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How to Plan a Better Repayment of Education Loans?

what is the procedure of repayment of education loan

Written by Shreya Berry

Shreya has expertise in writing engaging content for the readers and has a deep interest in unique applications of technology in various domains. She has worked closely on projects with Neil Patel Digital, Hindustan Times, News 18 and Shiksha.

October 5, 2020

After completion of a degree abroad, you land a lucrative career. The first paycheck arrives; you rip it open with happiness, and then the other shoe drops. A chunk of it, not small but huge, would go towards repayment of education loan paying student loans.

Nobody said the concept of repayment of education loan deduction is an easy one. Still, one thing we can say for sure is that it is only possible to remove it earlier than expected by updating your repayment strategies repaying your student loan. There’s nothing wrong with worrying about how or when to do it. Just be cautious and plan.

What is the procedure of repayment of education loan / student loan repayment? So, here is a list of strategies that you should keep in mind to have a smooth repayment of education loans/ paying student loans.

repayment of education loan deduction

Make two payments in a single month.

Having two payments in a month will help you pay off in the best way of education loan repayment / student loan repayment early and potentially save a great deal of interest.

Pay more than your minimum EMIs.

If you start earning right after college, you will begin to pay more on your EMIs, which will help you save a lot of interest in the end.

To handle your finances better, use debt calculators and budget managers. 

Use debt calculators and budget managers to monitor the finances so that you don’t have to incur any fines for late-payments and all the EMIs are charged on time.

Make use of side hustle.

Use internships and other opportunities to save some additional cash. At your college, you can also choose for graduate assistantships, which can also offer you more financial support. This can be considered one of the best way of deduction for principal repayment of education loan.

Use the debt snowball method.

A better way to handle all your money is the debt snowball process. It essentially begins with all your loans being grouped in ascending order. When making minimum payments on the majority, concept of education loan repayment/ student loan repayment, the smallest balance is held on the end. As a consequence, the smallest balance can be added to all the extra capital. As such, all the small loans wither away, and over time you will be left with fewer loans.

Make use of the moratorium period.

Repayment does not immediately begin. To create a corpus, the extra time can be used. You can either use the money for partial prepayment or EMIs.

To lower EMIs, you can also repay some interest during the study period. The bank begins to levy interest from the time of disbursement at the end of each year or semester of the course. The number keeps piling up, raising the burden of debt.

Suppose you pay simple interest on the principal while the study period, however, your EMIs will be vastly reduced. Several banks also give a 1% interest concession to those who repay the interest debited during the moratorium period.

Take care of rate fluctuations.

Usually, the interest rate is the base rate plus a fixed spread, say 1-2%, that varies from bank to bank. So, it is a loan with a floating rate.

If you gain enough and can save any money after paying the new EMI and other expenses, in the event of any interest rate rise, use the extra money to create a buffer.

An appropriate surplus (at least three instalments) should be retained such that EMI service continues unimpeded, even in the event of a cost increase.

Capitalize on provisions

A lot of relaxation is offered to student borrowers. These may be used to smooth out the repayment. Start by decreasing costs. Use margin money-a percentage of the costs you pay, while the bank pays the remainder. The law if you’re studying abroad is 15 percent. For deserving students, however, several banks are relaxing this law.

As they are liable for a 0.5 per cent concession, women may request a lower rate. Banks also have special programs for economically weak and differently-abled students, including interest subsidies.

Even, in tranches, the fee is usually charged. Do not take the whole loan in one go, if possible, but in instalments. This would decrease the burden of interest.

Each month, financial responsibility begins with the repayment of education loan on time. It is necessary for your overall credit score to make on-time payments and can be helpful when you refinance your student loans, as it can lead to better interest rates and conditions. Please be vigilant and disciplined with the repayment of education loans for a tremendous money-saving potential.

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