The cost of higher education is spiraling especially so if one is seeking admission overseas. Education loans offer help in fulfilling the dream of a higher education by bridging the gap between what one has and what one requires to pursue that dream in terms of finances. These loans are usually the first form of debt that an individual seeks and they set the foundation of your future life in more ways than one. Education loans are part of priority sector lending, which means banks are directed to try and not deny loan to any student who meets the requirements. Thus it is not only your moral responsibility to repay the loan that is extended to you at easy terms and allows you to prosper in future but it is advisable for your credit health also to repay these loans. Non Repayment of Education Loan and Its Impact: Depending on the bank’s policy, institute to which the student has applied and the amount of loan, an education may require collateral, guarantor or both. Most banks insist on a guarantor before they accept a loan application and for loans bigger than a certain amount collateral may be asked. In case of non-repayment of the loan by the applicant, the guarantor will be asked to pay, and in case that person also defaults then the CIBIL score of both will be affected adversely. Obviously the guarantor is not called into the picture immediately, the applicant is given a chance to make good on his default and only after three successive defaults by the applicant the bank will contact the guarantor. These defaults will be recorded on the CIBIL report of the applicant and even if the guarantor/applicant does pay the amount subsequently the negative impact on the CIBIL cannot be ignored. If the bank has insisted for collateral then obviously the bank has the option of seizing the collateral to recover the unpaid amount. So whether you have taken a loan for yourself or for a loved one repaying it is important. Any delay and defaults impact the credit worthiness of the applicant and the guarantor. Often years later, you may realize that the education loan that you took years ago and failed to repay completely comes back to haunt you when you want to apply for a house loan or a vehicle loan. Almost 10% of the education loans extended by banks have been classified as NPAs by the year end 2015. Banks now insist on getting PAN and Adhaar details and make sure that defaults are reported in CIBIL database unlike a few year back. Managing Your Education Loan the Smart Way: Banks allow a moratorium of six months after you get a job or till one year after the course completion for repayment. Since in early days after taking up a job (usually) the responsibilities are less; thus it is best to start repaying your loan at the earliest. Do not wait for the “right” job to start the repayment and do not pile on more liabilities just yet. The priority must be to pay the earlier debt before you start splurging or planning of new debt for a vehicle or luxury items. If possible try and pay some amount during the course duration to ease of the EMI burden post course completion. Obviously the bank will start calculating the interest immediately post disbursement, thus each year the interest burden keeps adding up. Colleges do not take the entire course fee in one go so it makes sense not to get the entire loan amount disbursed immediately. Get the loan disbursed as and when the college requires you to repay the fees, this will ease the interest burden. In the eventuality of not getting the job rather than defaulting or running away from the problem, try and work out a solution with the bank. Though hard to convince banks may agree to extend the loan moratorium especially if the job market is bad in general or you can work out a lower EMI plan. Education loans offer tax benefits which may vary from year to year. Usually the interest paid on education loans is available as a tax deduction under Section 80E, the amount eligible may change. Make sure you are aware of the rules and make the best use of the benefits available. As stated earlier this is you first debt, treat it responsibly and repay it on time. You may choose to ignore it or forget the education loan but your credit report may not. Whether willful or erroneous defaults area strict a no no!
[Source:- Moneycontrol]
