How to Pay Off Education Loan Faster in India?


  • Paying education loans before the scheduled close can relieve you from the debt burden
  • Read this post and know how to do it.

If you get a job after the completion of your studies, you will need to repay the Equated Monthly Installments (EMIs) in case you have taken an education loan. As education loans run for as long as 15 years, the interest liability can be much more than you could think of. But you can pay off the loan early to reduce interest payments. Paying off education loans before the scheduled close can be difficult. But if you plan your loan payment, you can do it. In this post, you’ll know why and how you should pay off education loans early, and its benefits. Let’s read further.

Why Should You Repay Education Loan Faster?

A loan payment takes out a significant portion of your monthly salary that can be utilized to achieve your financial goals. It hinders you from changing your job as then it will become hard for you to manage the payment. Delay in repayments of education loans is a serious burden on the borrower and especially when your credit history is building. Suppose, you borrow an education loan of INR 20 lakh for 15 years at an interest rate of 9.45% per annum, the interest amount you will have to pay for it will be INR 17,48,355. And if you choose a 10-year tenure, the total interest you will pay is INR 10,98,975. So, you can see if you pay off the loan early you will be able to save up to INR 6,49,380.

How to Pay Education Loan Early?

Paying off the education loan before the scheduled time will require planning and implementation. Let’s take a look at the methods you should adopt in pursuit of early payment.

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Begin Early

One of the primary considerations while looking for an education loan is repayment calculation. You can save a good chunk of amount from your loan repayment if you begin the repayment in the moratorium period. It saves on your interest repayments with a concession of 0.50% in the rate of interest. Yes, some lenders provide relaxation on the interest payment of education loans if you pay during the moratorium period.

Create Income

You can start a part-time job and save a lot of money before the repayment period. The saving amount will help you part or prepay the borrowed loan amount. With the help of an EMI calculator, you can plan the repayment and schedule the part payment as per your convenience, thereby paying off the loan early. Look at the example below to know how to use the EMI tool for the education loan repayment.

Example: Ravish borrowed an education loan of INR 25 lakh at an interest rate of 9.8% per annum for 10 years. And the savings he makes with his part-time job is INR 1,15,000. After a few EMI payments, he planned to do a part payment. Look at the example to know how much Ravish will save.

Loan amountINR 25,00,000
Interest rate9.80%
Tenure10 years
EMIINR 32,761
Interest outgo over 10 yearsINR 14,31,372
Paid interest till 6 yearsINR 11,55,451
Balance loan amountINR 12,96,627
Part payment amountINR 1,15,000
Balance loan amount after paying the part payment sumINR 1181627
EMI after part payment of the education loanINR 29,856
Interest outgo after part paymentINR 2,51,449
Total Amount of interest you payINR 14,06,900 (11,55,451 + 2,51,449)
Savings amountINR 24,4,72 (14,31,372 - 14,06,900)
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When doing a part prepayment, you are also given the option of paying the same EMI. Shall Ravish go for it? Well, if he wants to cut short the loan tenure and save more on interest payments, he can exercise this option too. By keeping the EMI unchanged to INR 32,761, he could wrap up the loan in some 43 months from here compared to 48 months when going with a reduced EMI plan on part payment. The interest payment over 43 months will amount to INR 2,24,364. If you add this to the one Ravi has paid already i.e. INR 11,55,451, the total comes out as INR 13,79,815. If you deduct the same from the interest liability of INR 14,31,372 over 10 years should Ravi decide not to prepay, his savings will increase to INR 51,557.

Save More

From your monthly income, you can save a little and use it later for the education loan prepayment. You can open a savings account, Fixed Deposit, or Recurring Deposit to save money from your monthly salary. It is always advised to the borrower to save as much as possible and limit their expenses for a period up to the loan tenure, so it will be easy for them to pay the loan before the scheduled close.

Choose a Relatively Shorter Loan Tenure

One of the easiest ways to pay off education loans early is to pay more. And you can do so by choosing a shorter repayment tenure or loan prepayment. However, the EMI can be higher when choosing a shorter tenure. So, don’t cut short the loan tenure to a point that can make monthly payments hard to execute. Choose a relatively shorter loan tenure that can help you pay early and keep interest payments in check.

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Consider Balance Transfer

You can also look for a loan transfer to get cheaper interest rates. Negotiate with your present bank for a lower interest rate, and if it doesn’t agree, use a balance transfer facility. You might save a good portion of your interest amount when you choose a lender that offers you a low-interest rate on your education loan balance amount. To save more on interest payments, you can have the same EMI. This will cut short the tenure by some and help reduce your interest obligations.

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