions

Can I be a guarantor for multiple education loans?

Yes, you can be a guarantor for multiple education loans, but you must note that lenders may examine your income stability and liabilities before considering it.

Is the guarantor’s permission mandatory for every disbursement?

No, but the guarantor signs the original agreement. However, they should remain informed of all disbursements and repayment details.

What happens when the borrower moves abroad after the loan is sanctioned?

The guarantor remains liable for repayments in India if the borrower defaults on clearing the loan.

Can a guarantor get out of liability mid-term?

Normally, no. The guarantor’s liabilities end only when the loan is fully reimbursed or the lender officially releases them through written formalities.

Does being a guarantor impact income tax advantages?

No, only the borrower can claim tax deductions under Section 80E for Education Loan interest. The guarantor does not get any tax advantage.

Do all education loans require a guarantor?

Not always. Most banks and NBFCs do not need a guarantor on loans of up to ₹4 lakh. A guarantor or collateral is, however, usually required for higher loan amounts or for studies abroad.

What are the principal roles of a guarantor?

A guarantor is someone who agrees to pay back the loan in case the borrower defaults.

Will it impact my credit score because I am a guarantor?

Yes. The Education Loan is reflected on your credit report, and late EMIs by the borrower may adversely affect your credit rating.

What does a guarantor need to provide?

The documents that are normally needed are PAN, Aadhaar, salary slips, bank statements, income tax returns (ITRs), and proof of residence.

Can a self-employed individual be a guarantor?

Yes, as long as they can provide evidence of stable income, e.g. ITR filings and business financial statements.