Russia-Ukraine crisis impact: What happens if you default on your education loan? – Times of India

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NEW DELHI: Bank lending to students is down by 2.4% annually to Rs 63057 crore in January 2022 as bankers have become cautious owing to several factors like pandemic-induced uncertainties, job losses, and pay cuts. There are also chances of increased cases of loan defaults by students who returned from Ukraine due to the country’s ongoing conflict with Russia.
Data from the Reserve Bank of India shows that the education loan portfolio of banks fell 3.7 per cent between 2020 and 2021 and by another 2.4 per cent between 2021 and 2022.
Education loans by nature are risky because they can be availed without collateral if the loan is below a certain ticket size. And incase of default, recovery becomes challenging.
Currently, the Indian students who had gone to Ukraine for their higher education not only had to flee the country, but also face the burden of paying penalties on repayments of education loans if their graduation and job placements are delayed. Usually, student loan agreements do not have provisions for relief due to war, unlike life insurance policies. However, in such situations, banks usually negotiate with borrowers for restructuring of the loan, extending the tenure, or providing a longer loan moratorium on a case-by-case basis.
“Unless lenders or the government announces a debt relief program, the student will have to repay their loans. Borrowers may reach out to their lenders to understand the way forward. Also, it may be premature right now to talk about repayment and defaults. It’s possible that students will get to resume their studies in some form and complete their education. After that point comes the moratorium – usually a few months long – and only after that do the students need to start repayment. Only those students whose repayments will be due in the next few months need to concern themselves with their debt. The others need to wait and watch what happens in Ukraine,” says Pankaj Bansal, Chief Business Officer, BankBazaar.
When does an education loan need to be repaid?
Education loans usually come with a moratorium of 6-12 months once the course is completed. Repayment typically begins a year after the completion of the course or within six months of getting a job, whichever is earlier. During the course period, the bank charges simple interest rate on the loan.
“Usually, education loans need to be repaid 1 year after you start working. If you happen to default on an educational loan, you need to approach your lender / bank and ask for an extension on the repayment dates / schedule. In no case, take another personal loan to repay your educational loan. If possible, take a collateral free loan from your friends / family / relatives and make your EMI payment,” advises Mandar Marathe is CEO & Co Founder, Koppr.
Is there a collateral?
Banks insist on collateral for loans that are above Rs 7.5 lakh. Collateral can be in the form of insurance policy in favour of the bank, or a house or property. A loan backed by collateral usually comes with a cheaper rate of return.
What are the consequences of defaulting on education loan repayments?
“Defaulting on any loan can lead you into the vicious circle of higher interest on repayment if you do not resolve the issue quickly.The objective should be to reduce the impact of the default by relooking at your current assets and if any liquid assets are available then it is better to use them to reduce the damage. You can also approach your bank to seek help on deferment as this gives you some more time to plan out the repayment,” said Harshad Chetanwala, Co-founder, MyWealthGrowth.com.
The penalty for non-payment is a credit score hit or forfeiture of the collateral. Also if the loan is due for a longer duration, the interest will also go up.
Ukraine is known for its low-cost medical education. If the costs are low, the borrowings would also be low. Once these students complete their education and start repayment, they will be able to pay off their dues. “A small loan at the start of one’s career need not be a financial impediment to anyone. Regular repayments will eventually settle the matter. In the worst-case scenario where they’re unable to repay their loans, their collaterals may be forfeited for recovery of dues. A default will also reflect against their credit history. This can be a short-term impediment. They have the option to repay their dues in full in the future and repair their credit score,” explained Bansal.
Since majority of the students are yet to complete their studies, there is no immediate pressure of repayment of the loan unless they opted for interest payment during the study period.
Lenders may also permit students to transfer to other universities:
Students in Ukraine may have the option to shift to similar courses in other erstwhile members of the Soviet Union, such as Kazakhstan. With the transfer, students can complete their education, start their careers, and comfortably repay their dues. For any extension of the loan tenure, interest will continue to add.
You could negotiate with the bank to restructure your loan:
In August 2020, the Reserve Bank of India (RBI) had allowed restructuring of loans without classifying them as NPAs to help individuals manage the financial stress caused by the pandemic. And then in May 2021, due to the second wave of Covid-19, it announced a second resolution framework for many borrowers including individual borrowers.
Restructuring includes rescheduling of payments, conversion of accrued interest, and granting moratorium for a maximum period of 2 years as per the borrower’s income. To be eligible for this restructuring the borrower should have made regular repayment till March 31, 2021



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