Education Loan Repayment Rules in India 2024
Navigating the education loan repayment rules in India can be a tiring task. Understanding these rules is crucial to managing your finances effectively and avoiding pitfalls. This guide will walk you through the ins and outs of education loan repayment rules in India, ensuring you're well-prepared to handle the repayment process.
Whether you're wondering about the education loan repayment period or looking for tips on how to repay an education loan, you must go through this blog.
What is an Education Loan?
Before getting into India's education loan repayment rules, it's essential to understand what an education loan is and how to repay an education loan. These loans are designed to cover your educational expenses, from tuition fees to accommodation and books. Different types of education loans are available in India with diffrent education loan repayment rules in India, depending on whether you're pursuing your studies domestically or abroad.
If you are looking forward to going abroad for higher education, do have a look at the Education Loan for Abroad Studies in 2024.
Understanding Education Loan Repayment
Repayment is a critical aspect of any loan, and understanding the education loan repayment rules in India will help you manage this process effectively. Repayment typically involves paying back the principal amount and interest within a specified period. The rules governing education loan repayment rules in India include.
Repayment Period
This defines the time within which you must repay the loan.
Education Loan Tenure
The total duration of the loan, including any grace periods.
EMI Payments
You pay monthly instalments to settle the loan over time.
Must Read: How to Get an Education Loan for Abroad Studies in 2024?
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What is the Repayment Period of Education Loan?
One of India's most crucial aspects of education loan repayment rules is understanding the repayment period. What is the repayment period of an education loan? The repayment period, also known as education loan repayment tenure, typically begins after you complete your course, with an additional grace period to allow you to secure a job.
For most lenders, the repayment period is as below:
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Education Loan Tenure
The education loan tenure is another essential element of education loan repayment rules in India . Tenure refers to the overall period you must repay the loan, including both the grace and moratorium periods.
The major features of an education loan tenure are:
- The tenure encompasses the entire period from taking out the loan until you fully repay it.
- It typically ranges between 5 to 15 years, depending on the loan amount and specific bank policies.
Grace Period and Moratorium Period
The grace period and moratorium period are particularly beneficial among India's various education loan repayment rules. These periods give you some breathing room after completing your studies, delaying the start of your repayment obligations.
Grace Period
A period after completing your course where you're not required to start repaying the loan.
Moratorium Period
Interest may accumulate, but repayment obligations start only after this period ends, per India's education loan repayment rules.
Know the optimum period to delay your education loan repayment. Read more about the Moratorium Period.
Education Loan Repayment: Government Banks vs NBFCs
Comparing the education loan repayment processes between Government banks and Non-Banking Financial Corporations (NBFCs) is essential for students to make informed choices. Government banks typically excel with their student-friendly repayment policies, providing a longer repayment period of 12 to 15 years after the moratorium ends. This extended timeframe gives students a valuable break, allowing them to establish their careers before starting to pay EMIs.
On the other hand, NBFCs take a different approach. While they also offer a moratorium period similar to Government banks, students may need to pay interest during this time. Furthermore, the total loan duration with NBFCs is usually limited to 10 years, including the moratorium.
Deciding between Government banks and NBFCs requires careful thought. Choosing a Government bank with collateral can lead to more favorable offers, as the loan tenure encompasses the moratorium period. This decision is significant, as it can affect the overall length of your loan and, in turn, your financial obligations.
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How to Repay an Education Loan Faster?
Understanding how to repay an education loan is crucial for managing your financial future. Here are some critical strategies aligned with the education loan repayment rules in India:
Repaying your education loan quickly can save you money and reduce stress. Here are some practical strategies to help you manage your loan efficiently:
1. Start Paying During the Moratorium Period
Even if your lender allows a repayment break during your studies, start making small payments. This reduces the interest that accumulates and lowers your overall burden.
2. Increase Your EMI When Possible
Whenever your income increases, try to increase your EMI. A higher EMI will clear your loan faster, saving you interest over time.
3. Use Windfalls for Lump-Sum Payments
Use any bonuses, tax refunds, or gifts to make one-time payments. These extra payments go directly to reducing your principal, which can significantly shorten your loan term.
4. Avoid Loan Extensions
If you can, avoid extending your loan tenure. While this lowers your monthly payment, it increases the interest you’ll pay over time, making your loan costlier.
5. Opt for Automatic Payments
Set up an automatic payment system to ensure you never miss an EMI. Late payments lead to penalties and higher interest rates, so staying on top of payments keeps your debt in check.
6. Refinance at a Lower Interest Rate
Check if you can refinance your loan at a lower interest rate. A reduced rate can help you repay the loan faster by cutting down the amount you pay in interest.
Don't want to put up your assets for an education loan? Do read about Banks that Give education loans without collateral for Abroad.
EMI Calculation Example
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Plan Your Education Loan Repayment
Knowing completely about your loan, repayment terms and other details can help you plan and optimise your loan repayment. Here are some of the important points to remember for loan repayment:
1. Repayment Timeline
Repayment of the loan begins after the moratorium period, which is one year after completing the course or six months after securing a job, whichever comes first.
2. Loan Type and Repayment Term
The loans are provided as Term Loans and must be repaid through Equated Monthly Installments (EMIs) over a maximum tenure of 15 years (180 EMIs). This applies to Student, Scholar, and Global Ed-vantage Education Loans.
3. Repayment Start for Specific Loan Schemes
1. Student and Scholar Loan Schemes: EMI repayment starts 12 months after course completion or six months after securing employment, whichever is earlier.
2. Global Ed-Vantage Loan Scheme: EMI repayment begins six months after completing the course.
4. Interest During Moratorium
Interest that accrues during the moratorium and course period is added to the principal. Repayment is structured based on the combined amount of principal and accrued interest.
5. Interest Prepayment
If you pay the full interest accrued during the moratorium period before repayment begins, the EMI will be calculated solely on the principal amount, reducing the total repayment burden.
6. Prepayment Flexibility
There are no penalty charges for prepayment, allowing borrowers to repay the loan early at any time without extra fees.
Government Schemes for Education Loan Repayment
To ease the burden of repayment, the Indian government offers several schemes under India's education loan repayment rules.
Repayment Options and Flexibility
The education loan repayment rules in India offer various flexible repayment options to help you manage your loan more effectively:
Step-Up Repayment Plan
Begin with lower EMIs that increase as your income grows.
Flexible Loan Tenure
Adjust the tenure based on your repayment capacity.
Part-Payment Option
Make partial payments whenever you have extra funds to reduce your overall debt.
Repayment Plan Comparison
Interest Rates and Their Impact on Repayment
Interest rates are the most critical factor when discussing education loan repayment rules in India . Banks typically offer two types of interest rates Fixed and floating.
Interest Rates: Fixed vs. Floating
Loan Restructuring and Deferment
Consequences of Defaulting on an Education Loan
Also Read Bandhan Bank Education Loan: Interest Rates and Eligibility.
Do you Need to Repay your Education Loan While Studying?
Do you need to repay while studying? As mentioned earlier regarding the moratorium period in this article, students typically do not have to make any payments during this time. This moratorium period serves as financial support, allowing students to find a job and settle in before they begin repayment after completing their course. In India, lenders have various policies regarding repayment during the moratorium period, which include:
1. Zero payment moratorium
where students are not required to pay anything during the moratorium period.
2. Full simple interest
where interest is calculated solely on the principal amount of the loan.
3. Only partial interest
where a specific amount of interest must be paid.
4. Full EMIs from the first month
where repayments start from the very first month after taking out the loan.
Tax Benefits on Education Loan Repayment
One of the perks of education loans in India is the tax benefit. Under Section 80E of the Income Tax Act, the interest you pay on your education loan is tax-deductible.
1. Section 80E allows a tax deduction on the interest paid on education loans for higher studies in India or abroad. There is no upper limit on the amount you can claim under this section.
2. Section 80C provides a deduction of up to ₹1,50,000 for tuition fees paid by individual taxpayers.
3. Additionally, if a taxpayer receives a Children's Education Allowance and a Hostel Allowance, they can claim exemptions of up to ₹100 per month and ₹300 per month, respectively.
Understanding and adhering to India's education loan repayment rules in India is vital for managing your finances effectively post-education. From knowing your education loan tenure to choosing the right repayment plan, these rules can guide you toward a successful loan repayment journey. Remember, being proactive and informed can save you from unnecessary financial strain and help you clear your debt efficiently.
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