A student loan repayment can add a financial burden to students without the right information. To be able to manage the repayment of education loans efficiently, it is vital to understand how to pay education loans in India, along with their terms and conditions. In this article, you’ll learn everything you need to know about student loan repayment. 

What is Education Loan Repayment?

Education loans in India provide funds for students to pursue their education. The repayment of education loans is the process of paying the loan back. It typically involves students making monthly payments in the form of EMIs during their education loan repayment period. 

  • As per the education loan repayment rules in India, lenders offer an education loan repayment period or tenure of up to 15 years, along with a moratorium period. This helps students to manage their funds more efficiently.
  • The moratorium period is an essential part of student loans in India. It provides a financial relief to the students for a certain period. It allows students an opportunity to postpone the EMI payments until after the course is over, which helps avoid immediate financial stress. 
  • An education loan repayment begins after the moratorium period ends. The moratorium period doesn’t come under a repayment period.

You can also 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.

There are two choices that students have when it comes to taking abroad education: secured education loans from Government banks and unsecured education loans from private banks and NBFCs. Among the two, it is recommended to always try for a secured education loan from Government banks because of the benefits you get. 

Must read- Government Bank Education Loan Benefits for Students- An Overview

Due to the nature of education loans offered by Government banks and private lenders, they have extremely different policies regarding education loan repayment. Before we delve into the details, there is one important concept that all of you should be well aware of - The moratorium period or loan holiday.

What is a Moratorium Period in the Education Loan Repayment Process?

The moratorium period is a repayment holiday during which the student loan repayment doesn’t start. The moratorium period of an education loan is typically the course duration plus 6 to 12 months. During this period, the repayment of the loan, i.e., the EMIs of the loan, does not start. This provides financial relief for students and their families.

Although the education loan repayment doesn’t start, most lenders charge interest during this period. The interest during the moratorium period is either optional or mandatory, depending on the student profile and the lender. To get a deep understanding of this, let’s look at the terms and conditions laid down by public banks and NBFCs regarding the moratorium period. 

Education Loan Moratorium period of Public and Private Lenders

  • Most Government banks grant an interest-free moratorium period. However, this period is not interest-free for education loans from private lenders. 
  • Simple interest is accrued during this period by public banks. Private lenders charge either a partial or full interest during the moratorium period. NBFCs can even start the EMIs during this period, depending on the student's profile. 
  • The moratorium period in both public and private banks is the course duration plus six to twelve months. 
  • Government banks do not ask their loan applicants to begin the repayment process until the moratorium period ends. The EMI payments typically begin after the end of the moratorium period. 

When to Repay Education Loans?

As we have discussed earlier, an education loan repayment doesn’t start till the end of the moratorium period. However, students should start planning their repayment well before to avoid going into a financial crisis. Students should opt for optimal loan tenures according to their financial situation.

While planning an education loan repayment, it is extremely necessary to consider the factors such as interest during moratorium, loan tenure, and EMIs. Opting for a shorter loan tenure for the student loan repayment process reduces the overall loan cost. However, it results in huge EMIs. Although a longer tenure initially offers relatively small EMIs, it increases the overall cost of the loan.

Hence, it is always recommended that you choose an optimal repayment term most suitable to your financial capacity. To get personalized suggestions and negotiation for your education loan, request a callback from us or comment down your query below.

How Long is an Education Loan Repayment Schedule?

Public banks in India offer an education loan repayment period of up to 15 years, excluding the moratorium period, although students can pay off their loans sooner if they can.

The repayment tenure for an education loan from private lenders can also go up to 15 years. However, this period is often inclusive of the moratorium period in private lenders.

How to Repay Education Loans?

Either the loan applicant or the co-applicant can start the EMI payment of the education loan. Students can request their lenders to set up an auto-debit system from their salary/savings accounts. If your co-applicant plans to avail of an income tax exemption on the education loan interest under Section 80E, then the EMI payments can be made via their account.

You can now know exactly how much you are supposed to repay by using the Education Loan Repayment Calculator.

Also read- Education Loan EMI Calculator (A Comparison)

The factors mentioned above are extremely crucial to the education loan repayment process, and they will help you in the long run with your education loan process. If you already have an education loan sanctioned and are dissatisfied with the loan terms, you can reach out to us by requesting a callback, and we will negotiate a better repayment tenure for you.

Tips for Student Loan Repayment

Here are a few tips that can help you manage your finances during your education loan repayment period:

  1. Make a Repayment Budget

    Planning your repayment early can significantly help during the education loan repayment schedule. Make a repayment budget considering all the factors such as interest rates, EMIs, and repayment tenure. Cut down unnecessary expenses and dedicate a portion of the income towards the education loan repayment.

  2. Use Available Features

    Many lenders offer interest rate concessions on opting for loan insurance and education loans for female students. Enquire about such concessions from your lender to utilize them. 

    Apart from concessions from the banks, the government of India provides interest subsidies on education loans for students from economically weaker sections through various schemes like the Central Sector Interest Subsidy Scheme (CSIS) and the Dr. Ambedkar Central Scheme of Interest Subsidy. Using such schemes and concessions reduces the overall repayment of education loans.

  3. Consider Fixed Interest Rates

    The rate of interest on education loans is floating. This means that the interest rate fluctuates according to the repo rate and the bank. This can increase the overall cost of the loan. Opting for a fixed interest rate on your education loan can reduce this risk to help you manage your repayments.

  4. Take the Loan Amount when required

    Most students don’t know that the interest on education loans is calculated only on the funds disbursed. This means that interest is only charged on the amount you take from the loan funds, and not on the entire loan amount sanctioned. Hence, taking the loan amount only for essential expenses can help you reduce the overall repayment cost.

  5. Utilize Tax Benefits

    Under Section 80E of the Income Tax Act, applicants can claim tax on the interest paid on education loans for 8 years. Although this doesn’t directly reduce repayments, this can significantly help the borrowers manage their finances.

Education Loan Repayment Calculator

Knowing the EMIs you would get on your education loans can significantly help in planning the education loan repayment process. It assists in creating a budget for repayments even before the loan is sanctioned. This is why you should calculate and compare the actual repayment considering your moratorium period, interest rate, and other factors, using the education loan repayment calculator.