Education Loan Refinancing: Process and Eligibility Criteria

In simple terms, student loan refinancing is taking a new loan at a new interest rate to pay off the previous education loan. The aim of refinancing is to get a better rate of interest and different terms and conditions. 
For Example, you took an education loan from a private lender in a hurry at a higher interest rate and unfavorable terms and conditions at the time of admission. To reduce the financial burden, and get a lower interest rate, you can switch to a lender that is offering better terms and conditions. Most Indian lenders, including public banks, private banks, and Non-Banking Finance Companies (NBFCs) offer education loan refinancing options.  
 

Most students are not aware that interest rates in refinanced education loans are lower. Let’s take an example - 

You took an education loan of INR 20 lakhs at 12%, which has to be paid in 9 years (including 2 years of course of study). The interest that you will pay is INR 19,68,553. 
Now, if you refinance this education loan from a lender offering you a 10% interest rate upon graduation (ie, 7 years), the interest payable will effectively fall down to INR 11,39,007. 
The difference is a massive INR 8,29,546. 

Apart from a lower interest rate, some borrowers also refinance their secured education loan to an unsecured education loan. This frees up their property and reduces the financial burden from the family member who provided collateral. 
 
Some other benefits of refinancing an education loan are as follows - 

1. Consolidating Different Education Loans into One - If a student is paying multiple loans taken for graduation and postgraduation, they can consolidate their loans instead of paying interest on these different loans. 
2. Extend Loan Tenure - If a student is unable to repay the loan in a stipulated time, restructuring the loan will help extend the loan repayment period. With an extended repayment period, the EMIs will be lower. However, students should keep in mind that in this case, the total interest paid will go up. 

The best time to refinance your education loan is when you start working, due to the following reasons - 

1. A steady job will reduce the risk of default.
2. You are in a better position to negotiate terms and conditions for your new education loan. 
3. The bank is aware of your income and ability to repay the loan, hence, you will qualify for a lower interest rate and better terms and conditions.  
    

Students can opt for loan refinancing if - 

• They have an existing education loan to study abroad or in India. 
• They have completed their studies and have started loan repayment. The EMIs should be regular in the book. 
• This means that there are effectively no more disbursements left from the previous lender. 
• Working professionals with an existing student loan can also refinance the loan. 

 The factors taken into consideration are - income, credit history, credit score, debt-to-income ratio, financial behavior, employment history, residency status. 

The process to refinance an education loan is simple - 

1. You will have to approach the current lender and apply for loan foreclosure with a loan foreclosure application. 
2. After exploring a better loan option, apply to refinance your existing education loan. Arrange documents required to apply for the loan. 
3. Once the lender approves your loan, it will issue a cheque for the outstanding amount to the previous lender. 
4. Once the cheque is cleared, the previous lender forecloses the loan and releases your original documents. 

Here are a few documents that are required to transfer the student loan - 

• Loan application form 
• Documents given by the previous lender 
• 2 passport photographs 
• KYC of the borrower and the co-applicant - Aadhar card, PAN card
• Proof of identity 
• Proof of residence 
• Bank account statements of the student/co-borrower/guarantor of the last 6 months 

Other financial documents such as the IT Return, proof of income, and a brief statement of assets and liabilities of the parent/co-borrower.