Should You Cancel An Abroad Education Loan in India?

Studying abroad is a dream come true for many students in India. Getting a chance at availing of a better education and the lure of better-paying jobs is what attracts a majority of Indian students to well-reputed, international universities. When it comes to obtaining the funds to study in foreign countries, most students turn to an abroad education loan in India.

This article aims to clarify some of the common reasons why students opt to cancel their education loans when they should be taking this step and the cancellation policies of the various lenders that grant an abroad education loan in India.

Before learning more about the education loan cancellation process, it is important to understand that an abroad education loan in India is divided into two major categories. The two groups of abroad education loans in India have been narrowed down to secured education loans and unsecured education loans, based on the need to pledge collateral security against them.

A secured education loan is used to refer to education loans that are granted based on collateral security. All the government banks in India majorly provide secured education loans to students. When it comes to pledging collateral security, most of the banks have divided collateral security into three categories:

• Immovable Property: An immovable property is one of the most frequently pledged categories of assets as collateral against an abroad education loan. This category involves assets like a house, a residential flat, a plot with defined boundaries, an independent house, non-agricultural land, etc. come under this category. The value of the property must exceed the total education loan amount required by candidates. This is a mandatory requirement and all candidates are required to meet this to get any government bank education loan.
• Liquid Security: Did you know that government banks do accept liquid assets as collateral against an abroad education loan in India? Assets such as Fixed Deposits, government bonds, life insurance policies from government-approved lenders, etc. are accepted by government banks like the SBI, BoB, etc. as collateral security.
• Third-Party Assets: This provision is only applicable to government banks, especially SBI education loans and Bank of Baroda education loans. In case a candidate does not possess any of the above assets or if their values do not cover the required education loan amount, then they can pledge a third party’s assets as collateral security against government student loans. This third party essentially refers to individuals who are not part of the candidate’s immediate family. E.g., uncle, aunt, friends of the candidate or the primary co-applicant, etc.

We hope that the above information has given you a rough idea of what secured education loans are all about. If you have any queries regarding the education loan process or wish to seek assistance in getting an abroad education loan in India, reach out to the financial team of WeMakeScholars.

Read about MS in the US: Types of Collateral Security For Student Loans in India

As the name suggests, unsecured education loans are granted without the involvement of any kind of collateral security. Lenders of unsecured education loans always take a good look at the loan applicant’s profile before making a concrete decision to grant the education loan. 

NBFCs and private banks are some of the major providers of unsecured education loans in India. Since these loans do not involve collateral security of any kind, the interest rate of education loans without collateral is higher as compared to those of government bank education loan interest rates. The education loan interest rate charged by private banks and NBFCs varies depending on numerous factors. One of them is the country of study chosen by loan applicants. Here is an overview of the estimated education loan interest rate levied by NBFCs and private banks for the following countries:

1. USA: 11.5% to 12.75%
2. Canada: 12% to 13%
3. Germany, UK, France, Ireland, etc: 13% to 14.5%

Overall, the interest rate of education loans without collateral from NBFCs and private banks may roughly vary between 11.5% to 14.9%. 

As there is no collateral security involved in the non-collateral education loan process, lenders, especially the NBFCs, pay close attention to the universities into which the students have been accepted. This is why NBFCs and private banks maintain a list of universities and countries that are approved for an education loan by them.

Now that you have read about the two distinct types of study abroad education loans in India, let’s move on to the talking point of today’s article - student loan cancellation.

An abroad education loan in India is one of the best ways of funding your higher education overseas, as it comes with a lot of benefits. However, not all applicants for a study abroad education loan may agree to this point.

More often than not a lot of students who take on secured education loans often develop cold feet and are concerned about the safety of their assets which are pledged with government banks, while some others are concerned about the education loan repayment. In most cases, it is their concern about repaying the education loan that drives many students to request the cancellation of student loans. To ease your worries, here are a few points that explain why an abroad education loan cancellation may not be the best decision. 

The following points will help keep your worries regarding an abroad education loan in India away:

1. It is safe to pledge your assets with government banks. In fact, if loan applicants have pledged their residence as collateral security, they will not be asked to vacate the same just because it has been pledged with their lending bank for an abroad education loan in India.
2. All government banks grant a repayment tenure of 15 years to loan applicants. This time duration provides students with sufficient buffer time to find the means to repay their education loans.
3. The same rule applies to students who have borrowed unsecured education loans. All NBFCs and private banks have declared to extend the education loan disbursement dates of students whose study abroad education loan has been sanctioned but their intakes have been postponed.
4. Unlike foreign education loan lenders, Indian lenders offer multiple benefits to education loan applicants. A payment-free moratorium period is one of them.

Taking on an education loan in recent times when universities are making unpredictable decisions on student intake may seem scary. If your university has decided to postpone your course to next year and you don’t know what to do about it, do get in touch with the financial team of WeMakeScholars before deciding to cancel abroad education loans.

It is common knowledge that the cost of studying abroad is way higher than studying in India. Hence, while applying to cancel an abroad education loan in India, it is necessary to remember that students are expected to abide by certain rules and regulations laid down by the lending institutions. Hence, it is recommended that applicants should apply for an education loan cancellation only under the following circumstances:

1. If applicants wish to stop their studies mid-course, they may notify their respective lenders and apply for an education loan cancellation.
2. If they are compelled to drop their studies due to dire circumstances such as a grave, physical injury, or in the worst-case scenario, death.

Cancelling education loans can be a long process. Before making a decision to cancel abroad education loans, get in touch with the WeMakeScholars team for guidance. Government banks and private lenders have different policies when it comes to cancelling education loans. Let us take a look at them.

The rules and regulations of government education loan lenders regarding student cancellations are divided into two different scenarios:

1. Applying For a Cancellation of Education Loan Before Disbursement
   When students apply for their education loan cancellation after the education loan has been sanctioned and before it is disbursed, they are required to submit a request to their respective banks. If the lending banks are convinced of the reason behind the applicant’s request, students should not face a lot of hurdles in getting their government bank education loan cancelled. However, they will not be eligible for a refund of their processing fees under any circumstances even if no disbursements were availed.
2. Applying For a Cancellation of Education Loan After Disbursement
   If students have already availed of their first disbursement and then wish to cancel their abroad education loan in India, they will be required to repay the principal amount, along with the interest accrued during the period. Once this requirement is fulfilled, the lending government bank will accept the cancellation request and the respective abroad education loan can be cancelled.

The student loan cancellation policies of NBFCs and private banks differ from those of government banks. Again, the rules for cancelling an education loan without collateral can be divided into two phases:

• Applying For Cancellation of Education Loan Before Disbursement: Although the policies laid down by NBFCs and private banks regarding the cancellation of an education loan without collateral are not uniform at all times, most of them allow students to cancel their education loan before disbursement. However, the processing fees are not refunded under any circumstances. Applicants who plan on cancelling their unsecured education loans before disbursement must keep in mind that NBFCs and private banks charge close to 2% of the total education loan amount as processing fees. These processing fees will not be refunded to the borrower if they choose to cancel the education loan without collateral. Hence, it is recommended that before deciding to cancel your unsecured abroad education loan in India, you give it another thought.

• Applying For A Cancellation of an Education Loan Without Collateral After Disbursement: Once their education loans are disbursed, loan applicants are not allowed to take any action on the disbursed amount for close to six months from the date of disbursement. If students wish to cancel their loan after six months of disbursement, they will be required to repay the entire principal amount, along with the accrued interest of six months. Once this financial obligation is fulfilled, students can go ahead with the cancellation procedure of their unsecured abroad education loan in India.

The cons of cancelling an abroad education loan in India outnumber the pros. Cancelling an abroad education loan in India can prove to be more costly than the entire application process. Unless and until circumstances do not compel you to cancel your abroad education loan, it is recommended that students should refrain from beginning their cancellation process.

Self-funding and scholarships are the only other ways which could aid students in funding their higher education abroad. Very few students are successful when it comes to winning fully funded scholarships to study abroad, and unless loan applicants have a sturdy financial background, pooling an entire lifetime’s savings into higher education will cause economic instability. With every passing year, studying in universities across the globe, especially those located in countries like the USA and Canada, is becoming costlier. Hence, you need to ensure that you have sufficient funds that can help you get through your course abroad before requesting your lender for an education loan cancellation.

The financial officers of WeMakeScholars are well-equipped with sufficient information to guide students along their education loan process. Hence, before you make concrete plans to forgo your decision to fund your higher education loans.