Education loan Repayment - Everything you need to know

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Introduction

Repayment is a structured action of repaying the loan that has been taken by the borrower and if not planned smartly can be an issue of concern for most of the students. Due to lack of proper planning students consider repayment as a major liability because of which it is necessary to chalk out your plan from selecting the bank till repayment of the education loan. For the purpose of planning the student loan repayment, it is obligatory to understand the bank’s policies and their conditions. Read this article to gain profound knowledge on education loan repayment and how to plan your repayment method in an effective way. 

What is the moratorium period?

The moratorium period is considered as the period until which the EMIs don’t start and the borrower is not required to make any payment during this period. The moratorium period is also known as a repayment holiday as the borrower can halt their payments. The moratorium period is usually course duration plus 6 months or can extend up to 1 year. 

For example, if your course is for 2 years, then you’ll get your course duration i.e. 2 years plus 1 year which makes it 3 years. So, until 3 years your EMIs won’t start.

But this is not the case for all banks. In Government banks, students who want to start their EMIs during moratorium can do so, but if the students opt for a payment moratorium period, the applicant is not required to make any payments i.e. until their course duration plus their moratorium of 6 months or 1 year. Whereas Private banks and NBFCs (Non-Banking Financial Corporations) generally do not offer no-payment moratorium period i.e. during their moratorium period of course duration plus 1 year, a student is obligated to pay either full or partial interest. 

Note: Bank generally charges simple interest on the loan during their course period. 

Do you need to repay while studying?

As explained earlier about the moratorium period in this article, ideally the student is not required to make any payments during this period. Therefore, moratorium period acts as financial aid to the student as after the end of the course students get time to find a job, settle, and then start their repayment accordingly. Lenders in India have different policies for repayment during the moratorium period which includes:

  1. Zero payment moratorium- Where a student is not required to pay even a single penny during their moratorium period
  2. Full Simple interest- interest being calculated on the principal portion of a loan
  3. Only Partial interest-  a certain amount of interest will be paid
  4. Full EMIs from first month- have started making from the first month of the loan taken

Education loan repayment in Government Banks

The student loan repayment process in Government banks is considerably broad as they have student-friendly repayment policies. When it comes to the repayment period all government banks grant repayment tenure of 12 to 15 years from the end of their moratorium period. Therefore, students get to relish the repayment holiday as the tenure starts once the moratorium period is over. Most of the time banks provide insufficient information to the students due to which students tend to pick the wrong path. But do not worry, our processing officers at Vidyalaons will connect you with the best lender available in the market and will guide you through the entire loan process.  

Education loan repayment in NBFCs

Education loan repayment process in NBFCs is a bit different from that of Government banks. They have customized ways of processing an education loan. They also offer a moratorium period same as Government banks do, but the difference is Government banks offer zero payment moratorium period whereas in NBFCs students are required to pay interest during their moratorium period. They also accept partial payments of interest during their moratorium period. Apart from that, NBFCs offer 10 years as the total loan tenure i.e. moratorium period is included in this tenure. 

Therefore, it is suggested that students opt for Government banks with collateral, as this would help them get a better offer as compared to NBFCs because the loan tenure is inclusive of moratorium period and because of this policy student ends up losing 2.5 to 3 years of their loan tenure. If you are looking for an education loan through Government banks, connect with our team at Vidyalaons as our processing officers will get you the best deal available in the market and will guide you through the entire loan process. 

When to start repaying education loans?

Education loans can be of big help if one is aiming for a premium institution and banks also lend money to students who meet all the parameters required to seek an education loan. The ideal time that most of the students opt for is between 5-7 years to repay the entire loan amount with the interest. Planning your repayment i.e how to pay student loans is a meticulous and diligent task. After completion of your studies, it becomes a great matter of concern. It is advisable to start repaying the loan as soon as you can as the moratorium is EMIs free but not interest-free. Simple interest is being charged on your loan amount and it keeps on accruing during the payment-free moratorium period. Interest rates in India are considerably high, especially in Private banks and NBFCs. Therefore finally, you end up increasing the burden of interest and the cost of the overall loan. To avoid the burden of repaying your student loan in the wrong manner, connect with our team at Vidyaloans as they will guide you through the entire education loan process in India.

Education Loan repayment tips

  1. Avail oneself of features available
    It is suggested that students should capitalize on the features provided by the banks such as a discount on interest rates for female candidates, benefits of loan insurance or schemes like Rinn Raksha, subsidy schemes for differently-abled or students coming from economically weaker sections of the society etc. This will help them reduce the burden during the time of repayment. 

  2. Opt for fixed rates
    We advise students to opt for fixed interest rates over floating interest rates as students must understand how interest rates can affect their EMIs. Fixed interest rates are fixed in nature and remain the same throughout your loan tenure whereas floating interest rates are subject to change according to economic factors. Students who have already opted for floating interest rates, try to understand how interest rate fluctuates with the change in the market. 

  3. Take your loan amount whenever required
    We at Vidyaloans suggest that you take money from your loan amount whenever required as the interest is calculated on the amount taken or used from your loan amount and not on the amount sanctioned. For eg: You took a loan of 20 lakhs for 2 years course. For your 1 semester, you utilized 5 lakhs from your loan amount. So, therefore, the interest is charged on the 5 lakhs of your loan amount and not on your 20 lakhs of the loan amount. If you are facing any such issue understanding the concept, connect with our team at Vidyaloans and our dedicated team of professionals will be able to help you out. 

  4. Budget your repayment
    Repayment of the loan is a big task in itself and requires proper planning and budgeting of the same. The student must cut down on his expenses and the prime focus should be on repaying the loan as quickly as possible. Once the student starts earning, the student should strategize the plan of paying back the loan as after a certain period of time repayment can become vexatious. So, therefore, plan your budget, calculate your interest you will be paying, calculate your monthly EMIs and then act accordingly.

  5. Utilize tax benefits
    Students who took an education loan from Indian banks can avail of Section 80E tax benefit. Under Section 80E, candidates who have taken  an education loan and are repaying the same, then they are allowed to seek a tax deduction on the interest being paid on that education loan. 

Note: The deduction is provided only for the interest part of the EMI and the maximum tax deduction period is for 8 years. 

About our organization: VidyaLoans is an organization which helps Indian students in India to secure a non-collateral loan from Government banks up to 7.5 Lakhs. We have a dedicated team of professionals who assist students with queries and guide them throughout the loan process. Our Team at Vidyaloans is committed to sanction the best loan option suiting the applicant's profile and needs, in a stipulated time frame.