Many students who opt for higher studies abroad also take an education loan to cover their expenses. One recent study found that around 66.5% preferred to seek an education loan to meet their financial requirements.
One thing that many students do not realise is that repaying the borrowed amount is equally important to build a healthy credit score, which helps later in life when one is considering other financial products such as car loans, home loans, or credit cards. Here are some practical tips for students to manage their education loans effectively:
Create a realistic budget: This helps one understand income, expenses and how much can be allocated towards loan repayment. List all monthly expenses, such as rent, groceries, utilities, and transportation costs.
Identify fixed costs so that a specific amount can be set aside for these and for other miscellaneous expenses. Follow the axiom of “spend judiciously and save religiously” to stay financially healthy.
Use online calculator: A College Course Expense Calculator helps you know the potential expenses and gives a clear picture of the amount required as loan. An Education Loan EMI Calculator can be used estimate the monthly installment.
Work out various combinations of tenure and loan amounts to find a suitable EMIs that meets your financial requirements. Once this is finalised, other expenses can be adjusted to accommodate repayment.
Consult experts: Industry experts can provide accurate insights into various aspects, including repayment. So, connect with lenders to clarify doubts about the total amount, tenure, interest rate and so on to chalk out an effective repayment strategy.
Monitor expenses: Tracking expenditure is a fundamental aspect that is often overlooked. There are several budgeting apps that can help you track what you are spending and practise mindful spending.
Whether it’s a mobile app or noting down expenses on a spreadsheet or a notebook, keeping track of every penny helps students identify unnecessary spends and allocate more towards loan repayment.
Emergency corpus: This is essential as a financial emergency can be unexpected. Ensure a portion of the money is put away towards a contingency fund to ensure there is no default on EMIs. This fund acts as a safety net during challenging times.
Moratorium period: Although a grace period known as the moratorium is offered during which one need not repay, it is better to contribute either as Simple Interest (SI) or Partial Interest (PI).
Remember, the moratorium period is not interest-free. Interest accrues from day one and adds up over the moratorium period. Another aspect is that paying some amount during this time leads to financially prudent habits.
Earning while learning: An effective way to manage repayment is to supplement income through part-time work or freelancing. Look for jobs that align with your skills and schedule so that you can make some extra money without compromising your studies.
Options include tutoring, teaching or any other form of part-time work. This also helps enhance one’s resume and improves job prospects. Remember to also check what your visa allows in terms of working while studying.
The writer is Chief Business Officer-Student Lending and Insurance Business, Avanse Financial Services
