What happens if a study abroad education loan is not paid on time in 2023-24?
The decision to choose overseas education can be a career-defining and life-altering experience. Besides, it is also important for widening your horizons and gaining a holistic perspective. However, the cost of education abroad is a significant consideration, and students often depend on study-abroad or overseas education loans to fund their academic programs. While these loans can be a lifeline to academic pursuits, there will be severe repercussions for the delay of the payment, and in this blog, we will understand the consequences of not paying overseas education loans on time or, in some cases, their failure in 2023-24.
Education Loan Repayment – An Overview
Education loan repayment is a monetary procedure of returning the borrowed money with the accrued interest within the agreed-upon timeframe, known as the repayment tenure. Repayment tenures vary and depend on the lenders, but they also offer a grace period to the borrower post-studies to find stable employment before repayment kicks in.
Mitigating the risk of default
The borrowers must take certain crucial measures to mitigate the risk of coming across as a defaulter and facing severe consequences. This includes,
- Financial Planning
The borrowers must evaluate their repayment capacity based on their future employment prospects before taking an overseas education loan. Taking a loan in a way that can be repaid within the agreed-upon time.
- Regular Communication
Having streamlined communication and informing lenders promptly regarding difficulties in financial repayment is a smart way to mitigate the risk of being a defaulter.
Consequences of Non-Payment
When a borrower fails to repay the study abroad education loan on time, the borrower will face severe consequences such as,
- Damage to credit score
Failure in repayment negatively impacts the borrower’s credit score, making it challenging to secure loans in the future.
- Legal Actions
Lenders may resort to legal actions for failing to repay an overseas education loan. The legal actions can be legal proceedings, trials, judgments, and even the seizure of assets.
- Co-signers liability
If a co-signer is involved in the overseas education loan procedure, their credit score will be equally affected in the case of delay or failure, and they may be liable to repay the loan.
Methods of Recovery
Lenders generally use two approaches to recover the sum on an overseas education loan – soft and hard.
In the initial stages, lenders may employ reminders through emails, letters, or phone calls to inform the borrower to repay the outstanding amount. If the soft approach fails, the lender may escalate the process, engaging third-party collection agencies or selling the debt to recovery firms.
Part Pre-Payment and Pre-Closure
Part pre-payment involves repaying a sizeable portion of the loan before the tenure ends, while pre-closure means repaying the entire outstanding amount before the scheduled time. These are effective options for reducing the overall interest burden and improving creditworthiness.
Repayment tenure selection
Choosing the right payment tenure is crucial, impacting the EMI amount. A longer tenure may result in lower EMIs but higher interest costs, whereas a shorter tenure leads to higher EMIs but quicker loan clearance.
Key Takeaway
Study abroad education loans offer a lifeline for aspiring students for an international education. However, borrowers must be responsible and aware of the effects of failing to repay the loan on time. Remember, responsible loan management fulfills academic dreams and preserves financial well-being in the long run.
EduLoans – Your one-stop solution for financing your international education
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