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Know all the various tips and tricks that will help you plan your education loan repayment better.
Updated on: 07 Sep 2023 | Reviewed By: amanjain | 26.3K | 11 min read
Planning your education loan repayment is a crucial step in managing your financial obligations and ensuring a stress-free journey towards repaying your loan. Whether you have taken an education loan for studying abroad or pursuing higher education in India, understanding the repayment process, options, and effective strategies can help you navigate this financial commitment with confidence. In this comprehensive guide, we will provide you with expert tips and insights on planning your education loan repayment, exploring repayment options, managing the loan effectively, and making informed decisions to ease your repayment journey.
From understanding the education loan repayment period to analyzing interest rates, subsidies, and tax benefits, we will cover essential aspects to help you create a repayment plan that suits your financial capabilities and goals.
Get the Funds you need to Study Abroad
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.
Lender | Moratorium period | Payment during study period |
---|---|---|
Public Banks |
Duration of course + 6 months |
nil |
Private Banks |
Duration of course + 6 months |
Simple interest |
Duration of course + 12 months |
Simple/partial interest / immediate EMI |
|
International lenders |
Duration of course + 12 months |
Simple interest |
After the completion of the moratorium period, applicants are required to pay their EMI. It is essential to stay on top of your loan repayments to avoid any negative impact on your credit score or future loan applications.
The need to repay or not while studying depends on the payment option available to you. 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 whether he/she has to start repaying the loan while studying. It is prudent for students to know about the different repayment options to plan their loan repayment intelligently.
Lenders in India have different policies for repayment during the moratorium period. They are as follows:
To understand the difference between the 4 repayment plans, let us take the following example - Mr. A is going to Arizona State University For MS in CS, borrows INR 25 lakh from a lender
Case A | Case B | Case C | Case D |
---|---|---|---|
No interest during moratorium |
Full interest during moratorium |
PI during moratorium (INR 10K pm) |
Full EMI during moratorium |
Available with secured loans of PSUs |
Available with Axis Bank |
Available with NBFCs |
Available with all the Lenders |
Interest rate 10% loan tenure 10 years |
Interest rate 11% loan tenure 10 years |
Interest rate 12% loan tenure 10 years |
Interest rate 13% loan tenure 10 years |
This means that for Mr A:
Amount while you study |
- |
INR 22,916 |
INR 10,000 |
INR 35,868 |
EMI (Whenever tt starts) |
INR 36,341 |
INR 34,438 |
INR 38,450 |
INR 35,868 |
Total amount repayment in 10 Years |
INR 43,60,974 |
INR 41,32, 502 |
INR 47,34,030 |
INR 43,04,132 |
Effective amount after-tax benefits |
INR 38,02,681 |
INR 36,42,751 |
INR 47,34,030 |
INR 43,04,132 |
The table clearly shows that your repayment option varies with lenders. The student need not to start repaying in the moratorium period in the case of education loans from public banks.
Earning a job to repay the loan within the moratorium period is always at the top of a student’s mind. To ensure a well-paid job, the student must start researching jobs at the beginning of the final year. It is better to research in advance and study a course that ensures well-paying job opportunities to reduce loan repayment anxieties.
GyanDhan’s estimated future earning tool would help the students by comparing their earnings against EMI. Based on their course, college ranking, 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’s look at three different cases for Mr. A in the above discussion.
His typical disposable income is around 35%, and he is expected to save about $ 2,300 per month. It 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.
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 into EMI for the education loan.
Estimating the future earnings against the repayment amount is a wise move to avoid big disappointments. For a well-structured calculation, click here for GyanDhan’s estimated earning tool.
The chances of an education loan becoming a Non-Performing Asset (NPA) are real. In simple words, an NPA is a loan on which the borrower has failed to make principal and interest payments during their education loan repayment period. Defaulting on an education loan can have several consequences, including the following:
A wise education loan repayment plan begins soon after disbursal, all it requires is a combination of planning and diligence.
Check Your Education Loan Eligibility
An early repayment plan can benefit students in their loan repayment journey. By increasing the amount they pay back to the lender, students can significantly reduce their financial liability. We at GyanDhan, encourage students to be mindful of their expenses while studying and to utilize any potential earnings they can generate during their studies.
There are several ways in which students can lower their education loan burden while studying:
Calculate your Education Loan EMI
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 bit easier.
Planning your abroad education loan repayment is a critical aspect of your abroad education journey. By understanding your loan terms, creating a budget, exploring repayment options, prioritizing payments, and seeking professional guidance, you can ensure a well-structured and successful repayment strategy. Remember, proactive planning and disciplined financial management will contribute to your long-term financial stability and help you achieve your goals beyond your education loan repayment.
Additionally, when it comes to education loan assistance, GyanDhan is a trusted partner that can provide invaluable support. With their expert education loan counselors and commitment to securing the best education loans for students, GyanDhan offers a personalized and comprehensive approach to education loan guidance. Our experts can help you compare loan products, find the most competitive interest rates, and navigate the loan application and repayment process. So take the first step towards your abroad education dreams and check your loan eligibility for free.
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Paying interest for education loans while studying varies from lender to lender. Public banks do allow zero repayments during the moratorium period. However, private banks and NBFCs require the borrower to repay simple or partial interest while studying.
The partial interest rate in education loans refers to a repayment option where borrowers have the choice to pay only a portion of the simple interest of the loan while still studying.
The repayment of education loans starts after the moratorium period. However, some lenders require borrowers to repay during the study period as well.
Yes, students can start repayment of education loans after getting a job.
Yes, students can repay their loans early. There are no pre-payment charges after 6 months of disbursal of education loans.
Check Your Education Loan Eligibility
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