Many people take out education loans for higher studies, and once they do, they have to pay EMIs (Equated Monthly Installments) every month.
While these payments can feel burdensome, there are several strategies to alleviate this financial strain, allowing students to focus more on their careers. Here are some practical ways to manage education loans and reduce your financial load:
Choose a Longer Repayment Period: Opt for the longest repayment period available to reduce your EMI burden. A longer-term lowers your monthly EMI amount.
However, keep in mind that while your monthly payments will decrease, the overall interest paid over the life of the loan will increase. Contact your lender to understand the terms for extending your loan tenure.
Take Advantage of the Moratorium Period: Most education loans come with a moratorium period, usually 6 to 12 months after graduation, during which borrowers are not required to pay EMIs.
This period offers a chance to find a job and start earning. While paying EMIs during this time is not mandatory, consider paying the interest to reduce your burden once regular EMIs begin.
Negotiate for a Lower Interest Rate: Interest rates can vary between banks and financial institutions. If you find a lender offering a lower interest rate, try negotiating with your current lender to see if they can match it. If negotiation fails, consider switching to a different lender with better rates, but be sure to compare loan terms carefully.
Make Prepayments Whenever Possible: Prepayments can reduce interest and EMI amounts and decrease principal amounts.
If you receive bonuses, tax refunds, or additional income, consider using that for prepayments. Some lenders allow partial prepayments without extra charges, so it’s worth checking with your bank about their policies.
Take Advantage of Tax Benefits on Interest Payments: Under Section 80E of the Income Tax Act, you can claim tax deductions on the interest paid on education loans.
Although this doesn’t directly lower your EMI, the resulting tax savings can help ease your financial burden, allowing you to allocate more funds for prepayments. Remember to claim this benefit when filing your income tax return.
Refinance the Loan: If you have multiple or high-interest loans, consider consolidating them into one loan at a lower interest rate.
Many banks and financial institutions offer refinancing options with better terms and extended repayment periods. However, be mindful of any fees involved in refinancing and weigh the costs against the benefits.
Increase EMI Amount with Salary Increments: Try to raise your EMI payments as your career progresses and your income increases.
This can significantly reduce the interest paid over the life of the loan and the tenure. Maintaining this discipline can lead to substantial savings on interest and facilitate quicker loan repayment.
Choose an Income-Based Repayment Plan: Some banks offer income-based repayment plans where the EMI amount is contingent on your income level.
These plans allow for lower EMIs when income is low and gradually increase the payments as earnings rise.
By following these strategies, you can manage your education loans more effectively and lessen the financial pressure they may cause.