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Getting an education loan is easy but paying it off needs meticulous planning. After completion of education, it becomes a matter of concern for students to pay off their study loans as quickly as possible. Education loan repayment can be a concern if you don’t plan it in a smart and informed way. Many students see the abroad education loan as a major liability. Very often, they overlook the fact that if there’s a little amount of contemplation and planning done prior to selecting the loan, all these worries can be put to rest easily. Here in this article, we will learn how to repay your education loan faster.
Do You Need To Repay While Studying?
Once students know the number of EMIs they have to pay to repay their education loan, the next question that crosses a student’s mind is this. In order to plan their loan repayment intelligently, it is prudent for them to know the different repayment options.
Students who take an education loan are entitled to a moratorium period. Ideally, during this period the borrower does not have to make any loan repayment. This is the time between the end of the course and the start of a job and RBI has asked banks to give a moratorium period of one year after the completion of the course.
A moratorium period acts as a financial cushion for borrowers and gives them time to find a job after completing their course.
Lenders in India have different policies for repayment during the moratorium period.
They are as follows:
- Students Have To Pay Zero Interest During The Moratorium
- Partial Interest During The Moratorium
- Full Interest During The Moratorium
- Pay EMI During The Moratorium
Tips to Pay Off Your Education Loan Faster
1. Pay Variable rate loans first
In case you have multiple student loans to pay off, some with variable interest rates and others with fixed interest rates, pay off the variable rate loans faster. Even if the current variable rate is lower than the fixed rate, this is sensitive and susceptible to change. A sudden hike in the interest rate following changes in the economy may catch you off guard.
Also, check for conversion of variable rate loan to a fixed-rate loan.
2. Choose a Relatively Shorter Loan Tenure
One of the easiest ways to pay off education loans early is to pay more. And you can do so by choosing a shorter repayment tenure or loan prepayment. However, the EMI can be higher when choosing a shorter tenure.
So, don’t cut short the loan tenure to a point that can make monthly payments hard to execute. Choose a relatively shorter loan tenure that can help you pay early and keep interest payments in check.
3. Refinance if you have good credit and a steady job
Refinancing student loans can help you pay off student loans fast without making extra payments.
Refinancing replaces multiple student loans with a single private loan, ideally at a lower interest rate. To speed up repayment, choose a new loan term that’s less than what’s left on your current loans.
Opting for a shorter term may increase your monthly payment. But it will help you pay the debt faster and save money on interest.
4. Get a part-time job while studying
While you are still getting that degree in college, it is a good move to find a part-time job (if your schedule permits). Saving and putting aside money earned during this time will help ease up the whole process of loan repayment, once you are out.
5. Pay Your Loans Automatically
Late payments could hurt your credit score. Scheduling your loan payments to be deducted from your checking account automatically each month means you don’t have to worry about paying late or damaging your credit.
You could also score some interest rate savings if your lender offers a rate discount for using autopay—federal loan servicers and many private lenders do. The discount may only be a quarter of a percentage point, but that can make a difference in how quickly you pay off the loans over time.
6. Pay Extra and Be Consistent
If you’re able to pay extra, you may want to target one loan at a time while paying the minimum on everything else. The question is, do you use the debt snowball method or the debt avalanche?
“When deciding which student loan to pay off first, it’s best to go with the one that can free up cash flow quickly. That way you can have more money to throw at the next loan,” Hastings says. “As you grow your cash flow, it’s a good idea to transition to the high-interest loans.”