By Rajesh Kachave
A student loan acts as a perfect bridge between college aspirants and a quality education, allowing them to secure a coveted college seat to achieve their educational aspirations. Opting for an education loan is a prudent choice, however, paying it back on time is extremely important. Getting the loan can be easier, but paying it off can become cumbersome if not strategically planned.
A student considering taking out an education loan should do extensive research and talk to friends and family members who have taken out similar loans before. They should keep the payback factor in mind from the start of the education finance journey.
Significance of the moratorium period
Keeping finances in order is key to repaying loans seamlessly and, at the same time, establishing a good credit rating from the start. While the moratorium period saves time to start paying installments, financial planning is important as it helps streamline processes and ensures timely repayments without any delays or penalties. Several education-oriented and customer-centric niche financial institutions recommend that the student fraternity make small contributions from the early days in the form of simple interest / partial interest, as this proves to be beneficial to multiple manners.
Here are some important parameters that can make it easier for students to repay a student loan:
The nuts and bolts of the loan
A student loan is usually a student’s first financial loan. Therefore, it is important to plan the repayment as it can affect the borrower’s credit rating. Planning the term of the loan is an important part of this strategy. Students should discuss all components of a loan such as loan amount, term, repayment options, and EMI with the lender to design the best repayment strategy that suits the student’s background.
Get full information
Repaying a student loan is a big responsibility, and it is essential that borrowers know how much they owe the financier over the life of the loan. Before boarding, it is imperative to carefully read all the documents so that the customer is aware of the structure of the loan and all the clauses to which he agrees.
Know the moratorium period in detail
Student loans come with a moratorium period that gives clients some time to pay EMIs until they start making money. However, some lenders charge simple/partial interest immediately after disbursement of the first loan installment. Usually, these types of accrued interest are added to the principal amount once EMI payments begin. But some financial institutions allow partial repayment of the interest amount from the beginning. It is wise to pay such interest as it does not allow the extra amount to accumulate in the overall loan, and borrowers get into the habit of paying EMIs responsibly on time. Understanding the fine print of the loan structure is usually one of the first steps in planning a successful repayment strategy.
Earn by learning
Many students who study abroad prefer to take part-time jobs while they learn so that they can use the extra dollars to support their lifestyle abroad or pay off some of the interest on their loan. This will help reduce the overall debt burden even before a student begins EMI payments.
Have an emergency corpus in place
When students decide to pursue higher education by opting for an education loan, they must set aside a certain amount so that they can continue to pay their IMEs even in an emergency. Other than that, they should devise an elaborate budget and stick to it by spending wisely.
Debt selection should be an informed decision. The student loan, designed to finance education, meets the personalized needs of students. So, the ideal choice for education finance should be the right student loan that covers the overall cost of education. Additionally, a thoughtful approach should be taken to plan a solid student loan repayment strategy to pay off student debt seamlessly and stress-free. Additionally, maintaining a good repayment record will have a positive impact on borrowers’ credit scores, allowing them to unlock exciting features of other financial products in the future.
(The author is Business Head – Education Loans, Avanse Financial Services)