Education loan repayment is a crucial part of higher education and especially when it comes to abroad education. Since the loan amount is pretty high, one must strategize the repayment to avoid becoming a burden afterward. There are several factors a borrower should consider before moving ahead with the loan process. The cost of education has a considerable bearing on the income post completion of the degree. Many students don’t estimate the possible impact of interest rates, moratorium period, loan tenure, etc., before finalizing the loan with a lender.
We will touch upon all the topics to make a well-informed decision that can help the borrower save a considerable amount while repaying the loan. Several banks (both private and public sector), NBFCs, International lenders provide flexible loan repayment options. However, each borrower has its own financial and other constraints; thus, there is no one-size-fits-all approach. Students should decide by weighing in all the relevant factors.
The timing of loan repayment- a big differentiator for a borrower
There is no ideal time per se for starting the loan repayment. Students can pay the loan either during the time of studies or after the completion of the course. The loan repayment depends on factors such as:
- Financial capability of the borrower.
- The tenure of the loan.
- Job prospects post completion of the degree.
- Offers provided by the lending institutions.
The factors mentioned above are a broad set of criteria, but additional factors may surface while dealing with the lending institution. Many times banks amend their offers for deserving students. This is something that is variable, and there is no uniform rule regarding it. So if a student comes from a well-off family, they may choose to start the repayment right after the disbursal of the loan. However, banks provide the facility to pay the loan after the completion of the degree and also offer a moratorium period or repayment holiday after which the loan repayment starts.
There are financial services companies in the education loan space providing online EMI calculators for education loans. The online calculators can help students know the EMI, the future income, and several other queries that a student might have when taking the loan. So the repayment option should be chosen wisely by considering all the factors mentioned above.
Moratorium Period- A relief for students
In most cases, banks tend to give students the option to pay after the completion of the course. However, there is no penalty for prepayment, but the moratorium or repayment holiday of approximately one year is given to students to search for jobs and be in a financially viable state to start the loan repayment. RBI has also asked banks to provide a moratorium of one year in case of education loans. Banks have different policies pertaining to education loan repayment during the moratorium period. Few banks charge interest at the time moratorium, and others may have zero or partial interest repayment at the time of moratorium. There are different options available with banks, and there is no uniform structure.
Future Earnings and Loan Repayment-Understanding the Connect
The future earning is something that plays a pivotal role in the loan repayment. Once the course is completed, the biggest challenge for students is to get into a job that can help them earn sufficient to pay back the loan without overly burdening them with financial problems. To help ease this confusion pertaining to future earnings, there are several online tools made available by financial services companies that use advanced algorithms to help assess the future earnings by assessing the “n” number of factors. We are listing some of the crucial factors that a student must consider before choosing a course for abroad education.
The future earnings after getting a degree primarily depend on this broad set of criteria:
- The course or the stream in which the student is studying. For instance, courses on STEM, Law, Medicine, MBA, Journalism, etc., have higher prospects for jobs than humanitarian courses.
- The college or university at which the student is studying. For instance, a student graduating from an IVY League college with an MBA has very high prospects of landing a very high-paying job.
- The future job trends in the course. For instance, AI, ML, IoT, Blockchain are relatively new fields of study. So their prospects might not be as high as they will be in the coming years.
- The average salary trend that is already prevailing in the sector where a student is expecting to get a job.
So, it’s crucial for banks to assess everything and for the students as they are the ones who have to pay the loan. Any default on a loan not only brings a present financial problem, but it also affects the credit score of the person paying the loan (students in case of education loans).
Strategizing the repayment- A prudent way of future financial management
One of the best things that one can do for the future is to do the best in the present. The loan repayment, if done at the time of studies, can ease a significant financial burden. Students going abroad have ample opportunities to do part-time jobs. They don’t have to earn huge sums of money to pay the EMI. In all the developed countries, they have minimum wages, and they are around $15-$20 per hour. And in most of the countries, approximately 20 hours of work is allowed per week. So a student can roughly earn around $1200-$2000 per month. This will roughly amount to INR 88,000- 1,47,000 per month. This amount can significantly reduce the financial burden in the later course of time.
Some students also do internships and earn quite well. On average an intern in the US earns anywhere between $20,000-$30,000 per annum or INR 14,71,537 -INR 22,07,305. However, the earnings of interns depend on the course they are pursuing. So, it will vary largely from one course to another. But it somewhat gives a picture of how students can strategize the loan repayment and easing the future financial burdens.
Abroad Education Loan- An investment for the future
A degree from a top-notch university can completely change the outlook of a student. In the present times, the lending culture has seen a radical change, and students have the option to pursue their dream career choice. Loan repayment has been streamlined by the concerted efforts of banks and the government. With the advent of Private Banks, NBFCs, International lenders, the overall landscape has considerably changed. They provide flexible loan options for students and viable terms of loan repayment.
Students getting degrees from foreign universities end up in high-paying jobs, and thus loan repayment isn’t a big hurdle. On average, a student doesn’t take more than 10 years to repay the entire loan amount. With the availability of a moratorium period or repayment holiday, loan repayment has become much easier than it used to be in the old times.