Loan

Students and recent graduates face a lot of difficulties in the repayment of their education loan.

Due to this, RBI has announced a Moratorium for all term loans including education loans. If a relative has a home loan, it could be a nice idea to take a top-up on it, use it to repay the education loan. 

Pain Points

As the new hiring and employment status is stagnant during the ongoing pandemic, it is difficult to repay the loan.

Also, US immigration and custom force agency has declared last week that students who have their classes entirely on the online mode, have to go back to their have countries. This would probably lower the chances of Indian students to have high-income job opportunities in the USA, after graduation.

According to data obtained from CRIF High Mark, a credit evidence company, as of March, there were 24,89,737 active education loans by Indian lenders and the outstanding was92,711 crore. The lateness of active loans unpaid by 90 days was up 13.34% in March 2020 from 12.76% in December.

Let’s see the different ways to navigate through the dilemma

 Temporary solutions

  • Moratorium:

 Education loan has a different criterion. Lenders give a moratorium during the course period. In some cases, pupils don’t need to pay any money until six months after the fulfillment of the course. Some lenders charge simple interest during the course period and some may expect the student to start giving money of the normal loan interest, which is higher, immediately.

Due to the prevailing pandemic, the Reserve Bank of India (RBI) has also declared a moratorium for all term loans, including education loans. Students who are about to finish the course or have completed the course can go for the moratorium RBI has confirmed where they won’t need to pay even the interest charges.

This, however, comes at an expense. The interest that the borrower forgoes spending during the moratorium time is added to the principal. As the principal amount increases, so does the EMI and interest outgo. The longer you stay to begin the repayments, the higher interest you would be paying, said Adhil Shetty, CEO, Bankbazaar.

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  • Refinancing:
    This may not be suitable for the ongoing situation, Go for this only if you are giving a lower interest rate than what you are paying at present. The lower EMIs may give you some assistance.

If you have a loan over 10 years, even a 25-30 basis points (bps) variation can result in savings. But if your term is below 10 years, the interest rate difference between the old and new lenders should be 50 bps or extra. One bps is one-hundredth of a percentage point. Otherwise, the cost of the switch, comprising 1% file charges, 1% processing charges and maybe even a 0.5% prepayment liability, will eat into the profits from the lower rate of the new lender, said Khosla.

According to the sources, this year banks will see educational loans sympathetically.

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