Nitin completed his MBA last year from a reputed management institute and bagged a job with an esteemed corporate. Nitin applied for a home loan and was confident that it will get sanctioned within a week. To his surprise he was informed that his application has been rejected on the basis of his credit report and low credit score.

On accessing his credit score and report from Cibil, Nitin realised that his credit score was low as he had not paid the EMIs on the education loan taken for his MBA. It then dawned upon him that negligence on repaying his education loan has cost him dearly and impacted his aspirations.

Education loan is a credit facility provided for the benefit of deserving students so that lack of finance does not hamper their educational aspirations. Like any other form of credit, education loans have to be repaid once the student completes his/her course and gains employment. Also like any other loans and credit cards, education loans are also reported to the credit information company and get reflected in the borrower’s credit report.

Repayment on an education loan generally starts within six months of the student taking up a job or one year after the course ends, whichever is earlier. Defaults on repayments of education loans will reflect in the borrower’s credit information report and negatively impact his/her credit score. So if a student defaults, it may impact the chances of getting a loan for many more important milestones in the future such as a dream home or a car.

Correspondingly there might be other consequences as well to face in case you default in re-paying your education loan. Some employers may also ask a potential employee to submit his/her credit report during the hiring process. Those with poor credit scores may be rejected in favour of those who have demonstrated better financial planning. Thus, the credit score and report may become a vital ‘reputation’ collateral even for employment in future.

In case someone else like your parents takes the loan on your behalf, then it is their credit history and credit score that will be affected, not yours. Your credit score will be affected if you have accessed credit on your name. But consider opening the loan account in your name because in the long run, an education loan can actually do great things to establish and build a solid credit history and vital reputation collateral for you.

Nevertheless, if you find it difficult to re-pay your education loans, consider an option of negotiation. Banks are open to negotiation. Request the banker to increase your repayment term and settle for a lower EMI. This may help reduce your burden significantly.

(The author is Senior Vice-President, Consumer Relations, Cibil.)

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