One of the biggest worries of an Indian student who wishes to change or leave the ongoing study program midway in the US is regarding the education loan taken by him or her to finance it. This is because financial institutions lend money only after they are convinced that the borrower will be able to repay the loan after completing the program. Any change in either the study program or institution will naturally impact the lender’s willingness to continue financing it.
Therefore, in this blog, Student Cover tries to inform readers about the possible impact of changing or leaving a study program midway in the US, on the ongoing student loan. We have put up 5 scenarios where a change might occur.
This is the most comfortable scenario for the student to negotiate with the lending institution. If a student moves from one study program that falls under STEM (Science, Technology, Engineering and Mathematics) to another under STEM and in same department, the lending institution may not be averse to continue lending the student for the new study program. The only factor that the lender is likely to consider is the student’s job prospect after graduating in the new program.
Scenario 2: When the program is the same but the institution changes
The volume of loan that lenders, especially the NBFCs (Non-Banking Financial Companies), are willing to lend is determined to a large extent by the institution’s individual rating. For example, NBFCs can lend up to Rs. 45 Lakhs to student for pursuing a degree in STEM in those institutions rated ‘A+’, up to Rs. 40 Lakhs for the ones rated ‘A-‘, Rs. 40 Lakhs for ‘B+’, Rs. 35 Lakhs for ‘B-‘, Rs. 30 Lakhs for ‘C+’ and Rs. 25 Lakhs for ‘C’ rated institutions.
If a student moves from low ranked institution to a higher ranked one, the lender may increase the sanctioned amount to meet the shortfall in fee if the fee charged by the new institution is higher than the previous one for the same study program.
In the event of a student deciding to change the stream and move from, say STEM to Humanities, he or she will most probably have to restart the program from the beginning. In such as scenario, the student has to reapply for education loan for new program. This may even lead to the lending institution offering a different type of loan. For example, if a student shifts from STEM program for which NBFCs offer unsecured loans (loans without collateral), to a program in Humanities stream, the lender may ask the student to apply for secured loan (loans against collateral).
Scenario 4: When the stream as well as institution change
If a student decides to pursue a study program in a different stream as well as a different institution, it may require the student to re-apply for a fresh loan. So, if the student moves from STEM program to a non-STEM program, he or she will have to apply for secured loan for that program. Since secured and unsecured loans have different rates of interest, the rate of interest (RoI) applicable in the old as well as new loan will be the secured loan RoI. However, the due date for repayment in the form of EMIs will remain the same i.e. the date fixed for the start of EMI for the first loan.
Scenario 5: When the student decides to leave the study altogether
If a student decides to leave studies altogether and return back to India, he or she will have to start repaying the loan six months after leaving the course. However, the Equated Monthly Installments (EMIs) that he or she will have to pay will be calculated on the amount disbursed to the student to pay for tuition fees and other expenses and not the total volume of loan sanctioned by the bank.
Let’s Wrap it Up!
When a student changes or leaves a study program, the education loan status also changes. If a student merely transfers from one program to another in the same department, he or she may not face much difficulty in convincing the lender to continue financing the program. However, if either the institution or the stream changes, the student may either have to apply for fresh loan or seek an increase in the sanctioned amount. If a student quits studies altogether, the EMI starts six months succeeding the termination of the study program.
Disclaimer: The content of this blog is based on the personal research of the writer. Readers’ discretion is advised. Neither Student Cover nor the writer will be held responsible for any wrongful interpretation of the contents of this blog.