Education Loan Repayment – An Overview
Education loan repayment is one of the many important factors of an education loan process. Most candidates look for information on their lending bank/NBFC’s education loan repayment process, even before applying for an abroad education loan. The education loan repayment process in India varies, depending on your lender’s policies. This blog specifically highlights the education loan repayment process of different lenders.
Or even better, you can get all the information straight away from our education loan expert, Ms Damini Mahajan, in the 29th episode of Loanflix, a comprehensive web-series on abroad education loans.
As mentioned in the previous paragraph, the education loan repayment process is greatly dependent on the policies set by different lenders. As is common knowledge, there are two major categories of education loan providers in India; Government banks and NBFCs (Non-Banking Finance Companies). Due to the nature of education loans offered by them, government banks and NBFCs have extremely different policies education loan repayment rules. Government banks generally lend secured loans, which involves pledging of collateral security against education loans. NBFCs lend unsecured loans or education loans without collateral security. Before we delve into the details, there is one important concept that all of you should be well aware of – Moratorium period or loan holiday.
What is a Moratorium period in the education loan repayment process?
A moratorium refers to a gap in tenure. In terms of education loans,
a moratorium period on loan repayment refers to a loan holiday granted to the applicants before their repayment process begins.
Now, the major reason why this can be seen as a benefit is that the moratorium period is applicable only in case of education loans. This provision is not granted for loans of any other nature.
Coming to the topic, a moratorium period generally refers to a certain period in your loan tenure during which you will not be expected to commence your loan repayment. Students can commence their interest payment during this period (this depends on their lender’s policies), however, the EMI payment strictly begins after the moratorium period. Let’s see the terms and conditions laid down by public banks and NBFCs regarding the moratorium period.
Government Bank Education Loan Repayment Process
The loan repayment process of government banks is, in a way, convenient for students due to their flexible repayment terms. When it comes to the repayment process, there are three important phases that you need to know of.
When Does the Education Loan Repayment Start?
The primary concern of most of the education loan applicants is regarding the loan repayment period. So here it goes. Most government banks grant a payment-free moratorium period. That is, candidates who have borrowed their education loans from the government banks need not begin contributing towards their loan repayment till the end of the moratorium period.
The moratorium period in government banks generally consists of the course duration, plus six to twelve months after the course (this clause is dependent on your lending bank’s policies). The interest for this period is calculated on a simple interest basis, by government banks. The EMI payment is expected to begin at the end of this time in the loan tenure. So, in short, the government banks do not ask their loan applicants to begin the repayment process until the moratorium period ends.
Now you may come across certain government banks asking for an ‘interest only’ moratorium period. Only certain few banks like the Oriental Bank of Commerce or the Syndicate Bank have this policy. Most prominent banks like the SBI, Bank of Baroda, etc., offer a payment-free moratorium period.
How Long Is The Education Loan Repayment Period Granted by Government Banks?
Almost all government banks grant an education loan repayment period of 12 years to 15 years from the end of your moratorium period. This tenure starts once your loan repayment holiday gets over.
Are There Any Benefits of Pre-paying the Education Loan Interest Beforehand?
Till about two years ago, government banks had an education loan repayment support scheme stating that candidates get to avail a 1% rebate on regular payment of full interest during the moratorium period. However, this scheme was called off roughly about a year ago. So if you happen to come across any such terms that mention this scheme, please be aware that no such provision exists!
This education loan repayment support scheme is obsolete now. You can now get to know how much amount you are supposed to repay by using the education loan repayment calculator facility available on government banks’ official websites.
The factors mentioned above are extremely crucial to the education loan repayment process of government banks and it will help you in the long run in your education loan process. To know specific details about the education loan process of your lending bank, get in touch with our team by requesting a callback.
Loan Repayment Process of NBFCs
NBFCs (Non-Banking Finance Companies) are the biggest lenders of unsecured education loans. Since they are private lending firms, their repayment process is a little more different in comparison to that of government banks. While their way of operating is loosely based on the directions of the RBI, NBFCs have customised ways of processing an education loan. Here’s a brief take on how NBFCs handle education loan repayment.
When Does the Education Loan Repayment Begin in NBFCs?
NBFCs offer a moratorium period on education loan repayment like government banks do. However, unlike government banks, this period is not payment-free for those who have borrowed unsecured education loans to study abroad. So, ideally, the education loan repayment of unsecured education loans borrowed from prominent NBFCs begins once candidates receive the first disbursement of their education loan.
NBFCs require students to make their interest payments during the moratorium period. The good news is that NBFCs accept the partial payments of interest during the moratorium period. Partial payment is when candidates are allowed to partially pay the interest charged during the moratorium period. This means that if you are being charged a monthly interest of Rs.10,000 per month during your moratorium period and you are unable to do so, NBFCs allow you to pay only Rs.4000 to Rs.5000, depending on their policies.
Depending on your profile, NBFCs may even ask for full payment of interest during the moratorium period. This clause is entirely up to their education loan repayment rules. The loan EMI will be deducted from your account once the moratorium period is over.
The WeMakeScholars team is closely associated with prominent NBFCs. If you are looking for a concession in your unsecured education loan interest rates, or to negotiate the repayment terms, do not hesitate to contact our team for assistance. You get to avail an automatic 0.5% reduction in your loan interest rates when you apply through us. Request a callback today to know more about other details.
How Long Does the Loan Repayment Tenure Granted By NBFCs Last?
NBFCs grant 10 years as the total loan tenure. This period is inclusive of the moratorium period. This is one of the policies which makes education loans from government banks, a much-preferred option for candidates. When your moratorium period is counted as a part of your loan tenure, you end up losing at least 2.5 to 3 years of your loan tenure.
If you have already borrowed an education loan from an NBFC and are not happy with their repayment policies, you still have time. On completion of all your disbursements, you can opt for an education loan transfer to any of the major government banks. Get in touch with our team today to know all about the education loan transfer process.
What Are The Steps Involved in the Repayment of Unsecured Education Loans?
Either the loan applicant or the co-applicant can start the EMI payment of the education loan. Candidates can request their lending NBFCs to set up an auto-debit system from their salary/savings accounts. If your co-applicant plans to avail an income tax exemption on the education loan interest under Section 80 E, then the EMI payments can be made via their account.
Within How Much Time Should One Finish Their Education Loan Repayment?
Most students try to repay their education loan as soon as they can. Hence, they opt for smaller loan tenures. At WeMakeScholars, we always advise our students to opt for the longer loan tenures. While planning for your education loan repayment, it is extremely necessary to cater for financial contingencies. Students are generally able to repay their education loans as soon as they are employed abroad. However, if this doesn’t happen, then opting for a shorter loan tenure for the student loan repayment process may not work in their favour. Hence, it is always recommended that you opt for a longer repayment term.
Now that all the important factors regarding the student loan repayment process have been explained here, you can look forward to the 29th episode of Loanflix, which will tell you all about the document requirements for non-collateral loans.
Note: WeMakeScholars is an organization funded and supported by the Government of India that focuses on International Education finance. We are associated with 10+ public/Pvt banks/ NBFCs in India and help you get the best abroad education loan matching your profile. As this initiative is under the Digital India campaign, it’s at free of cost. The organization has vast experience dealing with students going to various abroad education destinations like the US, Canada, UK, Australia, Germany, Sweden, Italy, China, France among others