Speed up your education loan repayment: 5 steps to pay off ₹30 lakh faster

Education is one of the mediums to fulfill your dreams in the future! But sometimes the desired degree can be very expensive and hence leaves no option but to use other mediums for funding your education. One such option would be an education loan! In the current scenario, getting an education loan is as easy as a few clicks through online platforms. Banks and other financial institutions do offer education loans at attractive interest rates either for studying in India or abroad. But the real burden is not getting an education loan, instead, it is how you repay them!

This fiscal year, the interest rate on education loans has spiked due to RBI opting rate hike cycle to tackle inflationary pressure. The policy rate hikes have led to a substantial increase in the cost of funds at banks and other financial firms which resulted in an increase in their benchmark lending rates. And hence, the end rate for any form of loan increased significantly in FY23. In simple terms, EMIs have gotten costlier on term loans including home loans, personal loans, car loans, and education loans among others.

You can't put aside your educational course, but you can definitely choose wisely how to repay this borrowed money in a lesser period of time, if possible, even before their respective tenures.

Ankit Mehra CEO and Co-founder of GyanDhan said, "with the rising cost of education, student loans have become essential to finance higher education in India and abroad. Loans, while reducing the tension of funding education, add another stress of repaying the amount borrowed." He said that paying off an education loan of ₹30 lakhs can be manageable with a little bit of organization and financial strategy.

GyanDhan CEO highlighted 5 steps that can help you in repaying the bulk of your loans in less amount of time. These are:

1. Begin early: An highly effective method to pay off your education loan faster is to begin repayment during the moratorium period to reduce the principal balance. A lower principal balance repayment will help you pay off your loan earlier than the decided tenure.

2. Budget the income: The 50/30/20 rule is a simple guideline to budget your income. Earmark 50% of your income for necessities, 30% of your income for things you want to buy, and 20% of your income for debt and savings. Trim your ‘needs’ and ‘wants’ to save more for loan repayment. For instance, eliminate a few streaming services. Instead of ordering food, make your own. Skip the fancy club and get together with friends.

3. Refinance your education loan: Explore refinancing options with other lenders. Refinancing the education loan reduces the interest rate, especially if you have graduated and are earning now. You will be in a better position to negotiate the terms and conditions of your education loan with a job and increased earning capacity.

4. Use ‘found’ money: Accumulate all cash windfalls, be it money from relatives, a signing bonus, or a tax refund. Use it to pay off a chunk of your principal amount to reduce interest payments.

5. Create extra streams of income: Earnings from a side hustle or a part-time job will help you pay more than the EMI thus reducing debt. Leverage your talent on social media or freelance, there are several ways to create a handsome amount of income from side hustles.

As per Mehra, repaying an education loan is a daunting task that makes students hesitate before applying for a loan. But a little organization and strategy that fits your budget and preferences will help you make progress every month on reducing your debt.

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