We understand that unforeseen circumstances can hamper your plans, especially if you have taken an education loan to pursue higher education. Severe health conditions, changes in financial position or other rare instances might cause you to initiate an education loan cancellation. Well, worry not. An educational loan can be cancelled after sanction or disbursement, however, there are certain complexities to it.
Another possibility of loan cancellation can occur when the lenders may automatically cancel the education loan due to non-fulfilment of eligibility criteria. Let’s take you through the details of education loan cancellation, the process, the steps to take, how to manage the financial impacts and lots more. Read on to find out.
Table of contents
What is Education Loan Cancellation?
Education loan cancellation refers to the situation where borrowers seek cancellation of a loan availed due to unpredictable financial crises, health reasons, or sudden changes in plans. It is different from student loan forgiveness, in the sense that education loan cancellation involves terminating the loan agreement; while the latter is forgiving the portion or all of the outstanding student debt.
The cancellation can be of two types- voluntary cancellation and automatic cancellation of education loan-
- Voluntary education loan cancellation is the process where the borrowers initiate the cancellation of education loans, requesting the lender to terminate the loan agreement. The applicant must be eligible to cancel the loan and can do so by submitting the relevant documents to prove cancellation of the loan.
- Automatic education loan cancellation might occur when the lenders cancel the loan without the borrower’s request. The reasons might include full repayment of the education loan, non-fulfilment of eligibility criteria, death of the borrower, and others.
Can Student Loan be Cancelled?
It is possible to cancel the education loan under certain circumstances. The situations include the borrower’s inability to complete their education due to health issues, financial crisis, and other rare instances. Borrowers need to provide all the relevant documents to prove their situation and get the education loan cancelled. Some of the documents that can be attached are-
- A formal letter stating the reasons/ intention for education loan cancellation
- Loan approval documents like the sanction letter
- Your ID proof to verify your identity as the borrower/ applicant
- Documents Education Loan Cancellation After Loan Sanction
- Documents to prove your reason/ situation. For example- if it is a health reason- medical certificates are to be attached.
Also Read: Having a gap after higher studies for entrance preparations or career building? Check out the details about obtaining a gap certificate for an education loan.
Education Loan Cancellation After Loan Sanction
One of the first scenarios of education loan cancellation is after the loan sanction. If your education loan is approved and the funds are not yet disbursed to the university’s account, you are eligible to cancel your education loan. The decision must be a quick one and you must immediately inform the lender of the situation.
- Make sure to submit a written formal request, or communicate the same through online channels via email.
- Explain the situation clearly and provide relevant documents to prove the reasons for education loan cancellation.
Education Loan Cancellation After Loan Disbursement
Another scenario of education loan cancellation is after the loan is disbursed. This process becomes extremely complex because the lenders disburse the education loan amount directly to the university’s account. Getting it cancelled and returned to the lender becomes challenging, time-consuming and costly.
Unfortunately, the borrowers don’t get a refund for the charges like processing fees on cancelling the education loan. They must return the principal amount along with accrued interest for the banks to process the cancellation.
It is ideal to cancel your education loan during the free lock-up period. It is the time provided to the borrowers to review the loan terms and conditions. With most lenders like Bajaj Finserv, it is three days after loan disbursement. Make sure to examine the policies, benefits, and EMIs. Borrowers can take an exit and cancel the education loan if they decide to not proceed.
How to Cancel an Education Loan?
The borrowers can get their education loan cancelled by following the simple steps. It starts with initiating the cancellation request to the lender and providing them with the required documents. Here are the steps to follow-
- Submit a formal request via a written letter, email or by calling customer support. Mention the reasons for loan cancellation and express your intent to cancel the loan.
- Attach the necessary supporting documents along with the request to prove the reasons along with other documents like proof of identity, loan agreement details, and other relevant certificates.
- Once you have submitted the education loan cancellation initiation request along with supporting documents, the lender will review the same and assess your eligibility.
- Upon successful approval, your education loan will be cancelled and you will notified of the status. Your education loan will be officially terminated.
Also Read: Comparing education loan interest rates is one of the best practices before applying for a loan with any lender. Compare the education loan interest rates of leading banks and NBFCs to find the best-suited lender.
Implications of Canceling Education Loan
Cancellation of an education loan by the borrower is not a positive sign irrespective of the reasons. The applicant must incur financial penalties by paying cancellation charges (in the case of certain lenders). The creditworthiness of the applicant is immensely affected. Here are some key implications to consider-
- The loan cancellation affects the credit score of the borrower. Lenders lose their trust and become more cautious about lending them in future.
- There may be financial consequences as the borrower may lose income tax rebates on education loan.
- Education loan cancellation invites legal obligations if mentioned in the terms and conditions. Thus, it is not always a flexible option.
- The lenders will consider checking the education loan cancellation history, which could subsequently affect and reduce the borrower’s future borrowing opportunities.
Always consider these implications before the cancellation of education loans. Some other alternatives you can consider are education loan restructuring or education loan refinancing.
FAQs
Yes, the borrowers can cancel their education loan in case of severe health conditions, changes in financial position or other rare instances. However, it is not recommended and always consider it a last resort.
Some common grounds for cancelling an education loan include severe health conditions, changes in financial position, better interest rates and benefits from other lenders, or other rare instances.
The borrowers can get their education loan cancelled by initiating the cancellation request to the lender and providing them with the relevant documents to support the reasons/ intent to cancel the loan.
Yes. Consider cancelling the loan during the free lock-up period (usually 3-5 days after loan disbursement). It is the time provided to the borrowers to review the loan terms and conditions and examine the policies, benefits, and EMIs. Borrowers can take an exit and cancel the education loan if they decide to not proceed.
Education loan cancellation will affect your credit score and lenders lose their trust in you. They always consider checking the education loan cancellation history, which could subsequently affect and reduce your future borrowing opportunities. Thus, it is not advisable to cancel your education loan.
This was all about education loan cancellation. Make sure to consider it a last resort and choose alternatives like education loan restructuring and refinancing to save yourself from the implications of loan cancellation.
To know more about education loans, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
Follow Us on Social Media
