Education loan defaulter legal actions can be initiated by the lender in case the borrower fails to repay their loans. Borrowers often face financial strain, while lenders may resort to legal measures to recover their funds. Understanding the potential legal repercussions and rights of borrowers is crucial for navigating these challenges effectively.
When it comes to legal action against education loan defaulters, not all cases are treated the same. Lenders differentiate between borrowers who default wilfully and those facing unavoidable hardships. While wilful defaulters may face strict penalties and legal proceedings, those with genuine difficulties can seek alternatives. Read this blog on Education loan defaulter legal actions to understand and manage defaults responsibly.
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Legal Action Education Loan Defaulters
There are certain cases when borrowers may be unable to repay the loan and plea the lender to modify the repayment terms. If the repayment period of the loan is not more than 180 days, the borrower will not face any legal consequences.
However, in case of more than 180 days, the lender may take legal action against the borrower under Section 138 of the Negotiable Instruments Act of 1881.
Here’s what can happen if you default on education loan repayments-
- Lenders may send legal notice demanding repayment.
- Lenders may seek to recover dues through asset seizure or attachment of property.
- Lenders may approach the Debt Recovery Tribunal (DRT) to recover the outstanding amount.
- Criminal cases may be filed.
There are certain cases in which the borrower is not the wilful defaulter and isn’t able to repay the loan due to some unavoidable circumstances. In such cases, the lender can restructure the loan amount as per mutual convenience and repayment circumstances.
However, If the borrower is proven to be a wilful defaulter, the lender can file the case against him. As per RBI mandate, the lender can take legal action against a wilful defaulter is the one who indulges in.
Also Read: Interest Rate increased on existing education loan? Check this blog and learn all about Education Loan Refinancing!
Consequences of Education Loan Default
When a borrower is a wilful defaulter and unable to repay the loan amount. Below are the repercussions that borrowers may face due to the failure of repayment of the loan.
Impact on the credit score
Education loan default directly affects the CIBIL score of the borrower. The CIBIL score will decrease significantly and leave a lasting impact on the financial status of the borrower. If there is a delay and default in EMI payment, it negatively impacts the borrowing capacity which may lead to difficulties in future loans.
Repetitive reminders from the lender
In case the borrower fails to repay the loan amount, he is entitled to receive reminders and notices from the lender. A gentle reminder is provided by the lender to the borrower within 90 days of non-payment. After 90 days, notices are sent by the lender to the borrower in case of further delay of EMIs.
However, if EMI is not paid despite this, further action may be taken by the lender such as marking the borrower as a Non-performing asset or NPA. This will prevent the borrower from availing any type of loan or credit in the future.
Penalties and Legal Action
In case of further delays in non-payment of EMIs lenders may impose penalties on the borrower or even take legal action. If collateral has been provided, this may be used as a way to recover the loan by taking possession of the same.
How to Avoid Education Loan Defaulter Legal Actions?
To avoid legal actions associated with education loan defaults, borrowers should implement proactive strategies. With these strategies, borrowers can significantly reduce the risk of falling into default and facing legal actions related to their education loans. Here are some effective measures:
Timely Repayment
Ensure that you make your loan repayments on time. Setting up automatic payments or reminders can help you stay on track. If you foresee any difficulties in making a payment, contact your lender immediately to discuss potential solutions.
Loan Restructuring Options
If you are struggling to meet repayment obligations, inquire about loan restructuring or deferment options. Many lenders offer programs that allow for a temporary reduction in payments or an extension of the repayment period, which can provide much-needed relief.
Maintain Open Communication with Lenders
Keep an open line of communication with your lender. If you encounter financial difficulties, inform them as soon as possible. Lenders may be more willing to work with you if they are aware of your situation early on, potentially offering alternative repayment plans or solutions to avoid default.
Rights of Every Loan Defaulter
As per section 138 of the Negotiable Instruments Act of 1881, the lender can file a case against the borrower. The period of filing the case should be after 180 days of non-payment of the loan. As per the RBI mandate, borrower’s rights should not be compromised at any point in time. Some of the important rights should not be compromised even if the borrower is unable to repay the loan.
- Right to Notice – The borrower should be given enough time before the possession notice or recovery notice.
- Right to Fair Value – A fair value notice must be sent to the borrower. The lender should inform the borrower about the sale price that has been evaluated for the assets repossessed by the lender.
- Right to be Heard – The borrower must be heard and can raise objections to the notice of repossession sent by the lender.
- Right to Claim the Balance – The leftover balance can be claimed by the borrower in case the amount of the leftover balance is lower than the fair value of the asset.
- Right to be Treated Politely – The lender should respect the dignity of the borrower during the loan recovery process. He/She should not be harassed, humiliated, mistreated, or abused during the whole process.
Also Read: Facing difficulties in managing your education loan repayment? Check this blog and understand all about Education Loan Restructure!
FAQs
If you do not pay your education loan, the lenders can take legal action. This includes sending a legal notice, seizing property, or seeking an outstanding amount by approaching the Debt Recovery Tribunal (DRT).
There are various consequences and repercussions of defaulting on an education loan. Some most important consequences include the impact on credit scores, legal notices, and debt recovery.
Lenders may initiate recovery proceedings, including sending legal notices, filing lawsuits, and seeking court judgments to recover the outstanding amount. In severe cases, they may pursue asset seizure or wage garnishment.
Yes, if you default on your education loan, lenders have the right to file a lawsuit against you to recover the owed amount. This legal action can lead to court judgments and additional financial penalties.
The loan default will decrease your CIBIL score which will lead to difficulties in securing another loan in the future.
If your loan is defaulted and sent to a collection agency, the agency will attempt to recover the debt on behalf of the lender. This can lead to aggressive collection tactics and further damage to your credit score.
Yes, borrowers can often negotiate with lenders for repayment plans or settlements after defaulting. It’s advisable to communicate openly with your lender about your financial situation to explore possible solutions before facing legal actions.
Yes, international students may have an impact on their immigration status. Sometimes it may lead to deportation and visa issues too.
You cannot escape your education loan without suffering from its consequences.
Education loan repayment is not an extensive process. You can contact your bank manager or lender, who will note your account details and start your repayment on an auto deduction mode.
Yes, defaulting on an education loan can significantly lower your credit score, making it challenging to obtain future loans or credit facilities. A poor credit history can hinder your financial opportunities.
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