Visa revokes, illness abroad: How Indian students may face loan burden

Business Standard

20-05-2025

Ritu, a 24-year-old Indian student, had taken a loan of Rs 45 lakh to pursue her studies in the UK. Last month, she fell ill and flew back to India so her parents could care for her. For now, she has had to pause her education abroad. She's not alone.
Across countries like the US and UK, many Indian students are grappling with similar disruptions. Some have faced deportation after visa revocations. Others dropped out due to mental health breakdowns. In most cases, these are non-fatal but life-altering setbacks that throw their financial commitments into disarray.
< Lenders usually don't cancel loans, even in serious setbacks
< Relief (like EMI reduction or moratorium) is given on a case-by-case basis
< Supporting documents are mandatory: medical, academic, or immigration-related
< Full loan waivers are rare
Ankit Mehra, CEO and co-founder of GyanDhan, said Indian lenders rarely cancel education loans, even in cases of distress.
"In case of a serious setback, such as illness, deportation, or academic suspension, relief is assessed on a case-by-case basis with supporting documentation from universities, hospitals, or immigration authorities. Based on individual cases, lenders offer moratorium extensions, reduce EMIs temporarily, or allow partial repayment options. However, such relief measures are exceptions, not guarantees," Mehra said.
Adhil Shetty, CEO of Bankbazaar.com, explained that moratoriums are usually limited to specific hardship events.
"Education loan repayment can be paused or renegotiated in situations like serious illness or academic suspension. Many lenders provide a deferment period during which repayments are temporarily paused. However, complete loan waivers are rarely granted. In cases like deportation, repayment is still expected, though restructuring can be requested," Shetty said.
Financial and emotional impact on families
The toll is not just monetary. Sonam Chandwani, managing partner at KS Legal & Associates, said both students and their families bear the brunt.
"A ₹20-40 lakh unsecured education loan at 11-13% interest can balloon to ₹50 lakh or more over a decade if repayments falter. Co-borrowers, usually parents, are legally liable. With many nearing retirement, their savings can be obliterated," she said.
Chandwani said secured loans put assets like property or fixed deposits at risk. "Defaulting craters credit scores, blocking future loans for emergencies. The social stigma of default in India adds to the distress, and when paired with mental health struggles or deportation, the emotional toll is immense," she added.
What education loan insurance covers
< Usually covers death or permanent disability of the borrower
< Does not cover temporary illness, visa denial, mental health issues, or academic failure
< Families often misread the extent of insurance coverage
< Students advised to read exclusions carefully
System is rigid, relief not assured
Under the Indian Banks' Association (IBA) Model Education Loan Scheme, loans come with a moratorium period covering the course duration plus 6 to 12 months. During this time, interest accrues, pushing up the total payable amount.
According to Shetty, public sector banks guided by RBI's 2019 circular may offer some leeway. Private lenders and NBFCs, however, are far less flexible.
"Restructuring options like extending the loan tenure or reducing EMIs are available, but banks demand hard proof of distress and approvals are inconsistent. Early loan termination isn't permitted," Shetty said.
Mehra added that while GyanDhan has not encountered cases of outright loan termination due to setbacks, they've seen lenders offer support selectively.
"We strongly advise students to maintain timely communication and keep documentation ready. Relief options like restructuring or forbearance require exceptional approvals from senior management," he said.
Gaps in the loan system
< Moratorium covers course duration + 6–12 months; interest accrues
< No early termination of loan even if student drops out or is deported
< Public banks may allow restructuring; private lenders often rigid
< Documentation needed for relief: deportation proof, medical reports
< Relief approvals often inconsistent and slow
Outdated risk models and lack of insurance coverage
Lenders typically assess default risk using the course type, university reputation, and co-borrower's income or collateral, based on RBI's 2016 guidelines. These models don't account for visa revocations or mental health issues.
Chandwani said visa revocation is particularly crushing. "It cuts off access to high-wage foreign jobs, and India's ₹5-10 lakh annual salaries can't cover hefty EMIs. The loan system assumes a straight path to graduation and high-paying employment. It's blind to disruptions like immigration rules or illness," she said.
She cited an example of a student deported after taking a ₹25 lakh loan. Back in India, he finds a ₹6 lakh job, with a monthly EMI of ₹30,000. "After 90 days of missed payments, the loan is marked as non-performing under RBI's 2018 norms, triggering recovery efforts, including legal notices or asset seizure. Families get trapped in a cycle of debt and despair," she said.
Is student insurance the answer?
Insurance, too, has its limits. Meet Kapadia, head of travel insurance at Policybazaar.com, said foreign university insurance plans often carry exclusions.
"A well-structured student insurance plan usually covers medical treatment, hospitalisation, emergency evacuation, accidental death, and travel-related issues. But many plans exclude coverage for academic failures, mental health, or deportation," Kapadia said.
Many students buy supplementary insurance in India, which is more comprehensive. "Indian policies often cover pre-existing conditions, medical emergencies, personal liability, trip cancellations, and loss of documents," he added.
But this doesn't solve everything. Shetty said families should be wary of overestimating what education loan insurance covers.
"These policies typically cover death or permanent disability, but not temporary illness, visa issues, or academic problems unless specifically mentioned. Families must go through policy documents in detail," he said.
Mehra said most lenders require students to take out loan insurance for the full loan amount. "These usually cover death or permanent disability, but in other cases, repayment responsibility falls back on the family," he said.
No standard relief policy, slow grievance redressal
While RBI's 2021 Banking Ombudsman Scheme allows borrowers to file complaints, relief is not always forthcoming.
Chandwani said banks rarely have consistent internal policies. "Some public banks offer ad-hoc concessions, but private lenders often stonewall. Grievance redressal processes are slow, bureaucratic, and rarely offer meaningful relief," she said.
She called for structural reform. "The system needs mandated loan insurance, automatic repayment pauses during crises, and coordination with mental health services. Without it, families continue to bear the burden for events beyond their control."
The gap is wide. And for students like Ritu, the consequences are immediate, personal, and deeply tied to a financial system that expects the best-case scenario—even when the world has other plans.
Automatic repayment pause during verified crises