Education Loan Restructure is a financial solution offered by banks and financial institutions to borrowers who are struggling to repay their education loans due to unforeseen financial difficulties. A financial crunch or crisis can hit you uninvited at any point in time. Unprecedented situations like job loss, economic recession, pandemic etc usually create financial crisis and mismanagement. In such situations, Loan restructuring helps you manage your loan repayment without harming your credit score.
Education Loan Restructuring is a method used by lenders and borrowers to avoid payment default on ongoing loans by negotiating low-interest rates. Loan restructuring helps both borrowers and banks/lenders to run a smooth repayment process and avoid declaring NPA or any legal obligations. Let’s understand the process of education loan restructuring and how it is beneficial for study abroad education loans.
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Also Read: Facing financial distress due to high-interest rates? Check all the information on Education Loan Refinancing and get a balance transfer for the loan.
What is Education Loan Restructure?
Education loan restructuring is a process through which you can avoid payment defaults in a financial crisis by negotiating with the bank for low-interest rates or a moratorium period. If you have made your payments timely towards your loan and there is no record of any delay of more than 30 days then you can apply for loan restructuring. Always try to pay your loan on time as the Education Loan Default can create trouble for you.
- Loan Restructuring is a good alternative to insolvency as your credit history will also be clean and the loan will be closed properly on time.
- As per the loan restructuring guidelines provided by the RBI, the borrowers have the option to ask for a moratorium period from the bank or EMI suspension for a few months.
- You can also ask the bank to reduce the EMI amount by increasing the repayment period so that you can make timely payments every month.
- Any borrower who has maintained regular EMI payments against their education loan can apply for the Loan Restructuring Scheme as per RBI’s guidelines.
Benefits of Loan Restructuring
Education loan restructuring is very helpful, especially in case of financial emergencies. One of the most relevant examples of this is the Covid-19 pandemic. A lot of people lost their jobs and the expenses increased due to the cost of medicines and hospitalisation expenses. At the time, the RBI directed the banks to provide moratorium options for loans and credit card bills to the customers. Check some of the major benefits of education loan restructuring below:
- Loan restructuring is a Win-Win situation for both the lender and borrower as it saves the account from being declared as SSA or NPA and helps to avoid insolvency. Also, it won’t hamper the credit history of the borrower.
- You will not be defaulting on payments due to loan restructuring and this will prevent your credit record from any kind of negative impact.
- You will get sufficient time to recover from financial burdens as through loan restructuring you can get a moratorium on your loan for a few months.
- The bank will offer a longer repayment period that will help you get your monthly EMI amount reduced so that you can continue making timely repayments.
Also Read: Planning to foreclose your education loan? Check all details regarding Early Repayment Charges on Education Loan here.
How to Apply Online for Loan Restructuring?
The online application process for education loan restructuring depends on the bank. Some of the private banks like IDFC First Bank, ICICI Bank, Axis Bank etc provide the facility to apply for education loan restructuring through online mode. It is suggested that you should first visit the branch and communicate with the nodal officer/manager so that you can explain or situation properly. This will help you get quick approval for loan restructuring. In case your bank provides an online application facility, then apply for the same and follow the instructions mentioned below:
- Visit the official website of your bank.
- Go to the loan section and click on the ‘apply now’ button after checking all the terms and conditions.
- Fill out the application form and submit the supporting documents.
- Wait for the approval by the bank.
Note: Please be informed that the application process mentioned above is the general application process for loan-related applications. Contact your bank if you have any queries or issues regarding the loan restructuring.
RBI Restructuring Scheme for Education Loan
The Restructuring Scheme by the Reserve Bank of India (RBI) is a framework designed to assist borrowers facing financial strain by offering the possibility to modify the terms of their existing loans. This scheme helps to prevent defaults and mitigate the risk of loans turning into non-performing assets (NPAs). It is particularly useful during times of economic distress, natural calamities, or other unforeseen circumstances such as the COVID-19 pandemic.
Key Aspects of the RBI Restructuring Scheme:
- Targeted Borrowers: The RBI scheme is aimed at individuals, businesses, and industries that have encountered financial hardship and are unable to meet their loan obligations under the original terms. The focus is on borrowers with stressed or potentially defaulting accounts, ensuring they get the necessary relief to avoid insolvency.
- Loan Terms Adjustment: Under the restructuring scheme, financial institutions are allowed to modify various terms of the loan, such as:
- Extended Loan Tenure: The repayment period can be extended, lowering monthly EMI amounts.
- Lowered Interest Rates: The interest rates may be reduced to ease the financial burden on the borrower.
- Moratorium Period: Borrowers can benefit from a temporary pause in payments, which helps them regain financial stability before resuming their repayment schedule.
- Insolvency Avoidance: The scheme’s core objective is to keep loans from becoming non-performing and to help borrowers avoid legal proceedings such as bankruptcy or insolvency. By restructuring the loan, borrowers are given an opportunity to recover from financial setbacks.
- Flexible Repayment Options: The restructuring may also involve adjusting the EMI amount or offering a grace period, giving borrowers more time to repay without the pressure of default.
- Impact on Credit Scores: If the terms are adhered to, the borrower’s credit rating may not be negatively affected. This helps preserve the borrower’s ability to access future credit under better conditions.
- Sector-Specific Provisions: The RBI occasionally introduces specific restructuring schemes for particular sectors facing unique challenges, such as agriculture, small and medium-sized enterprises (SMEs), and other industries affected by economic downturns.
Education Loan Restructure vs. Refinancing
While both education loan restructure and refinancing involve changing the terms of a loan, they differ in how they work and the outcomes they offer. Restructuring is typically offered by the original lender, and it allows the borrower to modify the existing terms, such as lowering EMIs, extending the tenure, or even reducing the interest rate. It is usually done when the borrower is facing financial hardship and needs immediate relief.
On the other hand, refinancing involves taking out a new loan from a different lender to pay off the existing education loan. This can be a viable option if the new lender offers better terms, such as a lower interest rate. Refinancing can often be done when the borrower’s credit score improves, or if they are looking for more favorable loan conditions. Below is a table summarizing the key differences:
| Factor | Loan Restructure | Refinancing |
|---|---|---|
| Lender | Same lender | Different lender |
| Loan Terms | Modify existing loan terms (EMI, tenure) | New loan with different terms |
| Interest Rates | May be reduced or adjusted | May be reduced if the new lender offers better rates |
| Eligibility | Based on financial hardship | Based on credit score and financial history |
| Impact on Credit | May affect credit score if not managed well | Can improve credit score if repaid on time. |
How to Choose the Best Education Loan Restructure Plan for You?
Choosing the best education loan restructure plan requires careful consideration of your financial situation and loan requirements. Begin by assessing your current income and expenses to determine how much you can afford to pay monthly.
This table helps you structure the decision-making process and find the best education loan restructure plan based on your specific needs and situation.
| Factor | Considerations for Choosing the Best Plan |
|---|---|
| Income & Expenses | Assess your current income and monthly expenses to determine how much you can afford to pay monthly. |
| Goal (EMI Reduction) | If your goal is to reduce monthly EMIs, choose plans that offer extended loan tenures to lower the EMI amount. |
| Goal (Pay off Sooner) | If you want to pay off the loan sooner, look for restructuring options that offer a reduced interest rate or allow for larger payments without penalties. |
| Loan Terms | Review the new repayment schedule carefully, including any changes to the total loan amount, and ensure you understand how the terms affect the overall repayment. |
| Additional Fees | Check for any additional fees involved in the restructuring process and factor them into your decision. |
| Expert Advice | Seek expert advice if necessary, especially if you are unsure about the best restructuring options. |
| Comparing Offers | Compare offers from different lenders to find the most favorable restructuring terms. |
| Long-Term Financial Goals | Always keep your long-term financial goals in mind when selecting a restructuring plan, ensuring it aligns with your broader financial objectives. |
FAQs
Education loan restructuring is a method used by borrowers to restructure their loans if they are unable to repay properly. The borrower can negotiate with the bank on reducing the interest rate or increasing the repayment period so that the monthly EMI amount can be reduced.
Yes. You can apply for education loan restructuring from the bank if you have not defaulted on your payments and there is no delay of more than 30 days.
Loan restructuring may impact credit score but not in every case. If you have made any delay in EMI payments then it will affect your credit score. However, if you plan properly at which phase you shall apply for loan restructuring then it may not affect the credit score.
You can contact your bank whether they can restructure your loan. Some banks like ICICI Bank, IDFC First Bank etc provide the facility of applying through online mode.
As per the guidelines provided by the Reserve Bank of India, the borrowers can opt for either a moratorium period or request to hold their EMI payments for a few months. The borrower can also request to increase the repayment period so that the monthly EMI amount can be reduced.
Borrowers who are struggling with their education loan repayments due to financial difficulties such as job loss, medical emergencies, or economic downturns are eligible for restructuring.
It can lower monthly EMIs, extend the loan repayment period, and provide temporary relief, allowing borrowers to manage their financial strain while avoiding loan default.
You can apply by contacting your lender directly, providing the required documents, and explaining your financial situation to request the loan restructuring process.
Education loan restructuring can help you during a time of financial crisis. Please note that you can apply for education loan restructuring only once. Always do proper research, understand the terms and conditions and then proceed with the application.
To know more about the loan restructure, the best international 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. a
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