Foreign Education Loan Repayment Failure: Impact & Aspects to Consider

Imagine you've just completed a challenging but rewarding academic journey abroad. Your foreign education loan was the fuel that powered you through this experience, covering tuition, living expenses, and other essential costs. Now, as you step into the professional world, it's time to start making those monthly repayments to ensure your financial journey continues smoothly.

But what if, after your overseas education loan repayment begins, you find yourself unable to keep up with the repayments? Just as a car without fuel would eventually stall and leave you stranded, failing to repay your study abroad loan can lead to significant financial setbacks.

So, in this article, we'll explore what happens when you can't maintain your foreign education loan repayments and how you can navigate through this challenging situation.


Foreign Education Loan & Timely Repayment

Overseas education loans are like stepping stones, designed to help you reach your academic goals by covering essential costs. These loans usually offer a breathing space known as the grace or moratorium period, which lasts through your course duration plus an additional 6 to 12 months. This period is your financial buffer, where depending on the lender, you may be required to pay partial interest, full interest, or sometimes nothing at all.

But when that grace period ends, the real journey begins. You're expected to start repaying the foreign education loan through Equated Monthly Installments (EMIs), which could stretch over several years, depending on your financial situation and the agreement with your lender.

But what if, despite your best efforts, you find yourself struggling to keep up with these payments? What happens when the financial burden becomes too heavy to bear? Let’s understand the possible consequences and explore the steps you can take if you find yourself in this situation.


Consequences of Foreign Education Loan Repayment Failure

When you're unable to repay a foreign education loan, the consequences can be both immediate and far-reaching. Let’s break down what can happen one by one.

1. Impact on Credit Score & Future Borrowing Capacity

The first and most immediate consequence of missing an EMI is the negative impact on your credit score. When you miss a payment, your lender reports it to credit bureaus, which then record it as Days Past Due (DPD). Even a single missed payment can dent your credit score, making it more difficult to obtain loans in the future.

As missed payments accumulate, your credit score will plummet further, severely affecting your ability to secure any form of credit, be it a personal loan, a home loan, or even a simple credit card. The long-term effects of a poor credit score can follow you for years, making financial recovery challenging.

2. Penalty Interest & Legal Consequences

If your EMI remains unpaid for more than 30 days, lenders start adding penalty interest to the regular interest rate. This penalty can range from 2% to 4% per annum, depending on the lender and type of loan. When the delay extends beyond 90 days, the situation escalates.

The foreign education loan account may be classified as a Non-Performing Asset (NPA), marking you as an official defaulter. In countries like India, this can lead to legal action under laws such as the Negotiable Instruments Act of 1881. Such legal proceedings can bring additional monetary penalties and further complicate your financial future.

3. Soft & Hard Recovery Measures

Lenders generally don’t jump straight to extreme measures when you miss a payment. They start with ‘soft recovery’ methods, which include sending reminders and making phone calls to you and your co-applicant, often a parent or guardian.

This phase is your chance to rectify the situation before it spirals out of control. However, if you continue to miss payments or ignore these initial attempts, lenders shift to ‘hard recovery.’ Let us understand with examples.

  • Government Banks: Known for their leniency, they might delay this phase for several months. However, with time they will issue legal notices, warn to seize collateral, and ultimately auction it off if the overseas education loan remains unpaid.

  • Private Lenders: If taking a Private Bank or NBFC education loan, the lenders are more stringent. They often initiate hard recovery measures much sooner, which can include personal visits to your home or workplace to demand foreign education loan repayment.

With these potential consequences in mind, it's essential to tackle the challenges of repayment head-on and find strategies to keep your financial journey on track.


Ways to Tackle the Challenges of Foreign Education Loan Repayment

When you hit a bump in the road with your study abroad loan repayments, think of it like adjusting your course during a long journey. Just as a traveller would adapt their route and seek assistance when faced with unexpected obstacles, you can take specific actions to manage your education loan repayment challenges and keep your financial journey on track.

Here’s how to address these challenges and find a smoother path forward.

  1. Communicate with the Lender
    The first step should always be to communicate with the lender. Explaining your financial worries and discussing your options can often lead to a more favourable outcome. Lenders may offer an extension of the moratorium period, reduce the interest rate, or even restructure the loan to make the EMIs more manageable.

  2. Consider Loan Settlement
    In some cases, borrowers may fit in the criteria for education loan settlement, where the lender agrees to accept a lump sum payment that is less than the total outstanding amount. This option, though it may have an impact on your credit score, can offer some relief if you're unable to repay the full foreign education loan amount.

  3. Explore Government & Institutional Support
    Some countries and institutions offer relief programs or deferment options for borrowers facing financial hardship. It's worth exploring whether any such support is available, especially in times of widespread economic downturns or personal crises.

  4. Opt for a Foreign Education Loan Insurance
    One way to mitigate the risks associated with overseas education loans is to invest in a loan protection insurance policy. This type of insurance can cover your loan repayments in case of unforeseen circumstances like job loss, disability, or even death. While it adds to the overall cost, it can provide peace of mind knowing that your loan obligations are covered.

To wrap up, handling the repayment of a foreign education loan can feel challenging, but it’s a manageable part of the journey. Whether opting for with or without collateral education loan, it is an investment in your future.

As Helen Keller said, "Optimism is the faith that leads to achievement." While setbacks can happen, there are always pathways to manage and overcome them. So, if you are looking for tailored guidance and support, Élan Overseas Education Loans is here to assist you. With our expertise, we will assist you in finding the best solutions for your financial journey.

Don’t let challenges deter you, take proactive steps and keep moving forward. Good luck!

ELAN CTA

Articles on Overseas Education Loans

Education Loan for MS in New Zealand
Study Master of Science in New Zealand! The phrase itself sparks...
What happens when Applicant Fails to Repay the Abroad Education Loan
Imagine you've just completed a challenging but rewarding academic journey abroad....
Education Loan for Pilot Training Abroad
The aviation industry has been flying to new heights in recent years...
Loading…