Strategies for Repaying Education Loans Efficiently

Education is essential for achieving your dreams, but obtaining a degree can be expensive, often necessitating an education loan. Thankfully, getting an education loan is now as simple as a few clicks online. Banks and financial institutions offer education loans at attractive interest rates for studies both in India and abroad. However, the real challenge lies not in obtaining the loan but in repaying it. 

Due to recent interest rate hikes by the Reserve Bank of India (RBI) to combat inflation, the cost of education loans has risen. These policy rate hikes have increased the cost of funds for banks and financial institutions, leading to higher benchmark lending rates. Consequently, EMIs have become more expensive for all term loans, including home loans, personal loans, car loans, and notably, education loans. 

While postponing your educational goals isn't an option, you can certainly strategize on repaying your education loan faster and possibly even before the tenure ends. 

When you take an education loan, you get the financial aid needed to pay for your course and achieve your dreams. However, once your course is over, you need to focus on finding the fastest way to pay off student loans, as staying in debt is never desirable. Fortunately, there are some easy ways to do so. Take a look at this article to learn more about how to pay off education loans faster while staying within your budget. 

How to Repay Education Loans Faster - Top Tips: 

A student loan is handy as it provides the required funds at the right time, allowing you to complete your higher education. This is why you should be disciplined and always know how to repay education loans faster. Here are some great ideas for you: 

1.Choose a Proper EMI Scheme: 

Most modern lenders offer flexible EMI schemes. Choose a repayment structure that suits your financial capacity. For instance, if you earn a monthly salary of Rs 50,000, consider paying an EMI of around Rs 15,000 towards your student loan. This ensures you can comfortably pay the EMI each month without financial strain. 

There is nothing worse than missing an EMI, as it hampers your efforts to clear the dues. The fastest way to pay off student loans is to stick to the EMI plan without defaulting, and by choosing a comfortable EMI structure, you can easily achieve this. You can also set a standing instruction for auto-pay at your bank to ensure timely payments and avoid additional charges. 

2.Increase the Volume of the EMIs: 

To repay an education loan faster, consider increasing the EMI amount. If you secure a well-paying job or receive a salary increment, try to increase your EMI from Rs 15,000 to Rs 25,000, for example. However, only apply this method if you are financially capable. Avoid setting an unrealistically high EMI that could burden you. 

Prepay your loan with any windfall gains, bonuses, or increments you receive. This will help you reduce the loan principal faster. 

3.Look to Increase Your Income: 

If you have free time after work, consider part-time employment to increase your income. A higher disposable income improves your repayment capacity, helping you pay off your education loan faster. 

Options include offering tuition classes, handling the cash counter at a nearby restaurant, driving an app-based cab, or exploring online freelance opportunities. Find a suitable vocation and dedicate a few hours to a part-time job to boost your financial plan and repay student loans quickly. 

4.Ask Your Employer for Assistance: 

Many employers offer financial schemes that allow employees to take internal loans to clear student loans. Check with your employer if such a scheme is available. You can get the loan at a lower interest rate, with EMIs directly deducted from your salary in a smooth and convenient way. 

You can borrow the entire sum from your employer and close the student loan. There is usually no prepayment charge on student loans in India, so this would definitely work in your favor. 

5.Consider Refinancing: 

Consider refinancing options if you’re wondering how to pay off student loans faster. After starting work, you may be eligible for a better interest rate. Check options with modern lenders for an education loan with a better rate, especially if you can provide collateral. 

6.Begin Early: 

An effective method to pay off your education loan faster is to begin repayment during the moratorium period. This reduces the principal balance and helps you pay off your loan earlier than the decided tenure. 

7.Budget Your Income: 

Use the 50/30/20 rule to budget your income. Allocate 50% for necessities, 30% for wants, and 20% for debt repayment and savings. Trim your ‘needs’ and ‘wants’ to save more for loan repayment. For example, eliminate a few streaming services, cook at home instead of ordering food, and choose low-cost social activities. 

8.Use ‘Found’ Money: 

Accumulate all cash windfalls, such as money from relatives, signing bonuses, or tax refunds, and use them to pay off a chunk of your principal amount. This reduces interest payments. 

9.Create Extra Streams of Income: 

Earnings from a side hustle or part-time job will help you pay more than the EMI, thus reducing debt. Leverage your talent on social media, freelance, or explore various side hustle options. 

Points to Consider: 

While repaying debt quickly is a good idea, an education loan offers benefits, including tax deductions under Section 80E of the Income Tax Act. Education loans are usually inexpensive, with long repayment tenures and a moratorium period. If you have an education loan at a low-interest rate, there’s no harm in continuing with it while availing the tax benefits. 

However, if you can prepay your education loan earlier than scheduled, it will improve your credit score. Additionally, you can invest the EMI amount towards your future financial goals once you’re debt-free. This helps build a healthy investment portfolio in the long run. Thus, being debt-free is crucial, but not at the cost of financial burden. 

By following these steps, you can effectively manage and repay your education loan, ultimately achieving your academic and career aspirations without the financial burden. 

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