The One Liner

5- Best Strategies for Paying Off Student Loans


In this article, we will unlock the secrets to paying off student loans faster with 5 powerful strategies for financial freedom.”

Let's dive right in..

Most Indian parents, as well as students, believe in higher studies for their kids; however, professional courses such as Engineering, Medical, and MBA are very expensive, and therefore most of the students’ avail of education loans. 

Studying abroad is very common these days, and that is even more expensive and is hardly possible without an education loan. 

In earlier times, it was typical for a middle-class or lower-income family to sell their family assets for kids’ education. However, now, availing of education loans is more accessible and effortless. 

With rising education costs, banks these days give up to INR 50 lacs for domestic courses and up to INR 1 Crore for International courses. However, due to RBI’s rate hike cycle, most loans have become expensive. 

Furthermore, in our country, education loan is expensive than car or housing loans. Several students are hesitant to take higher education loans as repaying is a daunting task and adds to the stress of economic recession, job loss, and any other unexpected incident. 

With loans becoming essential for higher education, there is a need for guidance and strategies on how to repay it, as the real issue today is not to get a student loan but how to repay the loan.

Points to consider while availing loan

Let’s get started!

The most important point is to choose the right repayment plan when you avail the loan. 

Banks normally provide flexibility in the form of several options for repayment, and one has to choose the suitable plan as per their financial capacities. This choice decides the tenure and EMI of the loan. 

The choice of repayment plan should be based on the estimation of the average salary after the course, as a higher EMI can be stressful and would even result in default. 

Some bankers let the students shorten the loan duration by increasing EMI after they get a job and have a clear understanding of their salary. 

Another point is to enquire if there is any pre-payment penalty clause, as this will increase the cost. 

Furthermore, add all charges, including processing fees, taxes, etc., so that there is no surprise when you start repaying the loan.

When are students expected to start the repayment of the loans?

Usually, banks provide a moratorium during the course of the study period and an additional six months to one year of getting the job. 

Banks charge simple interest during the moratorium period. However, as soon as the moratorium period ends, the accumulated simple interest gets added to the loan, and compound interest is charged on the overall amount. 

The tenure of these loans can be up to 15 years; however higher the tenure, the higher the interest amount.

5 Best Strategies for Paying Off Student Loans

1. Explore refinancing option

Explore refinancing options with different lenders, as interest rates might have come

down, and a different lender may give you attractive interest rates. 

In case you have got a job from a reputed company and earning a good salary, lenders may give you lower interest rates as the risk is now low on the repayment front than it was when you were entering college.

A good credit score will further help in reducing interest rates. 

If your student loan is already at a very low-interest rate, then reconsider the refinancing option.

2. Make a Pre-Payment plan

Make a pre-payment plan early when you have some idea about your income, and be aggressive in pre-payment. 

One can start repaying while doing the course by earning income through a part-time job, tuition classes, giving online classes, freelancing online, or monetizing hobbies, etc. Interest payment at this stage will help to keep interest costs lower. 

Furthermore, if one pays during the moratorium period, few lenders even provide a relaxation of up to 1% on the interest payment.

Once you get a job, make frequent prepayments enabled by perks, bonuses, awards, joining bonuses, FD maturity, Insurance, tax refunds, etc. best part of repayment is that the amount is adjusted only against the principal amount.

If your salary and other income permit you to pay a higher amount, you may talk to the bank and increase your EMI, which will decrease the duration of the loan as well as the interest amount.

Creating an extra stream of income after getting a full-time job will enable a person to pre-pay higher than the usual EMI. 

This can be achieved by freelancing or even doing side hustle along with your full-time job. 

In today’s time, one can learn skills such as content writing, writing for magazines, video editing, website design, etc, as well as using social media to sell small products to earn extra money by spending a few hours per day.

Instead of booking FD or RD, which provides approximately 6-7%, it is better to pay off your loans which carry an interest rate of more than 10%.

In case there are multiple student loans which can be for graduation and post-graduation, other courses, etc., focus on repayment of higher interest loans earlier.

Some Employers provide very low-interest-rate loans to employees for several purposes. This amount can be used to close the student loan at higher interest rates. Some employers provide loans specifically to repay student loans.

3. Budget your expenses and prioritize your savings.

Analyze your expenses on a monthly basis and reduce expenses that are not necessary, such as frequently visiting fancy restaurants, ordering food online, visiting cinemas, shopping, friends get together at expensive clubs, expensive holiday destinations, that newly launched iPhone or booking a car in initial months or years of job and most important avoid taking properties in initial years of job.

4. Check for Government Subsidies

Before finalizing the lender and interest rates, one should check for government subsidies as several ministries have launched subsidy schemes for students.

Furthermore, there are subsidies for certain sections of society; therefore, one may check the eligibility criteria. 

The subsidies would lower a significant amount of interest burden.

5. Set up an automatic payment

Missing payments can impact credit score; therefore, one can opt for automatic debit from the savings account.

What not to do in the Pre-Payment of Student Loans?

Here is how it works!

One should be careful not to repay using all the savings. 

Save some amount each month for an emergency fund, as it may not be a wise idea to pay the last penny against a loan with no emergency fund or liquidity. 

Furthermore, you should keep some amount for investment in self-such as additional courses, certifications, attending conferences, etc.  

While there are several reasons to repay your loan quickly, you must also ponder the tax benefit you receive under section 80E before making the final decision.

Final Thoughts

In conclusion,as we have seen that taking an education loan has become a necessity, and therefore, there is hardly any other way except that few parents are able to save sufficient amounts, but this can’t be a norm but an exception in today’s high inflation. 

Therefore, after selecting the right lender and plan, one needs commitment as well as strategies to pay it quickly. 

Quicker repayment of any loan needs discipline and perseverance. Try to increase your income by learning new skills and cutting down non-essential expenses, and routing additional savings towards pre-payments. 

However, be careful in going overboard in prepayments as there should be a sweet spot; keep some amount for an emergency fund, continuing to invest in yourself in terms of certification and additional certifications and training as well as some financial investments which can give a higher return in future such as equities. 

Track your progress every few months and celebrate your milestone of pre-payments. 

Your Debt free milestone will bring you closer to financial freedom.

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