On 6th June, 2025, the Reserve Bank of India reduced the repo rate by 50 basis points, making it 5.5%. The repo rate is an important monetary policy according to which banks decide the interest rates for lending services, including education loans.

This repo rate cut significantly affects the education loans of both new and existing borrowers by influencing the interest rate. Understanding the repo rate effect on education loans can help you manage your finances during your student loan repayment period. In this article, we will learn what repo rate is and how this reduced repo rate impacts education loan borrowers. 

What Is the Repo Rate?

The Repo Rate, also known as the Repurchase Agreement Rate,  refers to the interest rate at which the central bank lends money to commercial banks. 

Banks borrow funds from the Reserve Bank of India (RBI) to meet their short-term needs by selling government securities. They would come into an agreement with the RBI to repurchase these securities at a higher price at a future date.

Repo rate is an important monetary policy tool that helps the RBI manage inflation, liquidity, and economic stability in the country.
Changes in the repo rate significantly affect lending services, such as home loans and education loans, offered by the banks. 

RBI cuts Repo Rate by 50 Basis Points

  • The RBI has recently announced a repo rate cut of 50 basis points. 
  • RBI cuts repo rate from 6% to 5.5% to control inflation and support economic growth in the country.
  • With this announcement, the RBI has made a total repo rate reduction of 100 basis points in the first six months of 2025.
  • This reduced repo rate affects both existing and new student loan borrowers. Keep reading to find out the impact of the RBI repo rate cut on education loans.

Repo Rate Effect on Education Loans

As we have already discussed, the repo rate is the interest rate at which the RBI lends funds to banks. Banks use the repo rate to decide the interest rates of their financial services, including education loans. It is one of the major factors that affect the interest rates on education loans in India, particularly for education loans with floating interest rates. Here’s how changes in the repo rate affect education loans:

When the repo rate is reduced, banks can lower the interest rate on their education loan services. making them more affordable for students. This also reduces the overall repayment cost of education loans.

And a hike in the repo rate often increases the interest rates on education loans. It increases the repayment cost of education loans, increasing the financial burden of the students.

Floating vs Fixed Education Loan Interest Rates

While the repo rate influences the interest rates of education loans, it doesn't affect the interest rate of all education loans. The repo rate effect on education loans varies depending on the interest rate type of the loan. There are two types of interest rates offered for education loans in India: floating and fixed interest rates. 

Floating Interest Rates:

  • The interest rate of an education loan with a floating rate is not constant and changes according to the RBI repo rate and the bank.
  • This means that when the RBI cuts the repo rate, the interest rate on the education loan can also be reduced.
  • And the interest rate increases when the RBI hikes the repo rate.

Fixed Interest Rates:

  • For student loans with fixed interest rates, the interest rate will not be affected by the repo rate.
  • This means that the education loan interest rates remain constant and don’t change for the entire loan tenure.

Impact of Repo Rate Cuton New Education Loan Borrowers

The RBI repo rate cut by 50 BPS impacts students planning to obtain an education loan for higher studies. It affects the interest rate on their education loans, impacting their EMIs and overall repayment cost. Here’s how the recent RBI repo rate cut affects new student loan borrowers:

  1. Lower Interest Rate: As we already discussed, the interest rate on education loans is decided by the repo rate. When the repo rate is reduced, banks often lower the interest rates on their education loan services, making them more affordable for new borrowers. 
  2. Affordable EMIs: A significant portion of the EMIs of an education loan is made up of the interest charged on the loan. As the interest rate is lowered due to the reduction in the repo rate, the interest part of the EMIs will also be reduced. This is how the repo rate cut offers affordable EMIs on education loans for new borrowers.
  3. Makes Borrowing More Affordable: By lowering the interest rate and EMIs, the RBI’s repo rate reduction makes borrowing for education loans more affordable for new applicants.

Impact on Existing Education Loan Borrowers

Now that we have understood how the repo rate affects new education loans, let’s look at how it affects students who have already taken an education loan.

  1. Reduces EMI Burden: The repo rate cut reduces the interest part of EMIs of existing student loan borrowers by reducing their interest rate. Students pay less interest in the EMIs, reducing their education loan EMI burden.
  2. Reduces Repayment Tenure: As the interest part of EMIs is lowered, a major portion of the student loan repayments contributes to the outstanding principal amount. This helps students clear their education loans sooner, even before the tenure ends, ultimately reducing the repayment tenure. 
  3. Reduces the overall repayment cost: A repo rate cut lowers the interest payments and EMI burden of the existing education loans. This ultimately reduces the overall education loan repayment cost for existing borrowers.

What Should Students and Parents Do?

This reduction in the repo rate helps students manage their finances during their education loan repayment period. Here’s what you should do to manage your student loan finances after the repo rate cut.

  1. Choose an Optimal Tenure: Choosing an optimal tenure helps you manage your finances during your education loan repayment period. While a shorter repayment tenure ensures lower overall interest payments on a student loan, it results in expensive EMIs. And a longer tenure offers lower EMIs, but you will end up paying a huge amount toward the interest part of your repayments. Hence, you should choose a repayment tenure suitable for your financial condition. Considering the reduced repo rate and choose a tenure that ensures you get affordable EMIs.
  2. Negotiate with your Lender: If you are an existing borrower, you should contact your bank and enquire about the repo rate cut. Negotiate with your bank to reduce the interest rate on your education loan according to the new repo rate.
  3. Education Loan Transfer: Not all lenders agree to reduce the interest rate on education loans after negotiating. They can still offer you a high interest rate and unfavourable terms. You should consider transferring your education loan in such a situation. Transferring your education loan can help you reduce the interest rate, as most lenders offer a lower rate of interest rate for student loan transfers than for fresh loans.
    WeMakeScholars can help you transfer your student loan. When you take an education loan from us, our dedicated Education Loan Transfer team has the expertise to help you transfer your student loan and bring down your interest rate. Request a callback today to get in touch with our team.
  4. Utilize Subsidy Schemes: 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. Although it doesn’t directly affect your interest rate, utilizing such schemes can help manage your student loan finances.

Get the Best Education Loan Deals with WeMakeScholars

WeMakeScholars is an organisation dedicated to providing complete education loan support to students. Being partnered with over 15 public and private banks, our team offers the best education loan deals to students.

Our experienced team of financial officers carefully analyses the profile of each student and provides personalised guidance to students and families. Here’s why you should apply for an education loan through us:

  1. Expert Guidance: When you approach us, a dedicated financial officer analyses your profile and connects you with the best lenders, as per your needs and eligibility. They guide you at every step of your education loan process so that you can have a smooth and stress-free education journey.
  2. Quick Processing Time: We offer a swift education loan process sanctioning within 6-7 days through a private bank or NBFC, and around 15-20 days to get your education loan sanctioned from a public bank. The above-mentioned processing time is applicable after all the required documents are submitted.
  3. Lower Interest Rates: Your financial officer will negotiate with your lender on your behalf to get you the best education loan with low interest rates.
  4. Simple Application Process: You can simply apply for education loans by filling out our application form online or request a callback now, and one of our dedicated financial officers will get back to you at the earliest.
  5. Student loan Refinance support: We also have a dedicated education loan transfer team to help students transfer their student loans and reduce their interest rate according to the repo rate at that time. 
  6. Complete Support: Our support and guidance don’t just end at the sanction of your loan; we provide our support and assistance till the repayment of the last EMI of your student loan.
  7. Free-of-cost: Since we are funded and supported by the IT Ministry under the Digital India Campaign, all our services are free of cost for students.

When you take an education loan through us, you will be assigned a dedicated Financial Officer, who will take care of your entire loan process. They will make sure to help you throughout your loan process to help you get the best deal possible. Your financial officer will contact the bank on your behalf to resolve any issues you face in no time. 

So what if you face any issues while abroad? You don’t have to worry and bother your family or friends to contact or visit the branch in such a case. Your financial officer can get it resolved, as they are already handling your application. To get a stress-free student loan, get in touch with our experienced Financial Officers by requesting a callback now.

Conclusion

The RBI has recently cut the repo rate by 50 basis points, reducing it from 6% to 5.5%. Banks decide the interest rate on education loans according to the repo rate. This reduction in repo rate makes borrowing education loans more affordable by lowering the interest rate. The lowered interest rate significantly eases the student loan repayment burden for students, making higher education more accessible.

Contact WeMakeScholars for a stress-free student loan journey. When you apply for an education loan through us, our team will be entitled to negotiate with your lender on your behalf and reduce the interest according to the repo rate. We also assist students in transferring their education loans to lower their interest rates, according to the repo rate, to help them manage their student loan finances.