With the job market growing increasingly competitive, higher studies at premium institutes have become even more sought after. A degree from a high-profile institute can significantly improve a candidate’s employment prospects. However, the cost of education at these esteemed institutes have also risen too high for them to be affordable for students with limited means. This is why study loans, or education loans, have become so crucial for students pursuing higher studies.
For students preparing to avail education loans, careful planning and management of their education finance are of utmost importance in order to make the repayment process smoother.
Choose the right education loan
It is always crucial to understand all relevant information prior to taking an education loan. Students should collect all relevant information right from the documentation processes, eligibility criteria, fluctuations in interest rates to repayment options etc. A student well-versed with education loans can plan the future financial goals in a better way. It is always advisable to choose a loan that offers repayment flexibility, relaxed payment options and lower interest rates apart from other benefits.
Maintaining good credit score helps
Repaying education loan right on time gives a positive impression to both the student and co-borrowers (mostly parents’) credit score. A good credit score allows students to avail future loans such as home loan, car loan, and personal loan, etc.
Better to take a loan in small amounts
In most educational institutes, tuition fees are paid in instalments at the end of the academic session. Hence, it would be wise for students to draw their loan in respective instalments instead of taking it in one go. This helps students in saving interest amount in a great way.
Plan a wise repayment strategy
Repayment of an education loan generally starts six months to one year after the completion of studies. The borrower must have a repayment strategy in place before the monthly instalment (EMI) starts. During the study period, the lender generally charges simple interest or partial interest on the loan. This payment of simple/partial interest during the study period enables the student to reduce the EMIs for future repayments post the completion of studies. Therefore, it is advisable to repay some interest during the study period to lower future EMIs.
Manage your finances wisely
Until you complete your education loan repayment, managing your finances should be your top priority. It is always wise to understand and plan your income and create a structured plan for expenses. While it is not possible to increase the income amount, expenses can definitely be planned in advance.
Saving and investment option
While preparing to repay the education loan, students should not ignore their investments. If they start saving and investing from the initial years of their career, it will give them benefits of compounding.
Utilizing the moratorium period
Getting an education loan is easy, but repaying many times becomes challenging. Therefore, it is wise to start repaying early by utilizing the moratorium period which is usually one year after the completion of studies. So, even while students are still in college, they can start repaying the interest amount. This small step will reduce their EMI burden slightly, as the interest rate will come down by 1% if they choose this payment option. A comfortable EMI will make the life easier for students.
Not wise to opt for over-ambitious EMIs
It would not be wise on the part of students to opt for a very high EMI amount to get over with the loan. It would rather be sensible to choose EMIs that students can manage to pay even if the salary is lower than what they had expected. It is better to opt for an EMI that students can manage keeping in mind other living expenses.