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Can I Have a One-time Settlement for an Education Loan?

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Highlights

  • How does a One-Time Settlement Work in an Education Loan?
  • It helps relieve the debt burden - But is it good? Read this post to know the same

The increased competition, high-cutoffs make it difficult for some students to pursue their higher studies. Even if they score well academically, they can’t save their seat due to a lack of financial support. This is why an education loan has become a necessity if your aim is higher studies in India or abroad. Banks take some risks when they provide an education loan to a student as there is no regular income at the time of loan sanction and the loan repayment is dependent on the student’s future income.

To reduce those risks, you can pledge collateral or add a co-applicant who in case of default will pay the balance. Co-applicants are necessary for an education loan and student guardians can be the co-applicant for the loan. So, banks not only charge lower education loan interest rates but also offer the loan amount you need. But what if despite all these efforts, you were unable to repay your education loan? Well, in that case, your asset will be seized, and if there are no asset mortgages to the loan amount, the bank will offer you a one-time settlement. Read this post to know the effect of settlement should you sign it.

One-Time Settlement of My Education Loan

A one-time settlement is offered by the banks to the borrower to settle the outstanding loan balance at a negotiable amount. Banks consider it when a loan becomes a Non-Performing Asset (NPA). So, the bank decides to cut its losses by considering an amount below the actual balance of the loan. The one-time settlement comes into play only when the borrower does not comply with warnings and notices from the bank.

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Consequences of Education Loan One-Time Settlement

When the bank offers you a one-time settlement and you accept it, your loan obligation will be paid. But it will still affect your credit score. On the other hand, if you do not accept an education loan one-time settlement and become a defaulter, it will have even worse complications.

A one-time Settlement may save you from legal troubles and constant notices from the bank, but it can affect your future credit aspirations. Why does this happen? Because the bank reports it to CIBIL that the loan account is not closed but settled. This is recorded as negative credit behavior and makes lenders doubt your ability to repay the loan. This settled record will reflect in the credit report of CIBIL or any other bureau for as many as 7 years.

As a result, such borrowers may not get a sanction of unsecured loans such as personal loans. However, secured loans can be given to these individuals who can then improve their credit record by maintaining a timely repayment track.

How to Prevent a One-time Settlement in an Education Loan?

Given the complications of a one-time settlement regarding an education loan, it is important not to get caught in such a situation. You will be pleased to know you can avoid such a situation if you remain alert and execute your actions smartly. Check out some of the things you should do to prevent a settlement.

Start Creating Buffer a Few Years Ago from the Beginning of the Course

This part is more for the parents to take note of. As the cost of higher studies is increasing at a fairly greater pace, the sooner you start saving from your regular routine for your kids’ education, the better it will be for them years later when they start repaying their loan. Create more savings than what’s required so that your kids will require a lower loan amount. This will ultimately lower the Equated Monthly Installment (EMI) and lessen the burden for your kids after they begin their work life.

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Check Education Loan Interest Rates Carefully

The interest rate will have a bearing on the EMI payable on an education loan. If you are a parent or a student, having a glance at the interest rates of different lenders will help you compare and choose the best deal.

Look at the table below, compare education loan deals of different banks and choose the best one for you.

BanksLoan AmountInterest RateMaximum Tenure
State Bank of India (SBI)Up to INR 1.5 Crore6.90% - 9.30%15 years
Punjab National Bank (PNB)Need based loan amount6.90% - 9.55%15 years
Canara BankNeed based loan amount7.40% - 9.40%15 years
Union Bank of IndiaUp to INR 37 lakh7.20% - 10.45%10-15 years
Bank of BarodaUp to INR 80 lakh6.85% - 9.95%10-15 years
Axis BankUp to INR 75 lakh13.70% - 15.20%15 years
ICICI BankUp to INR 1 Crore11.25% - 11.75%7-10 years
HDFC BankUp to INR 30 lakh9.25% - 13.68%15 years
Kotak Mahindra BankUpto INR 20 lakh12.33% - 16.00%15 years

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