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Impact of RBI repo rate hike on education loan for students

Most of the banks and NBFCs have already increased their benchmark rates post the repo rate hike by the RBI.

Impact of RBI repo rate hike, education loan, interest rates, emi, loan tenure, flexible rate
It is expected that most of the students will start paying a larger EMI rather than reaching out to the lender to explore an extension of the repayment period.

Parents and students servicing education loans may have a tough time ahead. After the policy repo rate hike by RBI, the interest rate on loan for the borrowers will go up. RBI had increased repo rate by 0.4 per cent in May and by 0.5 per cent in June, 2022. Subsequently, banks and lending institutions also hiked their lending rates. “Most of the banks and NBFCs have already increased their benchmark rates post the 0.4 per cent hike by the RBI last month. We expect another rate hike soon by all the players,” says Ankit Mehra, CEO and Founder of GyanDhan.

The cost of education, both domestically and internationally, is rising. Now, even the cost of financing education is on the way up. Education loan interest rates may range between 7.5 per cent to 11.5 per cent or even higher, depending on the lending institution, borrowers’s profile, the course and the institution where the course is being conducted.

Overall, the impact of RBI repo rate hike on students is going to be significant. “The monthly EMI for a 10-year Rs 30 lakh loan, which is the typical loan amount for higher education abroad, will increase between Rs.750 – Rs.900, i.e. between Rs. 2.5 – Rs. 3 per lakh of loan amount. We expect most of the students to start paying a larger EMI rather than reaching out to the lender to explore an extension of the repayment period,” informs Mehra.

One may opt for a fixed rate of interest or go for a flexible rate of interest. Both have their own pros and cons and, therefore, evaluate the cost-benefit before choosing any one of them. “Education loans are predominantly flexible rate products with all leading Indian banks, NBFCs and international lenders offering loans linked to a benchmark rate. Education loans from some international lenders like MPower Financing and personal loans for education purposes in the microfinance space are fixed rates and such loans should not get repriced in the current rising interest rate scenario,” adds Mehra.

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