Choosing the right repayment method for your education loan can help you save money during your education loan repayment period. The standard EMI-based repayment method helps you gradually repay your student loan over the tenure. 

In this article, we will explore the 5 common education loan repayment ways, along with the information on when to repay the education loans. We have also covered how to choose the best education loan repayment method for you.

When to Repay the Education Loan?

  • The repayment of education loans starts after a moratorium period, also known as a repayment holiday. 
  • Education loans in India typically offer a moratorium period of the course duration plus 6 to 12 months. 
  • During this period, your education loan repayments, i.e, the EMIs of the loan, don’t start providing a financial relief to students.

Standard EMI-Based Repayment Method

It is the most widely used repayment method for various loans. A standard EMI-based repayment method involves repaying the loan in the form of regular monthly repayments, i.e, in the form of EMIs. 

It involves paying a fixed amount regularly, usually every month, till the end of the education loan repayment period. The EMI of your student loan consists of both the outstanding principal amount and the interest.

A standard EMI-based method for your education loan repayment can offer you affordable monthly EMIs. It helps you manage your finances during the education loan repayment period and repay the loan over a long period.

Paying Simple Interest During Moratorium

While it's not mandatory to pay the interest during the moratorium in all banks, paying interest during the moratorium period can help you get relatively lower EMIs on your education loan. 

As we have mentioned, your education loan repayments don’t start during the moratorium period. However, most lenders charge interest during this period. 

Private lenders charge either partial or full simple interest during the moratorium. It is mandatory for students to pay partial or full simple interest during the moratorium period when they take an education loan from a private bank or an NBFC.

Public banks like SBI, on the other hand,  offer an optional interest during the moratorium period. This means that students can either pay or not pay the interest during this period. 

Although your education repayments do not start until the moratorium period ends, lenders calculate the interest on the principal loan amount. This interest, calculated over the moratorium, is often accumulated and added to the outstanding principal amount. This means that students will end up repaying more during their education loan repayment period.

Example: Suppose you took an education loan of ₹15,00,000 at an interest rate of 10% per annum. And the moratorium period(course duration + 6 to 12 months) is 3 years. 

  • The interest accumulated during the moratorium period would be ₹45,000(3*10% of the loan amount).
  • If you don’t pay the interest during the moratorium period, the total outstanding principal of your education loan would be ₹15,45,000, which results in relatively higher EMIs.
  • And if you pay interest during the grace period, the EMIs will be calculated on the original principal amount, i.e, ₹15,00,000.

This is how paying the interest during the moratorium period helps avoid paying more during the education loan repayment period.

Income-Based Repayment Method

Income-based repayment is an effective method for students going through a financial struggle to repay their education loans. Many banks in India offer income-based repayment plans for student loans. It helps students by reducing the monthly payments according to their income. 

This significantly helps students and their families by making repayments more manageable during their education loan repayment period. An income-based repayment plan can offer you flexible monthly installments based on your income and family size.

Lump-Sum Prepayment After Graduation

It is one of the most effective ways to repay education loans. Making a lump-sum prepayment on your education loan after graduating reduces the total outstanding loan amount.

  • Prepaying your education loan can significantly reduce the interest part on the EMIs of the loan by reducing the total outstanding loan amount.
  • This ultimately helps you clear your outstanding principal amount sooner.

This is how making a lump-sum prepayment after graduation reduces the interest part of your EMIs. 

Education Loan Balance Transfer to Reduce EMI Burden

Although an education loan balance transfer is not exactly a repayment method, it can help reduce your education loan repayment burden. Transferring your education loan to a different bank is one of the most effective ways to reduce the interest rate on the loan, which ultimately reduces the EMIs.

Most banks offer a lower rate of interest for student loan takeovers than for a fresh student loan. Transferring the loan not only helps students reduce the interest rates but can also offer them more favorable education loan repayment terms. Transferring your education loan to another bank helps you manage your EMIs during the education loan repayment period

Many students struggle to manage their finances when faced with issues during the repayment period. WeMakeScholars is here to help you solve such issues. We have a dedicated post-sanction team to help you resolve your repayment issues. Contact our team by requesting a callback and get a stress-free education loan journey till the end of your tenure. Since WeMakeScholars is supported by the Ministry of IT, we offer our services for free to students.

How to Choose the Best Repayment Method for You

Choosing the right repayment method is essential for managing your finances during the education loan repayment period. Before choosing the best education loan repayment method, you should:

  • Consider your financial condition and future income before choosing a repayment method.
  • Make sure to read all the terms and conditions specified by your lender before choosing a repayment method.
  • Examine the factors such as the moratorium period, interest rate, interest during moratorium, and the education loan repayment tenure.

Choose a repayment method that aligns with your financial condition by considering the above-mentioned factors.

You can also contact WeMakeScholars, an organization partnered with over 15 public and private banks. WeMakeScholars is dedicated to providing the best education loan guidance and support to students. When you apply for an education loan through us, our team will analyze your profile and provide you with the best repayment methods matching your profile. Request a Callback from us today, so that our team can help you get the best education loan and choose the right repayment method for yourself.

Conclusion

Choosing the right repayment method on your education loan is crucial, as it can help you save money during your education loan repayment period. Many students don’t know when to repay the education loans. The education loan repayments start after the moratorium period. 

This article covers the 5 common ways to repay education loans, including the standard EMI-based repayment method, and using prepayments to reduce the interest part of EMIs to help you make a well-informed decision.