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Are there Loan Forgiveness Programs for Education Loans in India?

People generally hold the opinion that the most essential factors for completing higher studies are devotion, the capacity for determination, and aptitude. Anyway, income is one of the most important necessities for higher education. Picking out an educational loan is the most effective way to receive the required finances.

A loan for higher education can cover a variety of expenditures, including tuition, housing, gadgets, library, and laboratory charges, minimizing the need for further loans. Additionally, there is a lengthy payback period of up to fifteen years after graduation.

Student debt repayment in India

Despite the benefits, student loan repayment keeps being unpredictable because youngsters might not complete their school or find a lucrative job that pays well.

It gets difficult for learners who are dependent on student loans to pay for their educational opportunities to repay the loan, and financial institutions can decide to take action to get back their money. There are certain regulations and standards in India regulating student loan reimbursement; however, many struggling students are under intense pressure to pay back their loans due to a lack of stable employment and high interest rates.

It is important to remember that the rate of non-performing assets (NPA) or bad loans has increased in recent years.

As a result, the quantity of student loans given in India has decreased by almost 25%.

This suggests that banks are becoming increasingly hesitant about issuing loans to students without collateral or security in excess of a particular amount, concerned that the loans will not be returned. “This eliminates the opportunity for financially disadvantaged students to attend educational opportunities and frustrates them from pursuing education.

As a result, while student loans in India provide several benefits, what actions would the lending institution take if any of these situations arose and you found yourself unable to settle your EMI payments?

In India, student loan forgiveness is available

Forgiveness of student loans is a financial assistance programme that forgives a borrower’s private student loan debt (or a portion of a debt), freeing the borrower from the responsibility to repay it.

Whereas any student loan may possibly be forgiven, student loan forgiveness is often not possible in India for individuals who obtain education loans from banking institutions or NBFCs (non-banking financial companies).

Why is student loan forgiveness criticized in India?

While student loan forgiveness may seem enticing to many applicants, it may not be the best option for Indian students.

It can cause ethical risks through reckless financing and repayments. If individuals expect that their loans will be accepted for forgiveness in the future, they can therefore take out more than they require or can afford, which means they may default on their payments with no adverse effects.

It has the potential to inflict a significant fiscal responsibility burden on taxpayers and banking institutions. The expense of student loan forgiveness would have to be met by either government agencies or the lenders, reducing their financial capacity for other public goods.

India, for example, has frequently forgiven the repayment of loans for thousands of its marginal and small-scale agricultural producers, but this has had no effect on their overall well-being or output.

It might affect students’ access to and continuation of student loans in the coming years. If banking organizations fall short of capital due to loan waivers, they will probably be hesitant to provide funding to students next time or impose higher costs and rates of interest to compensate. This could impede many worthy learners from having access to and the cost-effectiveness of further education.

Rather than exploring forgiveness of student loans in India, it may be wiser to investigate other options to assist students in repaying their loans without jeopardizing their financial future or job chances.

How are NBFCs assisting financially disadvantaged students in India?

In certain countries, student loan forgiveness policies are designed to assist students who are economically disadvantaged and who would have difficulty making payments within the normal duration limit. Through offering adjustable terms and conditions, NBFCs in India assist students in planning their repayment alternatives, improving their credit scores, and supporting their ambitions of affording higher education.

A few of the advantages of obtaining student loans from NBFCs include:

There are no coverage limitations. Unlike banks, which only pay certain academic costs, NBFCs support all educational expenditures, such as tuition, accommodation, travel costs, and so on.
Processing and disbursement times are reduced. NBFCs offer more simplified paperwork and authentication procedures than banking institutions, which saves approval time.

Customized repayment choices: NBFCs provide a variety of repayment alternatives, including a moratorium period (a grace period throughout which no reimbursements are necessary), prepayment, step-up repayment (increasing monthly payments over time), and so on.

Reduce interest rates: When compared to conventional banks, NBFCs offer attractive rates of interest based on parameters such as credit score, security value, and so on.

What takes place if you don’t pay your student loan on time?


Whenever you take out funds from a financial institution or bank, you are obligated to pay them back in an arrangement of Equated Monthly Installments (EMIs) over a set period of time, including interest. If you skip any of your EMI payments, you may develop a tendency to always be late. This indicates that you have an unhealthy habit of covering your bills late, which can have a serious influence on your financial condition.

Your credit score will suffer as a result.

Banks and NBFCs report late payments to all credit bureaus. If you eventually ask for a loan in the not-too-distant future, the likelihood is that, for reasons related to your business or personal life, the lender will look into your history.

If you ultimately default on any debt, your credit score will suffer greatly. While the score is quickly reduced, it may take a long time to make improvements.

Future borrowing capability is restricted.

Your borrowing capacity in the future is limited. After checking your credit history and noting poor repayment habits, prospective financiers might decline your loan application. As a result, you may be ineligible to obtain a loan next time or get offered loans with higher rates of interest. It will be particularly stressful if you require loan money for an emergency or for your loved ones.

Your collateral may be taken by the lending institution.

The lending institution has the authority to take whatever collateral you provide as security for a secured loan.For instance, if you used your car as security, your financial institution could take it away. They can additionally seize any other assets supplied as security.

Legal action will be taken.

To recoup the funds, your lender has numerous legal options to choose from. Cheque-bouncing is a crime that may bring you to prison.If the gains from the sale of the asset are insufficient to settle the loan in full, the lender may bring subsequent proceedings to get back the shortfall or balance money.

The Benefits and Drawbacks of Student Loan Forgiveness

Student loan forgiveness reduces or eliminates education debt due by the primary borrower while also relieving the cosigner (if any). However, despite multiple benefits, student loan forgiveness has certain drawbacks.

  • Relief from unpaid liabilities, in part or in full
  • Improves debtors’ cash flow and has the ability to enhance the broader economy.
  • Encourages borrowers to work in government. Employment that qualifies for relief
  • Is not accessible to all borrowers.
  • often requires employment in specified careers.

  • Relief often takes years to materialize.

  • A forgiven sum may be taxable in some circumstances.

Student loans are more risky than other types of loans. It is also difficult to anticipate whether someone who studies will get a decent career and be able to repay the debt. In the current economic climate, employment prospects are both uncertain and unstable. It also has a knock-on effect on the borrowers’ capacity to finish repaying the loan.


According to a newspaper study, there seems to have been a significant shift in the educational loan environment during the past five years. It not only returned to healthy development, but it also experienced a significant 17 percent increase during the fiscal year end March 2023.

According to Reserve Bank of India (RBI) figures, the overall unpaid education loan portfolio increased by 17 percent.

Conclusion

The growing burden of student loans could potentially have an overall economic impact. Graduates who are heavily in debt have restricted their financial options. It severely limits how well they can play a role in the country’s economy by means of consumption or investments. It may also have an impact on their financial standing, making it harder to obtain loans for other reasons as well.

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