Basics of Education Loan and What to Do When You Can’t Repay It

Posted by sunny on June 9th, 2021

We have always been told that education is everything. No matter what your definition of success is; whether it is getting a high-paying corporate job or a low-key life of living in the mountains with animals, education is inevitable for survival. That said, availing of education is a privilege that is not enjoyed by all. It is expensive particularly if you want to pursue it from a revered institute. Enter education loan! 

What is an education loan?

Just as the name states, an education loan is money borrowed by a student or a parent from a financial institution for pursuing education. Education loans are available for a variety of courses including under graduation, post-graduation, overseas studies, vocational courses etc. For getting an education loan, not only must the applicant fulfill eligibility criteria but might also be required to keep an asset as collateral. 

Why opt for an education loan?

• Quick disbursal.
• Chasing dreams without worrying about finances.
• Education loan interest rate can be pretty affordable especially if the applicant or the guarantor has a good credit score.
• EMIs paid towards education loans are a tax-deductible expense under section 80E of the Income Tax Act, 1961.
• Only interest on the education loan will be payable during the course term.

What can you do if you cannot repay your education loan?

Before you apply for education loan, it is very important to know what happens if you default or are unable to pay your dues on time. Your future depends on education, education depends on the loan, and thus knowing about all the outcomes is a no-brainer.

• If you are unable to get placed or say a pandemic like COVID has stalled your chances of a good job and you are unable to pay back your education loan to the provider, you will be given repeated notices. 
• After your grace period is over, your guarantor will be sent a notice.
• If none of you can oblige, your loan account will be classified as a non-performing asset.
• Once you are tagged as NPA, your credit score will go for a toss and no other bank might ever provide you with loans. Moreover, the lender will start the recovery process by taking ownership of the asset pledged by the applicant as collateral. 

If under any circumstance, you are not in a position to repay your debt, contact your provider and work on a feasible solution.