FAQs on Education Loan Repayment

The financial aspect of pursuing higher education in foreign countries can be easily covered with an education loan. However, making an effective strategy in advance for loan repayment is essential. This blog will address some common FAQs on education loan repayment, foreclosure charges, interest rates and moratorium periods.

When does education loan repayment start?

The repayment period for education loans usually begins after the completion of the course or a specified moratorium period, which is usually six months to a year after securing employment. Most banks allow a moratorium period of 1 year or 6 months after getting a job, whichever is earlier. However, during the moratorium period, the bank charges simple interest which you pay at that time or get adjusted in the overall repayment amount.

Also Read: Need help managing and extending your repayment period? Check this blog and understand all about Education Loan Restructure!

What is the moratorium period for education loans?

The moratorium period or repayment holiday is a grace period during which the borrower is not required to make any repayments. This period is provided to allow students to find stable employment. The duration is fixed, and extensions are generally not granted. The bank will continue to charge simple interest for the moratorium period which will be added to the principal amount if not paid during the moratorium.

What are the different types of interest rates in education loans?

There are mainly two types of interest rate i.e. fixed rate of interest and floating rate interest. The fixed interest rate remains constant during the entire repayment period but floating interest rates are subject to revision every quarter. It may increase or decrease depending on the economic condition of the country.

Which type of interest rate will be better to make the loan cheaper?

A fixed interest rate is better as you will be able to calculate the repayment amount. If the loan is on a floating rate of interest, it will rise based on the inflation in the country. When there is high inflation, RBI increases the repo rate which ultimately makes the loans costlier.

Are there any early repayment charges on education loans?

Most of the banks and NBFCs in India do not impose any early repayment charges on education loans. You can foreclose the loan at any point in time before the tenure ends. Check all the terms and conditions related to the schedule of charges before applying for an education loan.

Can I extend my repayment tenure?

You can extend the loan repayment period by applying for an education loan restructure. However, this option should be used only if you are facing financial hardship. Also, approving the application for loan restructure totally depends upon the bank or financial institution from where you have taken the loan.  

What to do if the interest rate increases on an education loan during the repayment period?

In case the interest rate increases on your education loan, you can simply get a balance transfer or education loan refinancing from another bank that offers a lower rate of interest and a flexible repayment period. 

Are there any tax benefits on education loan repayment?

Yes, under Section 80E of the Income Tax Act, the interest paid on education loans is eligible for tax deduction. This benefit is applicable for 8 years from the date of the beginning of the loan repayment. You can claim tax only for the interest paid against the loan and not the principal amount. 

Can I make early repayment for a top-up loan?

Yes, you can prepay your education loan without incurring any penalties. However, some banks may have a lock-in period, and prepayment might only be allowed after this period. Check all the terms and conditions regarding the foreclosure of loans before applying for the same. 

Also Read: Planning to get a Prepaid Forex Card? Check out some of the common FAQs on forest prepaid cards for international students

Is there any option available for part payment?

Yes. At any point of time during the repayment period, you can make part payments if you have additional funds. This will make the loan cheaper as the interest rate for that amount may not be charged. Part-payment of education loans is a good step to make your finances better. Contact your banks for available modes of part payments. 

What if I missed one EMI for education loan repayment?

If you miss the EMI payment, the bank or the lender will impose bounce charges and other penalties. Also, it will negatively affect your credit score and also reflect in your credit report that you have made late payments. 

What if I haven’t paid EMIs for two months for my education loan?

If you will miss two consecutive EMI payments, your account will fall under SSA (substandard asset) and your credit score will be badly affected due to loan default. Similarly, if you have missed 3 consecutive EMI payments, the account will be treated as NPA (non-performing asset) and it will be very difficult for you to secure any other type of loan in future. 

Education loan repayment is an important aspect of studying abroad. By staying informed and proactively engaging with your lender, you can ensure a smooth and successful repayment journey, paving the way for a financially secure future.

To know more about the loan application process, 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.

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Check here for some of the most common FAQs on Education Loan Repayment. Know about moratoriums, interest rates and their types, refinancing etc.