Student loans have become a necessity if you want to pursue higher education. However, interest rates on student loans in India are high. The reason for this is that banks take a high risk when granting a student loan. There are many uncertain variables related to the candidate, including, but not limited to, the ability to complete the course on time, the ability to get a job, etc. Thus, banks not only require high interest rates for educational loans, but in many cases they also require guarantees or guarantees. Therefore, it is imperative that you know how a student loan works. But what if you couldn`t repay your student loan? Well, in cases where it is not collateral or collateral of an asset, the bank offers a single settlement. Let`s find out more: a single settlement is offered by the banks to the borrower to settle the outstanding balance of the loan at a negotiable amount. Banks take this into account when a loan becomes a non-performing asset (NPA). Therefore, the bank decides to reduce its losses by taking into account an amount lower than the actual balance of the loan. The single regulation only comes into force if the borrower does not comply with the bank`s warnings and indices. Most banks offer an educational loan program according to the Association of Indian Banks (IBA) Model Educational Loan Program for students looking to pursue higher education. According to the program, educational loans up to Rs 4 lakh do not require collateral, those up to Rs 7.5 lakh can be obtained with collateral in the form of an appropriate third-party guarantee, while education loans over Rs 7.5 lakh require a hardware guarantee.
In all of the above cases, a joint commitment from the parents is required. Loans are also ranked according to the area chosen by the student borrower, such as leading institutions, professional courses, and management rate. Education loans up to Rs 20 lakh are included in the definition of senior RBI sector loans. The moratorium period includes the course period plus six months to one year, and the repayment period is 10 to 15 years. South India contributed more than 65 percent of total education loan NPAs, with Tamil Nadu alone recording NPAs of 3,490.75 crore out of a total of 8,587 crore in education loans at the end of December, according to government data. Of the country-specific ongoing education loans, 20.3% did poorly in Tamil Nadu and 25.76% in Bihar. However, Bihar`s burden was much lighter than Tamil Nadu`s. “There is a combination of factors that must have contributed to this increase. The financial crisis due to employment and loss of income is a key factor. In addition, repaying these loans, especially during an economic downturn, is not a priority for people because they are largely unsecured loans. A banker cannot withdraw an asset in the case of a student loan because in most cases there is no mortgage, unlike, for example, a home loan,” said Narayanan Ramaswamy, partner and head of education practice at consulting and auditing firm KPMG.
Nearly 9.55 per cent of student loans granted by public sector banks were granted by 31 of them. December classified as non-performing assets (NPA), the Union government told Parliament on Monday. “It was a good decision on the part of the government, but by the end of the period, the loss of jobs in the formal sector had become evident, which must have resulted in the deferral of student loan payments by many and more for those who exited,” said Shyam Sundar. Given the complications of a single regulation regarding a student loan, it is important not to get caught up in such a situation. You will be happy to know that you can avoid such a situation if you remain vigilant and carry out your actions intelligently. Consider some of the things you should do to prevent a deal. Of the total education loans disbursed, 366,260 accounts worth 8,587 crores went wrong, the government said. Loans for engineering courses top the list of NPAs in the education sector with 176,256 accounts amounting to 4,041.68 crores bankrupt as of December 31, 2020. “In a situation of loss of income and jobs, student loan repayments have taken a back seat to survival. In addition, students chose to postpone their studies and many had to drop out of courses such as engineering, contributing to the increase in struggling assets,” said K.R. Shyam Sundar, labor economist and academic. An RBI research paper shows that Aadhar-based information is key to tracking loan performance, and that a more flexible payment plan with a longer moratorium could potentially reduce defaults.
The paper also suggests looking at systems based on future income, although banks may be tempted to repay loans at more profitable potential prices. In addition, some domestic educational institutions also offer poor skills to students, which affects their employability, leading many lenders to forgo educational loans, said Aditya Damani, CEO of New Age NBFC Credit Fair. Also Read: 5 Tips to Increase Your Student Credit Eligibility Despite Your Parents` Low Income Read Also: Do You Know About Government Grants for Student Loans? Know features, benefits and eligibility The NPA rate for student loans was significantly higher than in 2019–2020 and is the highest in the last three fiscal years. NPAs for education loans were 7.61 percent in FY20, 8.29 percent in FY20 and 31 percent in FY31, according to finance ministry data. March 2018 at 8.11%. The category also saw significantly higher NPAs than residential, auto, consumer goods and retail loans, which ranged from 1.52% to 6.91% in the 2019-2020 fiscal year. Increasing competition, high thresholds make it difficult for some students to pursue higher education. Even if they do well academically, they cannot save their seats due to a lack of financial support. For this reason, a student loan has become a necessity if you want to pursue higher education in India or abroad. Banks take certain risks when granting a student loan to a student because there is no regular income at the time of the loan sanction and the repayment of the loan depends on the future income of the student. While personal loan growth has been around 18 percent, education loans have increased by about 6 to 9 percent in recent months.
However, student loans have surpassed the 10% mark after experiencing a decline during the pandemic period. The central government had proposed a moratorium on loan repayments to borrowers, including those who had taken out student loans in the first half of 2020. This part is more to consider for parents. Since the cost of higher education is rising at a fairly rapid rate, the sooner you start saving from your normal routine for your children`s education, the better it will be for them years later when they start paying off their loans. Save more than you need so your kids need a smaller loan amount. This will ultimately reduce the Monthly Equivalent Rate (MIR) and reduce the burden on your children after they start their working lives. Cases of students dropping out of university due to disruptions in the market, employment sector and education sector due to the Covid-19 pandemic must have contributed to the increase in bad loan cases for the category, Ramaswamy said. Private student loan processing, i.e. one-time settlement, can save you legal problems and constant communications from the bank, but it can affect your future credit goals. Why is this happening? Because the bank informs CIBIL that the credit account is not closed, but settled. This is recorded as negative credit behavior and leaves lenders questionable as to your ability to repay the loan.
This invoiced record will be reflected in the credit report of CIBIL or another office for a maximum period of 7 years. Banks` student loan portfolio rose 11 percent year-on-year in August, compared with a minuscule 0.3 percent growth in the same period a year earlier, despite concerns that banks are reluctant to offer education loans as the sector`s poor assets grow. The total outstanding loans of banks to the education sector stood at Rs 87,456 crore as of August 31, according to the latest RBI data. While student loan growth is lagging behind that of the overall personal growth segment, the former is rapidly catching up. Student loans in the banking sector rose 27% in August from pre-pandemic levels. In August 2019, the segment in circulation amounted to Rs 68,457 crore. While the gross ratio of bad loans on education books for public service broadcasters was higher at 6.8 percent as of March 31, that of private banks was much lower at 5.8 percent, the report said.