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Overseas Education Loan Repayment: Comprehensive Guide

Pursuing higher education in a foreign country can profoundly affect one's life, but it is not without its challenges. Those who have struggled to pay for their education overseas now have a viable choice.

What is an Overseas Education Loan?

Loans for higher education are used to pay for tuition, books, and other fees associated with a student's time spent overseas. Education loans are given to students to pay for their education, including accommodation and food, tuition, and other related expenditures, while they are enrolled full-time at an accredited institution.

Advantages of Obtaining a Student Loan

Sometimes a family's income and savings will need to be more to cover their child's total college education cost. A student can avail of a loan from a bank, an NBFC (Non-Banking Financial Company, or an international lender. All or a portion of higher education expenses can be financed through a student loan. A student who takes out a loan to finance their education abroad need not worry about their ability to finish college.

Most people view loan debt as unfavorable. You are taking out a loan to purchase an asset whose value will fall over time. Loans for higher education are unique since they represent a personal investment in one's future. The money you make from this will considerably exceed the amount you have to borrow.

What will happen if you don't repay it?

If you take out a student loan and cannot return it within the specified time frame, you will be in severe financial straits. The repercussions of not making a repayment depend on the three conditions below. The specifics of each scenario are determined by the size of the loan you apply for. Not making payments on an Indian student loan could result in the three outcomes listed below:

Scenario 1: If the total amount of the loan is around forty lakhs
Scenario 2: A Guarantor is involved
Scenario 3: Collateral or security involved

Scenario 1: The total amount of the loan is 40 lakhs 
In this scenario, let’s assume that you have taken an education loan for abroad studies without collateral of amount 40 lakhs, which signifies that it has been taken by NBFCs, as only they provide such an amount without collateral. More importantly, a guarantor is not typically necessary for this type of credit. The lender will begin to send alerts, if required, like warnings. However, you will be labelled a defaulter if you ignore this and avoid paying payments.

When you default on a loan, your credit score drops and is registered with the CIBIL office. To top it all off, the CIBIL will add your name to its list of defaulters. It will prevent you from getting a loan in the future or until your credit is better. 

Scenario 2: A Guarantor is Involved
Financial institutions mainly Banks will not grant loans to people who don’t have any credit history or collateral unless a guarantor is present and has a high credit score or a positive history with the lender. If you and your guarantor are having trouble making payments on a student loan, the lender may send you and your guarantor letters of warning/alerts.

The lender will issue more reminders to the guarantor if you both fail to comply and initiate repayment. If the loan defaults, your credit score, and the guarantors will take severe damage. In addition, CIBIL's defaulter list could feature you and your guarantor for an unknown period.

Scenario 3: Collateral or Security involved
A lender may need a mortgage on an asset as collateral or security if the student borrows considerable money for school. As a result, you might get a better interest rate on your student loan. Mortgage rates are also affected by the value and nature of the secured collateral.

You will be given letters and cautions from your lender if you cannot repay your school loan. If you fail to repay your loan, the lender will be entitled to the mortgaged property. Your lender can sell or use any assets you own if you default on your payments. Note that this part of selling comes, when you have not made any payments against your loan and are not communicating with the lender for the same. The lender will do an Auction of your collateral/security to recover the money. 

Your credit score will drop significantly, and you will be added to CIBIL's defaulter list. Making it closer to impossible for you to take any future loan.

Although increased access to student loans is excellent news for students, experts advise students to exercise caution before committing to one. The education you pursue must contribute to your ability to pay back the debt.

How to plan your repayment?

For example, if you have taken a loan of 40 Lakhs and if you follow the bank period, you'll have to pay nearly 70-80 lakhs. Home loans will require a penalty if you try to foreclose them. But in Overseas Education loans, RBI has given a waiver that you can repay after the moratorium period plus a grace period of 1 year to six months, without any penalty. 

It may be challenging to pay back student loans if sufficient planning is not done in advance. Many college students in India worry that they won't be able to repay their international student loans. They are ignorant that these concerns can be quickly alleviated by carefully considering and planning before choosing the loan.

To plan the repayment, you must know the processes and other elements of foreign education loan repayment in India. Read on to learn more about the process and rules that can be utilised to organise the repayment of your student loans.

Procedures for Repaying NBFC Loans

For instance, you want to apply to a university in Canada. One of the primary benefits of obtaining a student education loan from an NBFC is that applicants do not need to provide collateral to secure a loan of up to 50 lakhs and depending on your profile you can get a loan of up to 60 lakhs too. The typical grace period for unsecured student loans is after the study program period of 6 months to 1 year. 

After graduating, students with unsecured student loans begin making payments (EMIs) on the loan's principal amount. But if you want to start your EMIs sooner, you will have to send a letter to the Institution you got your loan from about starting EMIs. The lending institution may extend the repayment time for an unsecured student loan by up to ten years. The grace period for education is factored into this overall repayment schedule.

Procedure for Repaying Federally Guaranteed Student Loans

Government banks offer more lenient terms for paying back education loans, which helps students become more financially savvy. As a rule, Government backed financial institutions will temporarily suspend payments, and borrower of student loans does not have to start paying anything toward their loan balances until the moratorium period ends.

Depending on the policies of the lending bank, the moratorium period may last anywhere from six months to a year following the completion of the course. Government banks determine interest due during this period based on a base interest rate. After this period, the initial instalment of your EMI payments is due. Until the end of the moratorium period, government banks cannot pressure loan borrowers into making repayment plans.

Following the end of your grace period, most government banks will give you between 12 and 15 years to repay your student loans.

Students will only have to make payments after they've been out of school for around six months or more. They'll be able to use that time to look for work and get back on their feet financially before making any repayments. Your education loan will cover the cost depending on the college you enroll in. Typically, it will pay for anything from 90% to 100% of the bill. 

The purpose of this article is not to make you fear the banking system or the money you must pour into Overseas Education. If you wish to Study Abroad, it’ll cost you; that’s a fact. But remember the opportunities it brings later. As you have read above, no banking institutions charge a single penny while you are studying, as they know the amount of pressure it can cause. Your first payment will commence after your study program period is over. After it, a grace period of 6 months to 1 year is given by all banks, giving enough time for you to get a job of your choice and be financially stable before starting your EMI.

For any further queries, contact Elan Loans. And if you want to apply for a loan, Elan will assist you with that, with their 16+ Partnered Banking Institutions. To date, more than 15,000 students’ dreams of studying abroad was made possible, through their aid. 

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