Everyone hopes for a profession that is financially rewarding. Graduating with honors from a reputable higher education institution is the first step in realizing this objective. But tragically, it takes more than just effort, focus, and commitment to realize this desire.
In India, the price of higher education has increased significantly during the past ten years. It is challenging for parents to pay for their children's ideal education due to inflation, rising tuition costs, and the cost of student housing.
Overview of Education Loans in India
The student or the student's parent may borrow money to pay for higher education in India. Both students looking to attend college or university abroad as well as those who want to pursue higher education in India can use it. For undergraduate, graduate, and vocational programs, loans are also available.
The following are the key benefits of taking out an education loan:
·Tax advantages under Section 80E for interest paid on student loan repayment.
· Competitive interest rates - Female students also receive significant interest rate breaks, which lowers the overall debt load. While taking out an education loan, the government also provides subsidies for students from underprivileged castes and tribes.
·The loan is easily accessible at all reputable banks and other NBFCs.
·One of the key advantages of taking out a student loan is the flexible repayment period. With other loans, repayment starts as soon as the money is received; however, with education loans, repayment doesn't start until the student has finished their studies. Students also receive a moratorium of between six and twelve months after finishing the course. This time frame enables students to postpone loan repayment until they begin to make money.
• Pays for all costs - In addition to covering tuition, education loans also pay for other costs that students may incur, such as those for books, housing, and other miscellaneous expenses.
Lenders differ in terms of the loan amount sanctioned and the interest rate levied. It depends on a number of variables, including whether you provide collateral and the guarantor's credit score, among others.
What happens if I am unable to repay my education loan?
Everyone hopes to land a job and begin making money as soon as they graduate from college or university. It might not always be possible to find a wonderful career after graduation due to circumstances beyond our control. You might not be able to get employment directly out of college due to the unstable labor market, not landing the ideal position, or failing a course.
A person may also lose their work, which would prevent them from receiving a paycheck in time to pay back the EMI. You run a considerable risk of defaulting on your student loan in such circumstances.
Like any other debt, not making your school loan payments on time has a number of drawbacks. Consequences of not repaying an education loan range from losing your pledged asset to receiving a negative mark on your credit report.
The effects change depending on the amount borrowed, the type of loan, etc. Let's examine what occurs in various situations when you are unable to repay your student loans.
1: What happens if I am unable to repay an unsecured education loan?
Typically, the lender approves unsecured education loans when the loan amount is low—typically less than Rs. 4 lakhs. A borrower who needs a small loan amount can apply for an unsecured school loan without providing collateral or getting a co-signer.
If this is the case, the lender would first send you reminders when you are late with your EMI payments. If you don't reply, the lender will consider you to be in default. As soon as you are labeled a defaulter, your credit score starts to swiftly decline.
It gets more difficult for you to get new loans or credit cards as your credit score drops. Your credit score will stay poor unless you pay the balance owing and all associated penalties.
2: What happens if I am unable to repay an education loan with a guarantor?
When you apply for a student loan, some lenders ask for a guarantor or co-signer. When the sanctioned amount is high, this is the situation. Additionally, being able to easily obtain a mortgage and benefit from cheaper interest rates on loans is made possible by having a guarantor with a strong credit score.
In this case, the lender initially notifies you and the guarantor via warning notices (s). The lender waits for a certain amount of time after you both start making payments before designating your loan as an NPA (Non-Performing Asset). This has an impact on your credit score and your capacity to borrow money in the future, as well as the guarantors.
The lender also initiates loan recovery procedures, which have an immediate effect on both the primary borrower and the guarantor.
3. What happens if I don’t repay an education loan with collateral involved?
In cases where the loan amount is large, some lenders demand that the borrower put up collateral or an asset. Furthermore, even when it's not a requirement due to default, putting up collateral might still assist you to get a loan with reduced interest rates.
If you obtained an education loan by pledging collateral, the costs of late payments may be high. The lender initially notifies you when you don't pay your EMIs on schedule. The lender sends you repeated warnings if you don't respond and get the repayment back on track.
Even after receiving these numerous reminders, you still fail to respond, and the loan is labeled as an NPA. The assets or property you have pledged as collateral will subsequently be lawfully transferred to the lender. To recoup the cost of the debt, the lender may auction the asset or property.
In addition to losing the property, the borrower's credit rating suffers, making it challenging for them to obtain loans in the future.
As you can see, not paying back an education loan can have a number of negative effects, including a decrease in credit score, a negative entry on a credit report, and the loss of any pledged property. It is obvious that the borrower is not in a favorable situation.
Are there any ways to avoid these negative consequences when you default on an education loan?
Be proactive and keep the lender informed.
· Be proactive and let the lender know right away if you won't be able to make the next EMI payment on schedule. You should initiate contact with the lender rather than wait for them to remind you of the missed EMI.
· Describe your circumstance. The lender is more likely to change the loan repayment schedule if they think you are really having financial problems. Some lenders will even prolong the moratorium until you find employment
• Request a brief deferral of the payment.
You can suspend the repayment schedule for a set amount of time with deferments. For instance, if you lose your job, you can inform the lender of the circumstance and request a postponement of the payment until you find another one.
• Change the lender for the loan.
You can transfer an education loan to a different lender that provides lower interest rates if you're stuck with one with a high-interest rate. Alternatively, you can change an unsecured student loan into a secured student loan, which lowers interest rates and lowers the cost of the loan overall.
EndNote
The first debt a person typically gets after entering adulthood is an education loan. Therefore, it's a good idea to make sure that you pay off your EMIs on time in order to raise your credit score and preserve an excellent credit history.
Although lenders are typically forgiving when it comes to eligibility for school loans, keep in mind that it is preferable to avoid failing on EMIs because the repercussions are similar to those of other loan defaults. Use the advice provided here to keep from being caught in a debt cycle caused by student loans.
Education Loan , Education loans are a very useful tool with which you can shape your dreams of higher education.
Varthana aims to satisfy the requirements of affordable school owners by providing loan capital in order that they can expand their infrastructure, invest in teacher-training, and introduce new learning methods into their classrooms.Varthana was founded with a vision to rework affordable education in India by supporting the country’s many school leaders.We do this by providing timely loans and support, specifically catered to the needs of affordable private schools, so school leaders can secure valuable resources without having to go through a long and difficult process.Varthana also supports schools with academic and management solutions that help school leaders deliver a superb education to their students and be recognized because the top school in their community.https://varthana.com/Varasiddhi, 3rd Floor, No.
5BC-110 Service Road, 3rd Block HRBR Layout, Bengaluru - 560 043Tel: 080-68455777
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