- Scout for an economical loan and look for special schemes
- Devise a strategy considering the moratorium period
- Keep your EMIs below 30% of your prospective income
- Pay your loan early to reduce your net interest burden
Given the number of financial institutions extending education loans, qualifying for one may not prove to be all that difficult. However, when it comes to a borrowing, approval is just one aspect. Equally important is chalking out your loan repayment strategy. In the excitement of selecting a course and obtaining admission at a college of repute, you may give little to no thought to education loan repayment and this can throw your finances off course down the line. Unlike other loans, an education loan offers you a moratorium period and hence, needs to be approached differently.
So, if you are about to take an education loan, here are some simple ways by which you can repay your debt without breaking a sweat.
Secure an economical student loan
The general rule that applies to debt repayment holds good here too: lower rates of interest translate to a pocket-friendly repayment. Since the market is replete with education loan lenders, it’s crucial that you scout for the best offering. This is also more pertinent when you consider that the rates offered by lenders are not uniform but vary depending on the course. Thankfully, today, you can make use of the Vidya Lakshmi portal to view the different education loans in the market at once.
Benefit from education loan schemes
While scouting for lenders, be on a lookout for education loan schemes that decrease the cost of borrowing. For instance, you may get an interest rate concession if you meet certain merit-based criteria, are a girl child, or belong to the ST, SC category. Once again, lower loan charges mean easier loan repayment.
Chalk out a repayment strategy
As mentioned, an education loan is unique in that you get a moratorium period during which you are not required to make any debt payments. This repayment holiday ends a year after the course ends or 6 months after you get a job, whichever is earlier. Considering that this will start irrespective of whether you get hired during campus placement or not, you need to have some backup plan in place. Also, the possibility of repaying the loan during the waiting period exists and if your parents are willing to pitch in, you can budget for this too.
Choose your tenor tactfully
The advantage of opting for a long repayment tenor is low EMIs. Conversely, this also means greater overall interest payments. Picking a tenor without knowing how much you will earn in the future can be tricky. Nonetheless, you can look up average salary figures and to be on the safe side, ensure that your installments do not exceed 30% of your expected income. You can use your lenders EMI calculator to avoid unnecessary guesswork.
Work part-time and repay early
Depending on the particulars of your course, the rules of your institution, and any VISA policies you must adhere to, consider taking up a part-time job to make repayment during the moratorium period. During this time, interest builds up, with lenders calculating the amount using the simple interest formula. To reduce your interest burden, start paying off debt early. Lenders encourage this and offer, for instance, a 1% concession for the tenor of the education loan, should you pay your interest dues during the moratorium period.
Use excess funds to part-prepay the loan
When you begin to earn handsomely and come to possess surplus finance, consider part-prepaying the loan. This involves paying a portion of the outstanding principal early and reduces your net interest outgo. However, how beneficial this will be in terms of debt repayment depends on when you make the part-prepayment, early in the tenor or late, and what your lender charges you as part-prepayment fees. Hence, do a cost-benefit analysis before you part-prepay.
Avoid defaulting on EMI payments
Skipping your EMIs will further put pressure on your finances as your lender may impose a penalty for this. In effect, an inflated rate of interest means that you could get into a debt spiral should you be able to get back on track quickly. Additionally, an education loan is probably the first loan you will take and so, it’s best that you maintain a clean financial track record as this impacts your credit score.
Bonus: Take a loan against property to consolidate debt
If you or your parents own property, you can take a loan against property to consolidate the pending education loan dues and repay that over a long tenor at a cost-effective rate of interest.
Having considered these ways of carrying out education loan repayment, work towards making the career of your dreams a reality!