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Russia-Ukraine crisis impact; What happens if your default on education loan?

  • 06-May-2022

Ukraine is knowns to be a popular destination for education, it offers guaranteed admission for Indian students in Top Govt & Medical Universities. More than 63,000 students from 130 countries worldwide.  


As per a recent report, those thousands of Indian students who went to Ukraine for their higher education purpose are now staring at an uncertain future.   


Not only they did left the country back to India fighting for their lives but also, they are bearing the pressure of not knowing when the crisis would come to an end.   


So that universities can call back again. Most of the Indian students had gone to study in Ukraine by taking expensive education loans.   


In such a situation, it becomes a challenge to repay the debt as now they are facing the burden of paying penalties on repayment of student loans if suppose their graduation and job placement get delayed due to the Russia and Ukraine crisis.   


Typically, education loan terms didn’t mention any provision for relief due to war, unlike life insurance policies.  


Howsoever, in such a scenario, lenders usually take the initiative of negotiating with an applicant for restructuring of the loan, extending the tenure or providing a longer loan moratorium on a case-to-case basis.  


Unless the government or lender announces a debt relief program, the students shall need to repay their loans.   


It’s not the case that students won’t be able to resume their studies in any form and complete their education. Still, there is a possibility of completion.  


When does an education loan need to be repaid?  

Usually, an Education loan comes with a moratorium of 6 – 12 months once the course is completed.   


Repayment of loan shall begin from the year after the course completion or within six months of getting the job “whichever is lower”. During the course period, the bank charges a very nominal interest rate on the loan.  


Typically, the education loan needs to be repaid 1 year after the applicant starts working.  

If you feel that the possibility of default might happen, you must approach your lender/bank to extend your loan repayment schedule/date.   


If no option would be there to repay, one can opt for an easy personal loan to repay student loans, or if possible, ask your friends and family for a collateral-free loan and make your EMI payment.   


Is there any collateral?  

Banks ask for collateral if the required amount is above 7.5 lakh, collateral can be pledged in the form of an insurance policy or a house or property.   


Moreover, a loan obtained with collateral comes at lower interest rates as compared to collateral-free loans.  


What are the consequences of defaulting on education loans?  

Generally, defaulting on any loan can lead you into a financial burden where you will be supposed to pay higher interest on repayment and if you don’t resolve the issue at the earliest.   


The lender or bank will auction your current assets and if any other liquidity is available to cover the losses. Still, you can approach your bank to get a deferment as this gives you some more time to plan out the repayment better.  


The penalty of non-payment can hit your credit score hard, also if the loan due goes for a longer duration you will bear higher interest.  


Ukraine is known for its low-cost medical education, which means if the cost is low the borrowing amount is also low. After the completion of their studies, they will be able to pay off their dues.  


Since most of the students are yet to complete their graduation, there is no urgent pressure on loan repayment unless you opt for interest payment during the study period.  


Banks shall also permit students to transfer to other universities: 


Students studying in Ukraine may have the option to change to similar courses in other members of the Soviet Union such as Kazakhstan, Belarus, Azerbaijan...etc.  


With the help of transfer facilities, one can easily transfer to other universities so that they can complete their education at the right time and look forward to a good job to repay their dues comfortably.  

However, in the case of extending loan tenure; interest will be applied periodically.  


Negotiate with the bank to restructure your loan:  

As of Aug 2020, The Reserve Bank of India (RBI) has allowed the restructuring of loans without classifying them as NPAs to aid the borrowers to manage the financial burden caused by the pandemic.   


Thereafter, in May 2021, due to Covid- 19-second wave and its effectiveness towards the livelihood caused a financial crisis.   


The Government has announced a second resolution framework for both corporate borrowers and individual borrowers which includes individual students.  


A simple restructuring such as an extension of loan repayment would lift down the monthly EMI obligation.   


Restructuring loans also include rescheduling of payments, conversion of accrued interest as well as granting a moratorium for a maximum period of 2 years as per borrowers' income.  


One of the biggest benefits of opting for such restructuring is not only rescuing from defaulting on the loan but also helping in preventing your credit history from being damaged.   


Your credit history or CIBIL score is a crucial factor that plays an important role in determining your repayment capacity and evaluating your eligibility for new loans.   


Hence, this type of restructuring facility of student loan will aid in avoiding credit default while providing flexibility of repayment and ease of payment.  


Want to get a loan to restructure? Borrowers need to be eligible for this Restructuring facility, the borrowers must make all the payments on or before the due date with a good financial track record till March 2021.  


Government assistance may help but is not assured  

In such a situation, the government may provide assistance; in case most of the people seem to be affected due to no fault of their own.   


Many students affected by the Ukraine crisis might be hoping for some sort of financial and career support from the government.  


Experts are suggesting many possible ways to consider offering financial assistance to students with an education loan. The government can either offer low-cost funds or free-cost funds.  With the help of education loan EMI calculator, one can easily calculate their monthly payable and manage finance better.


What should you do?  

 First of all, Students need to do is to determine their options. As per the current scenario, all the students can wait for the violence to end and in the meanwhile determine their options.  


You need to find out some other alternative option in case the situation seems to become complicated in the coming days. “Students are advised to plan effectively to complete their studies”. Since the situation in Ukraine is escalating.   


Therefore, it is advisable to decide – whether you want to go back once the situation stabilizes? Or need to find an option by transferring their credits to a university/institution that recognizes academic progress.  


Delaying or missing a loan repayment can be a harmful activity that badly impacts your credit score. Education loans are concerned, it is better not to take any chances by skipping repayment.  

One of the most appropriate ways to maintain a good credit history is through timely loan repayment.  As an option, students can opt for quick personal loan to repay their debts.


Russia’s Ukraine invasion threatens the US recovery  

As the Russia and Ukraine crisis not only affecting one another but also threatening globally. After the post covid, the US was stepping back to its normal life while suddenly their invasion threatened the US recovery.   


In recent times, Joe Biden’s pledge to forgive some student debt may be one of the best ways to avoid inflation in the next couple of years without fueling prices today.  


According to a study published in March by the Federal Reverse Bank of New York, by placing loan repayment on hold, which the federal government did at the beginning of the pandemic in return almost saved consumers nearly $ 200 billion.   

“The benefits of student debt forgiveness are going to be spread out over many years”, Mason said.  


Who should get student loan forgiveness?   

 Some of the economists suggest canceling a student loan would create a “moral hazard” that makes the people borrow countless times and expect for a government to forgive their debt.  


In reality, “it's hard for many youngsters to get a job opportunity in the market without a degree”, said Mason.  


Since most of the education loan borrowers own a self-sufficient amount, however, an average debt from a bachelor's degree would cost $29,000 – forgiving even the $10,000 will be a significant effect from Biden's perspective viewpoint.  


While on the other hand, Mason says the government should clear all debt of students no matter whether he/she owns a lot or not.  

US student debt-to-income ratios by income level  


You may be eligible for relief of your federal student loans based on borrower defense to repayment. However, there will be varied factors that would determine one’s eligibility for loan relief.   

Also Read: Education Loan in India - All you Need to Know About


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