Student rates

Importance of Developing a Student Loan Repayment Strategy

This strategy should be designed keeping in mind the tenure, method of repayment, grace periods offered and spending habits of the individual.

There has been record interest in overseas education among Indian students. In the post-pandemic world, a study finds that 83% of Indian students believe international education can help them land better jobs. With the growing aspirations and awareness and an increase in complementary options, the report states that more than 62% of Indians prefer to take out a student loan to meet financial needs.

Along with conventional financial institutions like banks, more and more fintech companies are entering this space by offering quick and hassle-free loans. However, it is important to keep in mind that to get the most out of it, research and planning is required at the procurement stage as well as for the repayment of these loans.

Since these loans are taken out in the name of the student, they are expected to be repaid. A successful repayment helps to create a good credit score for the individual, which in turn will help them if they wish when applying for a loan in the future. Therefore, having a student loan repayment strategy in place is vitally important and this article discusses some of the factors that can help create that plan.

Choose the right financial partner while taking advantage of the loan

Many new-age education fintech companies provide loans based on a student’s past academic performance and future potential, without requiring the parent as a co-borrower. These lenders have designed information and data-driven information to finance students from low-income families. Their credit and risk assessment models rely on other data such as:

– Previous academic records

– Student entrance test results. For example, CAT, MAT, GRE, GMAT, TOEFL, IELTS, etc.

– Professional experience and possible internships

– The ranking of the course, college and universities where the student plans to study

Therefore, by keeping these factors in mind, a student can plan their educational path in such a way as to obtain a loan at more competitive interest rates.

Other factors encompassing the process of choosing the right financial partner for this step include:

– The loan structure offered, including the moratorium period and the flexibility of repayments. You have to choose a lending partner that allows a longer repayment period.

– Global fee levied for 1 lakh of the disbursed amount. Often, an institution may charge a low interest rate, but their fixed fees or processing fees may be higher. It is prudent to compare the total amount of fees paid in proportion to the loan amount when evaluating your options.

– Check the overall processing time involved from application to sanction to disbursement and choose the one with fast disbursements.

– It is equally important to check the loan management practices of the institution to which one is applying. It should not happen that other charges are levied for subsequent disbursements.

– Other ancillary services provided by the establishment should be verified. Some companies provide credit cards or bank accounts in your destination country, which could prove advantageous at the time of reimbursement.

Focus on reducing expenses and generating revenue

As mentioned, the interest on the principal amount starts from the date of repayment of the loan. Thus, it is essential to monitor your expenses during your studies. Many students also opt for part-time work to generate income so that loans can be paid off quickly and an accumulation of interest can be avoided.

Use the EMI calculators to get an approximate value of installments and design a budget accordingly. Learn about different investment options so you can leverage your savings and earn more while using limited resources.

Many students opt for a trip abroad for higher education. Generally, loans must be taken out to cover these expenses. Since the loans are interest-bearing and late repayments can ruin these students’ credit scores, it’s important to have a repayment strategy to avoid potential costs. This strategy should be designed keeping in mind the tenure, method of repayment, grace periods offered and spending habits of the individual.