By now, most of us have heard of the ‘Student Loan Guarantee’ or ‘SRG’.
It’s a scheme in which lenders provide a repayment of a portion of the amount of the student loan they have on file, often at a fixed rate of interest.
In the past, lenders often charged a fee of Rs 50,000 (Rs 4,500) for each loan they had, which is not uncommon.
But in February 2018, the Supreme Court had ruled that these fees were illegal and had to be scrapped.
The government has also taken steps to limit fees charged to banks and other financial institutions, as well as mandating that borrowers get their loan backed by a credit union or other institution.
But what happens if the borrower is unable to pay the full amount on time?
It’s not clear what happens to the remaining debt if the student defaults, and if the amount is then repossessed.
It’s also unclear what happens after a borrower has defaulted on their loan.
Here’s what you need to know.
What is the Student Loan Guaranteed?
The SRG scheme provides a fixed loan amount to borrowers that are eligible to borrow it and repay it if the loan amount is not paid within 30 days.
The repayment rate is fixed at 8.8% per month, but borrowers may have to pay more or less, depending on the borrower’s income and the length of time they have borrowed.
The loan amount can be adjusted to cover any shortfall that occurs.
What are the criteria?
The loan must be in arrears or not paid at all.
For example, if the interest rate on a loan is over 10% a year, the borrower may have been in arresis for over 10 years.
The borrower must have not had any job and been able to meet the financial requirement.
A borrower must not have been unemployed or not in a position of economic hardship.
The borrower must be able to pay for the loan.
The SRG requires that the borrower repay the loan within three years, and it is not possible to repay the entire loan.
What if a borrower defaults?
If the borrower defaults, the SRG is triggered and the borrower must pay the loan back.
The SRGs are automatic and a borrower can get a discharge from the SRGs if they have made payments in full within two years of defaulting.
The government has taken several steps to make the SRGS more affordable.
The latest initiative is the extension of the repayment period to six years from the initial repayment period.
In addition, it has introduced a repayment schedule that reduces the SRGA fee from Rs 50 to Rs 3,000.
The Government has also announced that the SRGG will be extended to borrowers who are eligible for the National Student Loan Program.
However, if a loan borrower is not eligible for this program, the fee will remain at Rs 5,000 per year for four years.
How much do SRGs cost?
The repayment period is Rs 3.85 lakh, which equates to a repayment fee of around Rs 20,000 a year.
The fee is capped at Rs 2,000 every year, so if the SRGF fee is Rs 50 per loan, the annual fee would be Rs 18,000 for borrowers who have outstanding loans and who owe more than Rs 1,000,000 in arreais.
The fee for the SRGC is based on the length and complexity of the loan, but can be further reduced to make it affordable.
This fee will be capped at 25% of the borrower income for borrowers with low or no income, which means a loan of around 1,200 per year.
If a borrower is earning over Rs 1 lakh, the monthly fee will not be a problem.
What happens if a debt is not repaid?
The debt will be removed from the student’s records, and the SRGO will not collect the fee.
The Student Loan Refund Scheme is another government initiative that offers a refund of the SRGW to students who are in arrepare, or owing more than the amount owing.
The scheme will be available for borrowers in the Public Distribution System (PDS), and it will be launched on November 17.
This scheme will cover up to Rs 5 lakh of unpaid debt, as a percentage of the sum owing.
The new SRG has been introduced after the Supreme Supreme Court ruled in December 2018 that the fee on student loans was illegal and was unconstitutional and that the fees charged by banks were unlawful.
However the government has been keeping an eye on the scheme and has made several changes to the way the scheme works, including the introduction of a new repayment schedule.