Education loan and default

Education loan is a smart way of fulfilling academic and career aspirations without selling your assets or liquidating your parent’s savings that they have set aside for a rainy day. However, the pandemic has left many students wondering about the consequences of non-repayment of the education loan. This article will shed light on the implications and what you can do to avoid this situation.


The pandemic has raised questions about the education loan default, consequences, and its equation with COVID. But even during the pandemic, paying your EMI within the set timeline is essential for a healthy credit score, and a healthy credit history increases your creditworthiness which allows easy borrowings in the future. You can develop a loan repayment strategy that works best for you to ensure regular payments. Besides, macroeconomic factors are looking promising this year. Furthermore, several countries are welcoming international students, and thus this is a perfect opportunity to embark on your academic journey.

Types of education loans
1. Secured Loans:

A secured loan is when you pledge any tangible or intangible asset (land, fixed deposits, etc.) against your loan. The security that you offer to the lender against the loan is called collateral. With this option, you will enjoy benefits like lower interest rates, longer tenure, and more.

2. Unsecured Loans

If you have no security to offer, you need not worry because you have an option to opt for an unsecured loan. This type of loan requires no collateral at all.

So, let’s understand the consequences of non-repayment of the EMIs of the student loan.
1. Effects on secured loans

Under any unavoidable circumstances, if you cannot pay your EMIs on time, then your financer will try to contact you or send notices. If you are unable to respond to them, the lender may classify this loan as a Non-Performing Asset (NPA). Once the loan is declared as NPA, it can put your collateral at risk. Therefore, it is imperative that you plan your repayment strategy well in advance to avoid complications in the future.

2. Effects on unsecured loans

The follow-up process will be the same as mentioned above, as the financer will initially send you notices requesting you to pay the EMIs. If you fail to communicate, the lender will list you as a loan defaulter. It will cause your credit score to decline to a great extent, post which it might be difficult for you to avail for any credit card or loans for other purposes.

3. Credit History

Whether it is a secured or unsecured education loan, not paying the EMIs will considerably impact your credit score. In addition, it will affect your overall credit health, jeopardizing your chances of getting any loan in the near future.

4. Charges

The financial institution that has released your student loan may levy additional fines and fees, which will be an additional burden on you.

COVID situation

Last year, the pandemic had raised an alarming situation, causing many financial institutions to be on high alert for loan default. Defaulting on payments can invite legal trouble making matters worse. Hence, it is ideal to plan well in advance to avoid such situations.

Way forward

Paying your EMIs on time is the best thing to do; however, due to any reason, if you are facing difficulty in making the payment, you should communicate the same to your financer. Discussing the situation with your lender will help both of you reach a common consensus. To avoid this situation, you can chalk an effective repayment strategy before applying for an education loan. You can consider factors like your monthly bills, other essential expenses, etc. Also, reserving some funds, especially for circumstances like this, will be beneficial. To know essential tips to ease education loan EMI worries during COVID, please click here.

Fortunately, the situation is getting better this year with global vaccination drives. And India’s economic resilience will pave the way for your success. Despite the pandemic, you can achieve your academic goals with the help of an education loan. If you are planning to take a loan for education, then we at Avanse will ensure the smooth processing of your loan, helping you sail through effortlessly. All the best!

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