What Is Education Loan Repayment?

An education loan, also known as study loan or student loan, helps students achieve quality education. This credit instrument allows them to pursue full-time, part-time, vocational, graduation or post-graduation courses in diverse fields such as medicine, business management, engineering, architecture, etc. The borrowed money helps cover financial obligations pertaining to college education, either in India or abroad. It includes all major and miscellaneous expenditures such as the basic course fee, admission fee, accommodation, study materials, food, travel, air fares, visa and insurance fees.  

While it may be fairly convenient to avail of this loan from public or private banks and other lending institutions when one has the right eligibility; education loan repayment might be a different ball game if one is not familiar with the repayment terms and conditions laid down by their lender.  

Education Loan Repayment Tips 

Here are some established tips that can help you in repaying the education loan conveniently: 

1. Know the Available Features 

Borrowers should be aware of the various student loan features extended by lenders such as discounts on interest rates for female applicants, loan insurance, subsidy schemes for differently-abled students or those hailing from economically weaker sections of the society, etc. so that they may benefit from them, as applicable.  

2. Understand the Types of Interest Rates   

Your rate of interest will impact the EMIs in a big way. So, choose the rate of interest and the type of interest wisely. For instance, a floating rate of interest may change with fluctuations in the repo rate, increasing or decreasing the payable EMIs in the process. Whereas, a fixed-rate loan remains constant throughout the tenor despite any rate changes in the finance market.  

3. Take Loan Amount as Needed 

Borrowing the sum you need from the whole loan amount can be a cost-effective approach since interest is calculated on the money taken and not on the sanctioned figure. For example, if you apply for a loan of Rs. 20 lakh for a 4-year study programme, but you take just Rs. 5 lakh each year, interest will be charged on Rs. 5 lakh and not the full amount of Rs. 20 lakh. 

4. Budget Your Repayments 

Plan and budget each EMI making them your topmost priority. Cut down on unwanted purchases to free up funds, accounting for regular expenses and exigencies at the same time without stretching your budget.  

5. Utilise Tax Benefits 

Claim tax deductions under Section 80E on the loan interest you pay. These benefits do not apply to the principal amount of your loan. 

6. Opt for a Shorter Tenor 

A short tenor may see you pay higher instalments each month but it will also let you save on the loan interest paid, making your loan affordable. However, exercise caution so that you can strike a balance between your income availability and the EMI pay-out. Use an education loan EMI calculator to gauge the monthly payments you can comfortably manage. 

7. Pay Off Interest During the Moratorium 

Lenders do not ask for loan repayments until the end of the grace period although they may levy interest charges, which could add up to a substantial sum. Hence, repay this amount to bring down the overall loan amount owed to the lender. Students repaying loans can opt for part-time jobs as per convenience. This will help generate earnings towards your own expenses as well as the loan repayments. 

8. Set Up Automatic Payments 

Missed or delayed loan payments can lead to a drop in credit scores along with higher loan costs in the form of penalty charges and interest accrued. To avoid such a situation, initiate auto debit settings from your savings account which will enable timely repayments and boost your financial health.  

9. Make Surplus Loan Payments  

Effect larger loan payments when you have surplus cash gained through either matured investments, work bonuses or incentives. You may use this money to part prepay your education loan periodically. This will allow you to reduce the loan amount and the payable interest in addition to closing off the loan earlier, before the scheduled tenor. Remember to check with the lender if you could be levied a penalty for loan pre-payments or foreclosures. If the penalty fee is nominal, you can go ahead with the pre-payment.  

10. Buy an Insurance Cover 

Some lenders may insist on a term cover or insurance in the borrower’s name as part of their policy requirements. The risk cover should ideally be equivalent to the loan amount you seek to borrow. This is done to ensure continuity of repayments in case the borrower is unable to pay the EMIs due to illness or death, without burdening his/her family members or putting the student’s education at risk.  

Education Loan Repayment Calculation 

Calculating the payable EMIs on your study loan warrants sufficient thought for which one needs complete information about the rates of interest and other associated charges like processing fees, administrative and registration charges and so on. To simplify matters, you can use a loan EMI calculator to compute the instalment sum that has to be paid each month till the end of your chosen tenor. It will give you a clear picture of how many EMIs you will need to pay and for how many years. This way you can assess loan feasibility and plan the repayments methodically.      

Do You Need to Repay While Studying? 

The study loan repayment conditions may vary from one lender to another. In most cases, lenders do not ask borrowers to begin repaying the loan during the course. Instead, they offer a moratorium or grace period which lasts the entire duration. It may extend from six months to a year after course completion or until you get your degree or find a job, depending on the terms of your loan agreement. Some lenders may ask you to pay the interest component during the moratorium period and also offer lower interest for the same.  

When Should You Start Repaying Education Loans? 

You should start the repayments on your loan for education soon after the stipulated moratorium period expires to prevent the debt from piling up. Lenders levy interest during the grace period which accumulates over time. It is advisable to pay the interest amount during the moratorium before commencing EMI pay-outs. This may even out the loan repayments and lessen the financial liability.    

Summing Up 

A study loan may be offered with or without collateral. This will primarily depend on the loan scheme you select and the principal amount you want. Accordingly, you may opt for the credit plan that fits your needs best. All things considered, applicants must make sure they meet the eligibility and documentation requirements before submitting their application. Most importantly, see if you have the ability to handle the proposed EMI payments whilst factoring in your normal monthly expenses. Once you allocate your resources and plan suitably, it will get simpler to support the education loan repayments as per schedule.