Understanding Legal Consequences: Education Loan Defaulter Legal Action

Education Loan Defaulter Legal Action

Many students while planning for overseas education opt for an education loan to meet the financial expenses. The flexible payments of the loan process allow the borrower to repay the amount as per convenience. However, most of the time these conveniences have bad repercussions on financial status. A borrower may face legal action against it. Let’s identify and understand the legal consequences of education loan defaulters.

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. There are certain cases when borrowers may be unable to repay the loan and plea the lender to modify the repayment terms.

Criminal charges may be filed in case, the borrower intentionally defrauds the lender at the time of availing the loan. Legal action can be taken against the borrower if he is a wilful defaulter. As per RBI, a wilful defaulter is the one who fails to repay the loan despite having the capacity to repay. 

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

  • The borrower have the capacity to repay the loan but defaults.
  • If the borrower is trying to divert the loan or funds.
  • Disposal or transfer of collateral is provided as security without the knowledge of the lender.

Also Read: Interest Rate increased on existing education loan? Check this blog and learn all about Education Loan Refinancing!

Repercussions 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 scoreEducation 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 the period of 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.

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!


What happens if I default on my education loan as an international student?

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.

How does education loan default affect my credit score?

The loan default will decrease your CIBIL score which will lead to difficulties in securing another loan in the future.

Can my immigration status be affected by loan default?

Yes, international students may have an impact on their immigration status. Sometimes it may lead to deportation and visa issues too.

How can I escape my education loan?

You cannot escape your education loan without suffering from its consequences.

How to repay an education loan? 

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.

Hope you liked our blog about education loan defaulter legal action. To know more about the loan application process, 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. 

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About Farina Khan

Farina Khan is a journalist by profession and a writer by passion. She carries over a decade of experience in Journalism and Mass Communication and worked with some renowned media organisations like Doordarshan and Zee Media. She performed numerous roles during her work tenure including reporting, anchoring, and heading output as well. Her passion for writing, combined with dedication in delivering high-quality content, drives her to excel in the dynamic field of content writing. From thought-provoking articles to SEO-friendly blog posts, or engaging website content, She is here to bring the ideas to life through words.

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