Here is what students and parents need to know about how to deal with the education loan taken to fund studies in Ukraine and what they can do to manage the adverse financial impact.
Do not take the loan repayment lightly
Lenders extend their loan with commercial consideration to earn interest income and get their principal amount back. “In principle, what has been borrowed from banks needs to be repaid one way or the other,” says Adhil Shetty, CEO, BankBazaar.com.
So having hopes that a financial institution will waive off either loan or interest is not feasible. “There is no consideration for waiver of education loans in a situation that is as disruptive as a war or a global pandemic. The obligation to repay the loan remains as is unless the student approaches the lender to work out a feasible solution,” says Ankit Mehra, Founder and CEO, GyanDhan, an education financing marketplace.
In case you default on the repayment obligation, the cost could be multifold. “The penalty for non-payment is a steep credit score hit or forfeiture of the collateral. The longer the loan is due, the more its interest,” says Shetty. Any default at this stage will severely impact the credit history of the students and will hamper their ability to access credit in future.
Therefore, rather than ignoring the issue, it is better to look for a solution that can help in the current situation. Since most of the students are yet to complete their studies and have not opted for moratorium on interest servicing, they can continue paying the interest part so that total outstanding does not rise.
Moratorium period extension will come to the rescue
As the disruption is likely to be long (could last at least a few months, if not in years), students who are yet to complete their studies, have no immediate pressure of repayment of the loan unless they opted for interest payment during the study period. “The loan payment typically starts only after the end of the moratorium, which is provided from the completion of the course. The moratorium is usually six to twelve months. If the courses are still going on, it’s premature to talk about payment,” says Shetty
Students who have completed their studies and were doing working or were waiting for a job in Ukraine, could ask for an extension of the moratorium period from the lender. “In such difficult circumstances, lenders are open to offering a moratorium period or grace period to students, wherein there is no obligation to make any payments towards the education loan, but the interest continues to accrue. The intended benefit is to provide a brief interlude in payment stress. The unpaid interest is capitalised and added to the principal balance of the education loan, which subsequently increases,” says Mehra.
While extension of the moratorium period may give some temporary respite, however, it is not an ideal solution for the long term, as the interest will keep on accruing which will significantly inflate the repayment burden.
Restructuring the loan can help
If you are finding it difficult to pay the EMIs, then you may consult the lender for restructuring of your loan. “In August 2020, RBI allowed Indian banks to restructure the loans instead of classifying them as NPAs for both corporates and individuals including students. So, the repayment obligations of the students in Ukraine or Wuhan can be altered accordingly,” says Basil Ali, Co-founder and COO, Edumpus, an educational platform for International studies.
A simple restructuring like extension of loan tenure can help you bring down the monthly EMI obligation. “Restructuring includes rescheduling of payments, conversion of accrued interest, and granting moratorium for a maximum period of 2 years as per the borrower’s income. However, the borrower is eligible for this plan if he/she has made regular repayments till March 31, 2021,” says Ali.
The biggest benefit of going for such restructuring rather than defaulting on the loan, is that it will prevent a significant damage to your credit history. “The restructuring of the education loan will help avoid credit default while providing borrowers a certain degree of flexibility in repayment,” says Mehra.
Government support may help but is not guaranteed
We tend to hope for some sort of government support in case many people are affected due to no fault of theirs. Many students affected in the Ukraine crisis would be hoping for some financial and career support from the government in this regard as well.
“The Indian government is working hard to bring back the Indian students who are stuck in Ukraine. We believe that the government will soon launch a counter program or a committee for this purpose. They can also collaborate with institutions in other countries (like the Erasmus program) to continue their studies till the situation recovers,” says Ali.
Expert are suggesting many possible ways in which government may consider offering financial assistance to the students with education loan. “The government can either offer low-cost funds or free-cost funds to banks and NBFCs, benefitting the aggrieved students. The government can effectively develop an emergency line of credit for lenders offering education loans, specifically for this purpose, to pass on the benefits to the intended customers without hampering the business of banks and NBFCs,” says Mehra.
Having their credit history ruined even before the start of their career could have lifelong negative consequences for the students, and this is where the government can help. “Another solution is NPA recognition. The pandemic and the Ukraine crisis have highlighted a prominent problem in the banking system that does not account for the uncontrollable events as it does in the case of distressed farmers. A separate NPA categorization will recognize the impacted borrowers delayed in repayments, in this case, the students, to get the benefit of the doubt in loan repayment. Their credit history remains unimpacted this way,”
However, any possible support from the government many not come quickly. “The various complications arising from such options need to be resolved at various levels – the government, the lender, and the universities. It may so happen that special financial allowances are made for the students affected by the war. But this remains to be seen,” says Shetty.
What should you do?
The first thing which students need to do is to evaluate their options. “Right now, all that the students can do is wait for the violence to end and evaluate their options. Judging by media reports, the costs of education in Ukraine are not prohibitive and the students can remain confident about their ability to repay their dues as their careers get back on track,” advises Shetty.
You need to find out some alternative in case the situation does not become suitable for resumptions of studies within few months. “Students need to devise a plan to effectively complete their studies. Since the situation in Ukraine is escalating, it is advisable to decide on an action plan – would they want to go back once the situation stabilises? If not, they need to find an alternative by transferring their credits to a university/institution that recognizes their academic progress. Academic continuity needs to be ensured to forge their earning potential,” says Mehra.
As far as students’ loan is concerned it is better not to take any chances by skipping repayment. “Non-repayment of the loan impacts the credit score of the defaulting students. The only way to maintain a good credit score is through timely loan repayment. Students unable to opt for loan restructuring or a moratorium period can salvage their credit score by choosing the one-time loan settlement, where they take some time off and settle the loan in one go,” suggests Mehra.