According to the data shared in parliament, during a Lok Sabha session in February 2023, student loans amounting to ₹39,268.82 crores were disbursed over the past decade. Embarking on the education loan journey marks the initial stride towards financial independence for students, and responsibly repaying it is essential to build a healthy credit score. Therefore, it is necessary to bear in mind the repayment aspect from the start of the education financing journey.
Things students should keep in mind for a robust repayment plan
Understanding the significance of repayment: Settling educational loans is pivotal in establishing a robust financial background for students. This contributes to an elevated creditworthiness, providing students access to various advantages when considering additional financial products like car loans, home loans, and credit cards. Hence, it becomes essential for students to grasp the fundamentals of financial planning, strategically initiating the first step towards an effective repayment strategy. This fundamental knowledge empowers students to easily manage and attain their financial goals, underscoring the importance of selecting the right plan.
Selecting the right plan: To choose the right education loan repayment plan for a secure financial future, it’s crucial to consider individual circumstances and preferences. Here are some tips to help students design a flawless repayment strategy:
Start with a budget: The first step in selecting the right education loan repayment plan is to evaluate the individual’s current financial situation. It necessitates a thorough examination of expenses and other financial obligations, providing clarity on the amount that can be allocated for loan repayment. The process of strategic budgeting helps the students understand how much they can allocate towards their loan repayment and how much they can save for their personal expenses.
Seek professional advice: It’s always a good idea to consult a lender who can provide personalised guidance based on an individual’s unique circumstances and needs. Since students are first-time borrowers, speaking to the consultant can bring clarity and transparency.
Use a smart online tool: It’s essential for students to determine the optimal balance between tenure and EMI. Utilising an Education Loan EMI Calculator, a readily available online tool, allows students to try different combinations of tenure and loan amount to estimate the EMI promptly. This will assist in selecting the most suitable repayment amount.
Education loan repayment methods
Interest servicing during the course: Certain financial institutions waive EMI payments between loan disbursement and the first EMI date, known as the moratorium period. It is essential to recognise that this interval does not imply an interest-free period; interest begins to accumulate from day one. Proactively planning loan repayments is prudent, promoting more effective management of accruing interest and ensuring a smoother financial journey. Initiating repayments in the form of simple or partial interest during the moratorium period is advisable, as this instils financially responsible habits. Additionally, setting aside an emergency corpus for unforeseen circumstances, such as a pandemic, is crucial.
Equated Monthly Instalments (EMIs): EMIs comprise the principal amount and education loan interest rate. So, after completing higher education, the student can start paying their education loan through EMIs.
Read the fine print: Understanding the intricacies of the education loan is vital for developing a seamless repayment plan. Students should thoroughly review all documents, terms, and details of the loan structure. Engaging in discussions with the financial provider about crucial elements such as loan amount, tenure, repayment options, and EMIs is essential for formulating the most effective repayment strategy.
Earning while learning: While studying abroad, students have the option to pursue part-time jobs or internships to sustain their lifestyle. In numerous countries, student visas for full-time degree programs usually allow up to 20 hours of work per week. This enables a student to learn valuable life skills, earn some extra income to manage expenses and save a small portion of moolah for future loan repayments. Working part-time during the study period as per the permissible limits can aid in managing the overall expenses.
Strategically repaying an education loan is a crucial step in establishing a favourable credit history. Therefore, choosing the right repayment plan is paramount, allowing students to balance settling education loans and pursuing their long-term goals. Making timely repayments on the availed education loans will lead to a robust and secured financial future. Students can achieve academic excellence by being mindful of these strategies.
Amit Gainda – Managing Director & CEO at Avanse Financial Services Ltd.
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Published: 04 Feb 2024, 01:32 PM IST