Education loan repayment can be a burden if you don’t plan it in a smart and learned way. You may be wondering about how to repay an education loan repayment if its such a major liability. Very often, they ignore the fact that if there’s a little amount of contemplation and planning is done before selecting the loan, all these uncertainties can be put to rest easily.
For the repayment of education loan, you must understand the policies and several other aspects of education loan repayment. Read on to get thorough know-how of protocols and tactics to plan your education loan repayment process in an effective way.
How To Repay An Education Loan While Studying?
Once students are aware of the number of EMIs they need to pay for their education loan repayment, the next question that crosses a student’s mind is if they need to repay while studying. To plan their loan repayment the right way, they must know the different repayment options.
Students who take an education loan are designated to a moratorium period. Ideally, during this period the student does not need 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 provide a moratorium period of one year after the completion of the course. A moratorium period acts as a financial cushion for students and gives them time to find works after completing their course.
Education Loan Repayment Calculations
Education loan EMI calculation is a crucial aspect for applicants, both before and after obtaining the loan. To make accurate calculations, it is essential for applicants to have complete information about education loan interest rates and processing charges.
Accessing the education loan estimation service provided by the Indian Banking Association (IBA) can be done through the following steps:
- Visit the official website of the Indian Banking Association (IBA.org.in).
- Navigate to the ‘Others’ tab in the menu on the homepage.
- Click on ‘Calculators’ in the dropdown menu.
- To determine the EMI amount for student loan repayment, select ‘How much do I have to pay’.
- To calculate the number of EMIs required for education loan repayment, choose ‘How long will it take to repay’.
Education Loan Repayment Methods
Now that you have determined the number of EMIs required to repay your education loan, it is crucial to understand the various methods and modes of payment available to you. Many students are unaware of early payment options, which often result in extended repayment tenures with high-interest rates. Here is a comprehensive list of education loan repayment methods:
Education Loan EMI:
The most common and organised method of repayment is through EMIs (Easy Monthly Installments). EMIs consist of fixed amounts decided at the time of loan disbursement, which students pay on a monthly basis. The EMI includes both the student loan interest and a portion of the principal loan amount. By paying higher EMIs, a larger portion goes towards reducing the principal amount, resulting in faster loan repayment.
Education Loan Part-Payment:
Students have the option to make lump-sum payments at regular intervals, in addition to the EMIs, to expedite the repayment process and reduce the total interest liability. Some banks may charge a processing fee for part payments, and there may be limits on the maximum amount allowed for part payment. It is advisable to consider part-payment only if you have a consolidated amount that is significantly higher than your monthly EMI.
Education Loan Pre-payment Or Foreclosure:
Students who have the opportunity to repay the entire loan amount at once can opt for education loan pre-payment or foreclosure. While most banks are obligated to offer this service, some may still charge a processing fee. Repaying the loan in full eliminates the monthly interest payments and reduces the overall cost of the loan. A loan stretched over a long period accrues more EMIs, resulting in higher interest payments. Pre-paying the loan with a nominal processing fee is often a better choice compared to paying a large amount of interest over an extended period.
Education Loan Repayment Modes
Repaying a study loan offers multiple modes of payment, with each bank supporting various options. However, certain loans, such as education loans for studying abroad, may have specific payment requirements. Having a clear understanding of student loan repayment modes can greatly benefit applicants. Here is a comprehensive overview of
education loan repayment modes:
Repay Education Loan By Cheque/DD (Demand Draft Repayment)
Almost all banks accept student loan repayments through cheques, and some even allow the assignment of post-dated cheques (PDCs) for dedicated EMI amounts. PDCs are pre-signed cheques that are submitted to the bank and utilised only when the EMI is due. While cheque repayment is widely available, not all banks allow loan repayment through demand drafts due to security concerns. However, it is advisable to inquire about the demand draft option for student loan repayment.
Education Loan Repayment By Cash
Banks accept student loan EMIs in cash, and applicants and co-applicants can repay EMIs either by visiting the branch or requesting a home collection service. Cash repayment at the branch does not incur any extra fees, but there is a standard service fee for cash collection.
Automated EMI payments (ECS/NACH) Of Student Loans
Electronic Clearance Services (ECS) or National Automated Clearing House (NACH) are modes of automated loan EMI repayment. Applicants who prefer to repay their education loan from their savings account within the same bank or another bank can opt for this service.
They need to provide a verified and signed NACH mandate, which authorises the loan provider (bank authority) to request and receive automated payments from the savings account on the due date of each month. This service offers convenience, allowing applicants to pause payments or stop the service as needed. However, defaulting on automated EMI payments may result in penalty charges. In such cases, students need to visit the bank to resume the service and make payments for the missed EMI. Nevertheless, automated EMI payments are generally more convenient compared to other modes that require physical intervention.
How Can Planning Repayment Of Education Loan Help Students Save Big?
Planning your loan repayment properly can not only help students lower their financial burden in a formulated way but can also help to save big. And this planning can begin quite early, as soon as the loan is disbursed. Let’s take a look at ways in which students can lower their education loan burden while studying.
- Getting a Part-time Job Such as Assistantship
Working part-time during your education not only helps you with your living expenses but you will also be able to save some amount that can be used to repay the education loan.
- Get an Internship During the Summer Break
Study abroad Students are allowed to do internships during their summer break. This not only helps them get the applicable industry experience but also helps them earn between $3000 to $ 5000 that can again be used to pay a part of the education loan.
We also advise students to build a budget and stick to it. Removing luxuries and needless spending and saving every penny should be a goal. This not only helps you save money but also get used to a lifestyle that is not extravagant. This will be helpful when you start earning and have money to spend but are wise enough to stick to your budget.
What Are The Top Tips On Interest Amount Repayment?
The loan repayment process is very simple. The first tip here is to study your financial condition and then decide whether you can manage to pay the full or partial interest during the moratorium period. This analysis will give you a clear picture of your financial liability and your ability to repay and thus help you plan and repay in an organised manner without any hassle.
Students should take advantage of 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 take advantage of the various premiums offered by the government. This is something you need to keep in mind when planning your loan repayment process.
Students are advised to take the loan amount in installments rather than in one go. 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.
Students should opt for fixed interest rates while taking an education loan. As interest rates can change and thus affect their EMIs. If they have already opted for a floating rate of interest, we suggest you understand interest fluctuations and plan for increment.
Students should also understand the repayment of education loan policy of the lender and then take decisions on prepaying the loan or not.
What Are The Pitfalls Of Using A Longer Repayment Loan Tenure Extension?
Now that you are aware of how you can efficiently plan your interest amount repayment, let’s look at the pitfalls of using a longer repayment tenure. The additional interest that a student needs to pay when the loan tenure is extended is the biggest harm of such an extension. This additional interest puts a needless financial burden on the student. We advise you to stay away from this.
How Does Refinancing Help You?
As stated above, refinancing your education loan is much better than opting for a longer repayment tenure. This is because the student can negotiate for a lower rate of interest once they get a job and save their hard-earned money. An unsecured loan at 13% can simply reduce to 11.5% once the student gets a job. The lower rate of interest will reduce their EMIs and thus make education loan repayment a bit easier.
FAQs
1. What is the rule for repayment of an education loan?
For Student and Scholar Loan Schemes, the repayment of EMIs commences either 12 months after the completion of the course or 6 months after obtaining employment, whichever occurs earlier.
2. What happens if an education loan is not repaid?
In case of non-payment of your education loan in India, the lender will initiate the process of sending notices to both you and your guarantor. Failure to respond to these notifications will result in loan default, leading to a significant negative impact on your credit score.
3. Is it good to pay off an education loan early?
Given the extended tenure of education loans, which can stretch up to 15 years, the accumulated interest liability can surpass expectations. However, it is possible to minimise interest payments by opting for early loan repayment. While paying off education loans ahead of schedule may present challenges, with careful planning, it can be accomplished.
4. What is the limitation of loan repayment?
The statute of limitations for debt recovery is set at three years from the date of lending the money. If there are no disputes concerning the lent amount within this three-year period, the statute of limitations expires. Consequently, the court has the authority to reject the case and may decline to hear it.
5. What is the legal action against education loan defaulters in India?
Under Section 138 of the Negotiable Instruments Act of 1881, if a loan remains unpaid for a duration exceeding 180 days, the lender is permitted to initiate legal proceedings against the borrower by filing a case.
