Financial Tips For Reducing Student Loan Stress In India

However, while these loans open doors to academic opportunities, the repayment journey can often feel like a nightmare. The stress and anxiety associated with managing and repaying student loans can significantly impact mental health. The good news is that with careful planning and strategic financial management, the repayment process can be much less daunting. Here are some actionable insights to help reduce your loan repayment stress and ensure a smoother financial journey. 

Understanding the student loan scenario in India 

Student loans are a significant aspect of financing higher education in India. As of March 2023, the Reserve Bank of India (RBI) reported that the total outstanding education loan amount in India was approximately ₹80,000 crores. The average education loan size has increased, reflecting the rising cost of education. The average loan amount is around ₹7.5 lakhs, with interest rates typically ranging from 9 per cent to 15 per cent per annum. The repayment period generally spans 5 to 15 years. According to the RBI, the loan default rate was approximately 8.2 per cent in 2022. The India Skills Report 2023 indicates that the employability of Indian graduates is around 46 per cent, with fresh graduates earning an average starting salary of ₹3.5 to ₹4.5 lakhs per annum. 

Choosing the right loan 

Choosing the right loan is crucial. Research extensively and compare interest rates, repayment terms, and moratorium periods from multiple lenders, including public and private sector banks. It's also worth considering Non-Banking Financial Companies (NBFCs) and Fintech firms for their convenience and flexibility. NBFCs and Fintechs often offer faster processing times, more lenient eligibility criteria, and flexible repayment options, making them an attractive alternative to traditional banks. Utilize government platforms like the Vidya Lakshmi portal to access detailed information on various education loans and select the one that best suits your needs. 

Starting early with financial planning 

Start early with financial planning. Create a detailed budget outlining all your expected expenses, including tuition fees, living costs, and other miscellaneous expenditures. Stick to this budget to avoid overspending. Engage in part-time work or internships to earn additional income and gain valuable work experience. 

Seeking scholarships and grants 

Seek scholarships and grants. Utilise platforms like the National Scholarship Portal (NSP) to find and apply for scholarships that match your qualifications and needs. Investigate grants and subsidies offered by the government and educational institutions to reduce your financial burden. 

Understanding loan terms and conditions 

Understand loan terms and conditions. Compare interest rates across different banks, as public sector banks often offer lower interest rates compared to private banks. Familiarise yourself with the repayment schedule and any grace periods. Opt for loans with flexible repayment options if available. 

Considering loan repayment options 

Consider various loan repayment options. If possible, initiate early repayment of your loan while still in college to reduce the interest burden over time. If you have multiple loans, consider consolidating them to simplify the repayment process and potentially secure a lower interest rate. 

Utilising government schemes 

Utilise government schemes like the Central Sector Interest Subsidy Scheme (CSIS) which provides interest subsidies for economically weaker sections during the moratorium period. Take advantage of the Dr. Ambedkar Central Sector Scheme, which offers interest subsidies to OBC and EBC students. 

Leveraging tax benefits 

Leverage tax benefits. Education loans in India come with tax benefits under Section 80E of the Income Tax Act. Claim deductions for the interest paid on education loans to reduce your overall tax liability. 

Enhancing financial literacy 

Enhance your financial literacy by understanding basic financial concepts like interest rates, compounding, and investment options. This knowledge will help you make informed financial decisions. 

Considering loan insurance 

Consider loan insurance to protect your finances. Loan insurance can cover the loan amount in case of unforeseen circumstances such as death, critical illness, or disability, ensuring that your family is not burdened with repayment. Choose from term insurance or credit insurance, which are specifically designed to pay off a loan in the event of the borrower’s death or disability. 

In short 

Effectively managing student loans requires proactive financial planning, informed decision-making, and leveraging available resources. By following these actionable financial tips, students in India can reduce loan stress and focus on their education and career aspirations. The key to a debt-free future lies in prudent financial management, continuous learning, and utilizing tools like loan insurance to safeguard against unforeseen circumstances. Additionally, choosing a lender that understands your requirements and provides a dedicated Single Point of Contact (SPOC) can help you better understand the terms and conditions of your loan, ensuring a smoother and more manageable repayment journey.