Before applying for an education loan to study abroad, it is important to understand how to repay education loan. Studying abroad is a dream for many students, but financing this dream often involves taking an education loan. While these loans provide the much-needed financial support, repaying them can be challenging if not planned well. In this blog, we’ll guide you through practical and effective strategies to repay your education loan without undue stress.
Table of contents
How to Repay Education Loan?
Repaying an education loan requires a strategic approach. It must be planned even before taking the education loan. You need to begin by understanding your loan terms, including the interest rate, repayment tenure, and moratorium period. The moratorium period is one of the best features of student loans which you can use to save and plan your finances. Start repaying early, even with small amounts, to reduce the interest burden. Check more details below:
- Explore flexible repayment options like step-up EMIs or refinancing for better terms.
- Budget wisely, prioritise your EMIs, and leverage tax benefits under Section 80E for interest payments.
- If you’re studying abroad, secure post-study work opportunities to earn in a stronger currency, accelerating repayment.
Also Read: Check here all the details on How to Get Education Loan for Abroad Studies Without Collateral
Tips to Effectively Repay Your Education Loan
To repay your education loan effectively, start by understanding the loan terms, including repayment tenure and interest rate. Make the most of the moratorium period by saving or paying interest to reduce the burden. Opt for flexible repayment options like step-up EMIs or income-based plans, and consider refinancing for better terms if needed. Check some effective tips to repay education loan below:
Understand Your Loan Terms
It is very important to understand the repayment period and the effective EMI amount. The repayment period matters the most as it can affect the total cost of the loan. Longer repayment periods usually make the loan costly as you need to pay more money towards the interest rate. A shorter repayment period usually makes the loan cheaper but the EMI amount is high.
Utilise the Moratorium Period Wisely
Make the most of the moratorium period by preparing for repayment before EMIs begin. Consider paying off the interest during this time to reduce the overall loan burden. Use this period to save money from part-time jobs or internships, build an emergency fund, and plan a budget for efficient loan management. This proactive approach will ease your transition into regular repayments and help you stay financially stable in the long run.
Explore Loan Repayment Options
Consider flexible repayment options to manage your education loan effectively. Step-up repayment plans allow you to start with lower EMIs and increase payments as your income grows, while income-based plans adjust EMIs based on your earnings. If interest rates drop, education loan refinancing with another lender could save you money. Look into prepayment options to reduce the loan tenure and interest.
Start Repaying Early
Begin repaying your education loan as soon as possible, even during your studies, by paying off the interest or making small contributions. Early payments reduce the overall loan burden by minimizing interest accumulation. If you have part-time income or savings, channel them toward your loan. Most banks offer zero early repayment charges on education loans. Starting early not only lowers the repayment amount but also builds financial discipline, ensuring smoother EMI payments once the repayment schedule officially begins.
Leverage Tax Benefits
Take advantage of tax benefits under Section 80E of the Income Tax Act, which allows you to claim deductions on the interest paid for your education loan. Income tax rebate on education loans are available for up to 8 consecutive years, starting from the year you begin repayment. Utilising these deductions can significantly reduce your tax liability, easing the financial burden during repayment.
Also Read: Check here all the major details on SBI Education Loan disbursement process and know how funds are transferred
Why is Education Loan Repayment Important?
Repaying your education loan on time is crucial for maintaining a good credit score, which impacts your ability to secure future loans or credit. Timely repayments also help you avoid penalties, reduce the total interest paid, and relieve long-term financial stress. Moreover, clearing your education loan fosters financial discipline, improves your financial stability, and opens doors to better opportunities in the future.
Repaying an education loan may seem tough, but with careful planning, budgeting, and the right strategies, it becomes manageable. Use the resources and opportunities at your disposal to stay on top of your payments. Check some common FAQs based on how to repay education loan below:
FAQs
An education loan is financial aid provided by banks or financial institutions to help students fund their higher education expenses, including tuition fees, living costs, and other related expenses.
To apply for an education loan, you need to approach a bank or financial institution, provide necessary documents like admission letters, academic records, and a co-applicant (usually a parent), and complete the loan application form.
The moratorium period is the grace period provided by banks, typically lasting 6-12 months after completing your course, during which you are not required to repay the loan principal but may have to pay the interest.
Yes, it’s advisable to start paying the interest or even make partial payments during the moratorium period to reduce the overall interest burden and ease your future repayments.
The interest rate on education loans varies based on the bank and the loan amount but typically ranges between 8% and 15% per annum. Some banks offer concessions for women and meritorious students.
The repayment tenure for education loans generally ranges from 5 to 15 years, depending on the loan amount, bank policies, and your ability to repay.
Yes, you can repay your education loan early or make partial prepayments, which can help reduce the total interest you pay over the loan tenure.
Yes, under Section 80E of the Income Tax Act, you can claim tax deductions on the interest paid on education loans for up to 8 years, providing relief during repayment.
Missing an EMI payment can lead to late payment penalties, and it may also affect your credit score. It’s important to inform the bank and discuss options like restructuring if you’re facing financial difficulties.
Yes, you can transfer your education loan to another lender if they offer better terms, such as a lower interest rate. This process is called refinancing, and it can help you save on interest payments.
To know more about education loans, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
