Inflation can make student loan repayment a financial burden to students. Inflation can increase the overall education loan repayment cost by increasing the interest and EMIs of the loan. Students need to understand the impact of inflation on education loan repayments to manage their finances efficiently. In this article, you’ll learn about the impact of Inflation on student loan repayments and strategies to manage your education loan EMI during inflation.

How Inflation Affects Students?

Inflation is the steady increase in the price of goods and services offered in a country, including education. Many students in India rely on education loans to fund their higher education. These loans help students afford education for both domestic and international studies. Inflation increases the financial stress of students from all around the world by increasing the cost of education worldwide. Here’s how students are affected due to inflation:

Affects Education Cost

Inflation leads to an increase in the cost of annual tuition fees, one of the major expenses of pursuing higher education. Apart from the tuition fees, inflation also affects the education cost, especially for abroad education, by increasing the living expenses, cost of study material, and other essential expenses associated with pursuing education. 

Understanding Education Loan Repayment Inflation

With the rising cost of education all around the world, education loans have become the primary source of funding for many students to pursue higher education. However, inflation ultimately increases the repayment cost of education loans over time. The education loan repayment inflation can increase the financial stress of students by affecting the EMIs and interest rate of the student loan, which we will learn about further in this article.

How Education Loan Repayment Works?

Before learning about the implications of inflation on education loan repayment, let’s understand how the repayment of an education loan works. An education loan repayment refers to the process of paying back the loan amount, typically in the form of monthly payments (EMIs), according to the loan agreement. The repayment of an education loan in India starts after the moratorium period. The following are the important terms that explain how student loan repayments work in India:

Moratorium Period

Education loans in India typically offer a moratorium period of the course duration plus 6 to 12 months. During this period, the repayment, i.e., the EMIs of the student loan, doesn’t start. This provides financial relief to students for some time and helps them focus on their studies.

Education Loan EMIs

After the end of the moratorium period, the repayment of the student loan starts in the form of Equated Monthly Installments (EMIs). An education loan EMI is a monthly payment that students make to repay their student loans for the entire repayment tenure. It includes both the principal loan amount and the interest. Inflation can significantly affect your student loan EMIs by influencing the interest rate.

Fixed vs Floating Interest Rates 

The interest rate on education loans is a major concern for many students, as it directly influences the repayment of the loan. There are two types of interest rates offered for education loans in India. 

Floating Interest Rates:

  • Most education loans in India have floating interest rates,
  • These rates are not constant and change according to RBI guidelines and the lender.
  • The EMIs can change as the interest rate on the loan changes.

Fixed Interest Rates:

  • Many lenders in India offer fixed interest rates on education loans.
  • These rates remain constant and don’t change for the entire repayment tenure.
  • The EMIs remain the same throughout the education loan tenure.

How Inflation Impacts Education Loan Repayment?

Inflation significantly impacts student loan repayments by affecting the interest rates, EMIs, and the total education loan cost. Here’s how inflation can affect the repayment of education loans:

The relation between Inflation and RBI interest hikes

  • The Reserve Bank of India (RBI) plays a major role in managing the inflation of the country. 
  • The RBI decides the repo rate, according to which banks decide their interest rates on student loans. 
  • During high inflation, the RBI can hike the repo rate to control inflation in the country. 
  • This hike in the repo rate leads to an increase in the interest rates. This increased interest rate will increase the education loan EMI during inflation. This ultimately increases the overall education repayment cost.

Impact of Student Loan EMI during Inflation

Inflation has a major impact on student loan EMIs, particularly for education loans with floating interest rates. As we have already discussed, inflation can increase the interest rates of education loans. It ultimately leads to higher EMIs, making it difficult for students to repay the loan. This is how the education loan EMI during inflation is increased. This sudden increase in EMIs can add a financial burden on students and their families.

Inflation affects the overall Education Loan Repayment

The cost of pursuing higher education at a well-recognized university is steadily increasing due to inflation. This increases the total education loan cost of students by increasing the loan requirement, especially for abroad education loans. By affecting the interest rates and increasing the EMIs, inflation significantly increases the overall repayment cost of education loans for students.

WeMakeScholars can help you with your education loan repayments during high inflation. Since we are partnered with more than 15 public and private lenders, our team of expert financial officers can help you get the best education loan terms. When you apply for a student loan through us, our team can negotiate on your behalf to make your repayments more affordable. Request a call back from us so that our team can help you solve all your education loan queries and help you get the best loan terms for your education loan. 

Strategies to Manage Education Loan Repayments during Inflation

Opt for Fixed Interest Rates

Many banks offer fixed interest rates for student loans in India. Unlike floating interest rates, fixed interest rates remain constant for the entire loan repayment period. And the EMIs of the education loan remain the same throughout the tenure for education loans with fixed interest rates. This significantly helps students avoid paying more interest to the education loan due to inflation.

Prepayments 

Making prepayments on your education loan can help you cut down the EMIs during inflation. It is one of the most effective ways to reduce the interest you pay on a student loan. Prepayments can directly reduce the outstanding principal amount and reduce the interest part of the EMIs. Consider making prepayments on your education loan whenever possible to reduce the overall education loan cost during high inflation.

Choose an Optimal Repayment Tenure

Choosing a shorter repayment tenure lowers the overall interest payments on a student loan. A shorter repayment tenure doesn’t necessarily lower the interest rate of an education loan during high inflation. However, it can help you reduce the overall interest you pay during the entire loan repayment period.

Although a longer repayment tenure can give you lower monthly payments, you will end up paying a huge amount toward the interest part of your EMIs. Hence, you should choose a repayment tenure suitable for your situation that ensures you get a manageable interest rate to make the monthly EMIs more affordable.

Government Subsidies

The government of India offers several subsidy schemes that provide interest subsidies on education loans. The Central Sector Interest Subsidy Scheme (CSIS) and Dr. Ambedkar Central Sector Scheme Interest Subsidy offer subsidies for the interest on the education loans during the moratorium period for eligible students. Utilizing such schemes can provide you with financial relief for a certain time during inflation.

Choosing an education loan satisfying all your requirements can be quite challenging, as various lenders offer diverse loan options. When you apply for an education loan through us, an expert financial officer will analyze your profile and help you obtain the best education loan that is most suitable according to your profile. Get in touch with WeMakeScholars for a fast and simple loan process for an education loan. As WeMakeScholars is funded and supported by the Ministry of IT, Government of India, our services are completely free to students.

Conclusion

Understanding the effects of education loan repayment inflation is crucial to students for managing finances during the student loan repayment period. Inflation is one of the major factors affecting the overall education loan repayment cost. Students should learn about the relationship between inflation and RBI interest hikes to avoid losing money during the repayment period. In this article, we have covered how inflation can impact student loan repayments, along with various strategies to help you manage education loan repayment during inflation.