How To Plan Your Education Loan Repayment?

As we see, the chances of an education loan becoming an NPA is very real. Let us discuss when your education loan will be classified as NPA and what will happen after that.
If a student fails to pay the EMI for 3 consecutive months, the bank will classify the loan as a non-performing asset. 
The borrower’s collateral will be at risk. The bank may seize your collateral and use it to recover the loan amount. 
Once the loan is classified as an NPA, the credit score of both the borrower as well as his co-applicant’s credit score will be affected. This will reduce your and your co-applicant’s ability to borrow money in the future. 

Once students know the number of EMIs they have to pay to repay their education loan, the next question that crosses a student's mind is this. In order to plan their loan repayment intelligently, it is prudent for them to know the different repayment options. 
Students who take an education loan are entitled to a moratorium period. Ideally, during this period the borrower does not have to make any loan repayment. This is the time between the end of the course and the start of a job and RBI has asked banks to give a moratorium period of one year after the completion of the course. A moratorium period acts as a financial cushion for borrowers and gives them time to find a job after completing their course. 
Lenders in India have different policies for repayment during the moratorium period. They are as follows:   

• Students Have To Pay Zero Interest During The Moratorium 
• Students Have To Pay Partial Interest During The Moratorium
• Students Have To Pay Full Interest During The Moratorium
• Students Have To Pay EMI During The Moratorium

This is another question that is often asked by students who wish to take an education loan. To find out the answer to this, students can take the help of GyanDhan’s estimated earning tool. Based on their course, the ranking of the college, loan amount, and approximate expected annual salary, this tool will help them know their approximate savings and consequently the ease with which they can repay their education loan. To explain further, let us take a look at three different cases for Mr. A in the above discussion. 
Mr. A is working in the US & earning $80,000 per year. His typical disposable income is around 35% and he is expected to save about $ 2,300 per month. This means that he can save INR 1,45,000 a year. Based on the above numbers, he can easily pay EMIs. He can even pre-pay to save interest. 
Mr. A is going for a Ph.D. and will earn $25,000 to $ 30,000 per year. His EMI will start after 6 months. To repay the loan, he will have to cut expenses and serve the EMI from the stipend.
Mr. A didn’t get a job in the US and is working in India now. He will earn INR 1 to 1.5 Lakhs per month. In this case, life will be a bit hard, as one third to half of his earnings will go in EMI for the education loan

Planning your loan repayment can help students not only lower their financial burden in an organized way but also save big. And this planning can begin quite early, in fact as soon as the loan is disbursed. Since the more they pay back the lender, the lesser their financial liability will be; we advise students to be prudent in their expenses while studying and even utilize funds that they can earn while studying. Let us take a look at some ways in which students can lower their education loan burden while studying. 

• Getting a Part-time Job Such as Assistantship - Working part-time during the course not only helps you with your living expenses but will also help you save some amount that can be used to repay the education loan. In the USA the stipend for assistantships is approximately $12 per hour and students are allowed to work a maximum of 20 hours in a week. A student can, thus, easily earn between $900 to $ 1000 a year. This translates to INR 58000 to INR 65000 - money that can be used to repay a part of the education loan.
• Get an Internship During the Summer Break - Students are allowed to do an internship during their summer break. This not only helps them get the relevant industry experience but also allows them to earn between $3000 to $ 5000 that can again be used to pay a part of the education loan. 
• We also suggest students build a budget and stick to it. Removing extravagances and unnecessary spendings and saving every penny should be a goal here. This not only helps you save money but also get used to a lifestyle that is not extravagant. This will come in use when you start earning and have money to spare but are wise enough to stick to your budget.  

• The first tip here is to analyze their financial condition and then decide whether they can afford to pay the full or partial interest during the moratorium period. This analysis will help them get a clearer picture of their financial liability and their ability to repay and thus help them plan and repay in an organized manner. 
• The next advice we give to our students is to capitalize on features such as margin money, lower interest rates for women, benefits of schemes like Rinn Raksha, Interest subvention by banks for differently-abled or economically weak students and make use of the various subsidies offered by the government. 
• We also suggest students take the loan amount in installments rather than in one go. This is because the interest is calculated on the amount disbursed and not on the amount sanctioned. Hence, taking loan amounts in installments will help students to reduce their interest burden. 
• Our next advice to students is to opt for fixed interest rates when taking an education loan. Students read here to know how their interest rate can change and thus affect their EMIs. If they have already opted for a floating rate of interest, we suggest them to understand interest fluctuations and plan for increment. 
• We also urge our students to understand the pre-payment policy of their lender and then take decisions on pre-paying the loan or not. 
• Students also have the option of transferring their existing education loan to a new lender who offers them a lower rate of interest. Once a student gets a job, their profile improves and lenders agree on loan-takeover by offering a reduced interest rate. This will again help them lower the EMI that they need to pay. 

Now that our readers are aware of some ways in which they can efficiently plan their interest amount repayment, let us also discuss the other side of the coin, i.e. the pitfalls of using a longer repayment tenure. The additional interest that a student pays when the loan tenure is extended is the biggest disadvantage of such an extension. This additional interest puts an unnecessary financial burden on the student - something that we advise students to stay away from. 

As mentioned above, refinancing your education loan is better than opting for a longer repayment tenure. This is because the student can bargain for a lower rate of interest once they get a job and thereby save their hard-earned money. An unsecured loan at 13% can easily reduce to 11.5% once the student gets a job. The lower rate of interest will reduce their EMIs and thus make loan repayment a tad bit easier. 

GyanDhan, India’s first student loan financing platform, recommends students start repaying their loan at the earliest. While helping students get an education loan, we suggest the best loan options  based on their individual profile and help them get it sanctioned in the shortest time too. In general we have the following order of priority to help students get their study abroad funding:
PSB> Private Banks > NBFCs > International Lenders
We work towards helping our students get the best deal and can even help them extend the moratorium period if needed.