Education Loan Repayment – How to repay your education loan

Education loan repayment – Getting an education loan is easy but paying off needs meticulous planning. After completion of education, it becomes a matter of concern for students to pay off the study loan as quickly as possible. A well repaid student loan requires a combination of discipline, planning and intelligence. Smart education loan repayment helps students to save on the interest they pay towards the loan. Managing a student loan is as informative, thrilling and rewarding as passing one’s exams with good scores. Here we provide you information about student loan repayment, methods, modes, key instructions, repayment hacks and study loan EMI calculation procedure. But before starting with the advanced information of student loan repayment, let’s re-confirm some basic information about education loans

Education Loan Repayment – Things You Should Know

The process of education loan repayment planning starts even before taking the loan. Anyone who is planning for repayment after taking student loan or after completing education is likely to suffer financial constraints. Besides the basic financial planning students also need to be aware of banking norms related to a student loan to take timely advantage in terms of repayment. All the top education loan providers in India have various options for students to manage their student loan repayment. Student loan repayment involves three major considerations namely:

• Education loan repayment calculations: comparison of amount of each EMI vs. no of EMIs to be paid
• Education loan repayment modes: how, when and how much loan amount to repay
• Student loan management: tips and hacks to maximize the loan scheme features

Education Loan Repayment Calculations

Education loan EMI calculation is the most riveting topic for any applicant, both before and after taking the loan. It is very important for the applicants to know the complete information about education loan interest rates and processing charges in order to make such calculations.

This helps you to know:

• How many EMIs can you afford to pay for the complete repayment of education loan?
• What should be the EMI amount for repaying the student loan in time?
• How many months/years would it take to pay off the study loan?

Indian Banking Association (IBA) which regulates the banking institutions of India provides the services of education loan estimation to applicants. Steps to access this student loan repayment calculator service are:

1. Visit the official website of Indian Banking Association (IBA.org.in)
2. From the menu on the homepage under the ‘Others’ tab click on ‘Calculators’
3. To calculate the student loan repayment EMI amount click on ‘How much do I have to pay’
4. To calculate how many EMIs will be repaid for education click on ‘How long will it take to repay’

Students can adjust their EMI amount (increase it) to pay less interest and repay the education loan earlier than planned. Or they can extend the study loan tenure (duration) to fit the EMIs into their affordable limits.

Education Loan Repayment Methods

Now that you know how many EMIs it will take to repay the education loan, it’s very important to know what all methods and modes of payment you can choose to repay the loan. Students are commonly unaware of the early payment options. Thus, they are entangled in the long repayment tenure with high interest rates. Here is a list of all education loan repayment methods:-

Education loan EMIs

The most common method to keep your education loan repayment organized and self-driven is EMI (easy-monthly-installment). EMIs are fixed amount of sum decided at the time of taking a loan which students can pay every month to repay the study loan step-by-step. EMI is a combined sum comprising of student loan interest to be paid and the portion of loan principal amount.

EMI= (Annual interest applicable on loan amount disbursed)/12 + component of principal loan amount

The component of principal loan amount from the EMI gets settled from your borrowed amount every month and that’s how you repay your complete education loan. Interest rate component of the loan remains constant so, higher the EMI, higher the component of principal amount and faster you repay the loan.

Education loan part-payment

Students can choose to pay a lump-sum amount at frequent intervals to repay their study loan in addition to the EMIs. This way applicants have a chance to repay their student loan a little early and reduce the total interest liability.

Education loan repayment hack: The faster you pay your education loan, the lesser expensive it turns out for you. Every time one pays an early installment, he/she is reducing the pending principal amount which means that the bank can only charge less interest on the next installment.

Some banks only allow part-payment based on a processing charge and up to a certain limit of amount only. They also charge a processing fee for such cases, but not all banks do so. One should only repay the education loan by part-payment, if they happen to have a consolidated amount that is at least 4 times their monthly EMI (based on trends, not statistically validated)

Education loan pre-payment or foreclosure

Students who get the chance to repay the complete loan amount in one go can opt for education loan pre-payment or foreclosure. Almost all banks are obligated to provide this service after the latest changes in banking norms but some banks still charge a processing fee to do so. Still repaying a student loan completely is better than paying it back slowly.

Repaying education loan at one go eliminates all the interest that will be paid month-by-month adding to the total expense of the loan. While pre-payment of student loan at one go will only incur a nominal processing fees it will save you from interest rates levied on your loan. A loan stretched for years means more EMIs; more EMIs mean, more interest paid, and more interest means an expensive loan. After all, a study loan of INR 1000 pre-paid at 2% processing fees is way better than INR 1000 with INR 500 of total interest stretched out for 5 years.

Announcement: If you wish to apply for study abroad education loan and have questions about it, visit the Study Abroad Finance and VISA FAQs.

Education Loan Repayment Modes

Applicants can repay their study loan in multiple modes, and every bank supports all kinds of payments. Some specific loans like education loan for study abroad require specific payment methods. Better knowledge of student loan repayment modes add to the convenience of applicants. Here is the complete information about education loan repayment modes.

Repay Education Loan by Cheque/DD (Demand Draft repayment)

Repayment of student loan by cheque is accepted by almost all the banks. Many banks even have a provision of assigning PDCs (post-dated-cheques). These post-dated cheques are pre-signed cheques of dedicated EMI amount submitted to the bank which are only used when the EMI is due.

Some banks also provide cheque collection service, at a nominal surcharge; which helps in doorstep servicing of student loan. Demand Draft is a different story although. Not all banks allow loan repayment by demand draft, because they are comparatively unsafe. But students should definitely ask for demand draft option for student loan repayment.

Education loan repayment by cash

All banks accept student loan EMIs in cash. Applicants and co-applicants of a student loan can repay EMIs in cash by either visiting the branch or requesting home collection service. There is ‘no extra fees’ for cash repayment at the branch. However, cash collection invites a standard service fee.

Automated EMI payments (ECS/NACH) of student loans

ECS (Electronic Clearance Services) or NACH (National Automated Clearing House) are the modes of automated loan EMI repayment. Applicants who wish to repay education loan from savings account within the same bank or another bank can opt for this service. They would need to verify and sign a NACH mandate which gives the loan provider (bank authority) to request and receive automated payments from the savings account on each month’s due date.

Applicants can stop the service at any point of time, they can pause the payment of any particular EMI in case of insufficient balance. Default in case of automated EMI payments is liable for penalty charges. Students who miss their ECS/NACH repayment cycle have to visit the bank to resume the service and make the payment for missed EMI. Still, it’s more convenient than other payment modes, which require physical intervention.

Education Loan Repayment Tips

• Planning crucial for Education loan repayment

Make a 4-5 years plan for the education loan repayment. Consider each EMI paid as an unloading exercise, the more you pay the lesser burden you bear. Create targets for your savings so that you can meet the payments schedule for study loan. Foreign education aspirants generally plan their finances 1-3 years before their study abroad exam applications.

• Pay a bit extra money with every installment

Put in a bit extra money along with every installment towards student loan repayment. Doing this regularly will help you save on interest through the entire period of your student loan. You could save considerably on interest in the long run if you adopt this practice. education loan repayment is all about how soon you set of the principal amount.

• Get a part-time job while studying

While pursuing an education at the university or college, it is wise to find a part-time job as per your schedule. Saving some amount from the part-time job will help in a great way to ease up the whole process of loan repayment. This tactic especially applies to students studying abroad  or pursuing post-graduation in India.

• Better to automate your payments

Enabling automated payment system is another way to enforce not only payments but also savings. Automated payments always subvert any chance of EMI default and penalties. Applicants can pre-decide the extra EMI amount and the interval for automated payments to maintain control over expenses. This practice can also fetch a lowered interest rate from the education loan provider. It could have a substantial impact on the interest amount paid for study loan throughout.

• Wise to pay variable rate loans first

In a situation where you have multiple student loans to pay off, some with variable interest rates and others with fixed interest rates, it is wise to pay off the variable rate loans faster. Even if the current variable rate is lower than the fixed rate, this is sensitive and susceptible to change. A sudden hike in the interest rate following changes in the economy may catch you off guard.

Read more about education loan types and special categories for course-based and institution-based loans.

• Take help from the employer

As part of compensation, some employers agree to pay a lump sum amount towards your student loan at the time of hiring. Such an agreement also, in a great way, helps students with their education loan repayment. It may include a reduced salary amount and other employment terms but it is better.

• Better to buy an insurance: Insurance set-off education loan repayment

As part of their policy, banks insist on a term cover/insurance in the name of the borrower. The risk cover should be equivalent to the loan amount, which will take care of the repayment in case of any discontinuation by natural or unnatural cause.

Also read: “Tax Benefits of Education loan” to learn about taxation provisions and interest rate subsidy options for students.

How to Repay Education Loan? How to Manage Education Loan?

Study loan is deemed as a financial burden in common folklore, but that’s not the complete truth. Only a badly managed student loan leads to economic miseries. Student loan service is, in fact, an enabler for quality education in the society and economy. In earlier times, only scholarships and fellowships for students used to be the options for education finance. With increasing diversity and upgrades in banking policies, students have now become prominent benefactors of such services. Education loan repayment and management information is very crucial for maintaining this status quo. With all the information mentioned above students can repay education loan with ease and with maximum financial freedom. Happy Learning!