By Rajesh Kachave
A student loan acts as a perfect bridge between academic aspirants and quality education, which allows them to secure a coveted university seat to fulfil their educational aspirations. Opting for an education loan is a prudent choice, however, repaying it on time is extremely important. Getting the loan might be simpler but repaying it may become cumbersome if it isn’t planned strategically.
A student planning to take an education loan should research thoroughly and talk to friends and family members who have taken similar loans before. They should keep the repayment factor in mind right from the start of the education financing journey.
Importance of moratorium period
Keeping finances in order, is essential to seamlessly clear off loans and, at the same time, build a good credit score right from the start. Though the moratorium period buys some time to start paying the instalments, financial planning is important as it helps streamline the processes and ensures timely repayments without any delays/penalties. Several niche education-focused, customer-centric, financial institutions recommend the student fraternity to make small contributions from the initial days in the form of simple interest/partial interest as it proves to be beneficial in multiple ways.
Here are a few important parameters that can make repayment of an education loan convenient for students:
Nuts and bolts of loan
An education loan is usually the first financial borrowing for a student. Hence, it is important to plan the repayment as it can affect a borrower’s credit score. Planning the loan tenure is an important part of this strategy. Students should discuss all the components of a loan such as loan amount, tenure, repayment options and EMI with the lender to design the best repayment strategy that suits the student’s journey ahead.
Get full information
Repaying a student loan is a great responsibility, and it is essential for borrowers to know how much they need to repay the financier during the loan tenure. Before on-boarding, it is imperative to read all the documents thoroughly so that the customer is aware of the loan structure and all the clauses that one is agreeing to.
Know about moratorium period in detail
Student loans come with a moratorium period that allows customers some time to pay EMIs until they start earning. However, certain lenders charge simple/partial interest immediately after the first instalment of the loan is disbursed. Usually, these types of interest accrued get added to the principal amount once the EMI payments begin. But some financial institutions enable part repayment of the interest amount right from the beginning. It is wise to pay such interests because it does not allow the extra amount to accumulate in the overall loan, and borrowers get into the habit of responsibly paying EMIs on time. Understanding the fine print of the loan structure is usually one of the initial steps of planning a repayment strategy successfully.
Earning while learning
Many students studying abroad prefer to take up part-time jobs while they learn so that they can use the extra bucks to either support their lifestyle abroad or pay off a certain portion of their loan interest. This will help reduce the overall debt burden even before a student starts the EMI payments.
Have an emergency corpus in place
When students decide to pursue higher education by opting for an education loan, they should set aside some amount so that they can continue paying their EMIs even during an emergency situation. Apart from this, they should design an elaborate budget and stick to it by spending judiciously.
Debt selection should be an informed decision. Student loan, designed to fund education, caters to the customized requirements of students. Thus, the ideal choice for education funding should be the right student loan that covers the holistic cost of education. Also, a thought through approach should be implemented to plan a robust education loan repayment strategy to pay off student debt seamlessly and in a stress-free manner. Furthermore, maintaining a good repayment record will positively impact the borrowers’ credit scores, which in the future will allow them to unlock interesting features of other financial products.
(The author is Business Head- Education Loans, Avanse Financial Services)