Studying abroad has become more than just an aspirational trend. According to a recent UNESCO report, over 6 million students are pursuing higher education overseas, and this number continues to rise each year. With the steep costs of tuition, living expenses, and travel, education loans have emerged as a lifeline for many aspiring international students.
In fact, Indian students alone borrowed nearly ₹10,000 crore in education loans in 2023, a figure that highlights the growing reliance on financial aid to turn study-abroad dreams into reality. However, borrowing is only half the story; repayment plays a crucial role in shaping one’s financial stability after graduation. That’s where this article comes in. Here we will discuss some tips that can help students with repayment. But before that, let’s start by understanding some factors that affect loan repayment.
5 Key Factors Affecting the Repayment of Education Loans to Study Abroad
Here are 5 key factors affecting repayment of education loan to study abroad:
Repayment Tenure
Longer tenure generally results in lower EMIs but greater interest paid overall. Shorter repayment periods involve higher monthly payments but lead to interest savings. Students must choose a tenure that fits their income and career prospects.
Interest Rate
Higher interest rates increase the total repayment amount, making loans more expensive over time. Borrowers should compare lenders, understand whether rates are fixed or floating, and account for any processing or capitalization fees to ensure affordable monthly payments.
Loan Amount
The size of the loan determines the total repayment burden. A larger principal results in higher EMIs and more interest accrued. Borrow only the required amount after accounting for scholarships, grants, and alternative funding sources.
Employment Prospects
Getting a stable job soon after graduation is crucial for timely repayment. Job market realities in the destination country and field of study affect income level and employment opportunities, key determinants of a borrower’s ability to meet repayment obligations.
Currency Fluctuation
If the loan is in a foreign currency, exchange rate changes can significantly increase repayment costs for students earning in their home currency. Rupee depreciation against foreign currencies makes EMIs more expensive, affecting affordability and financial planning.
After looking at the factors that affect the repayment of the education loans to study abroad, let’s see some tips that can help students repay their education loans to study abroad.
10 Tips for Repaying Education Loans to Study Abroad
Here are the tips that can help students with the repayment of Education Loans to Study Abroad:
Choose the Best EMI Plan
Students should select an EMI plan that matches their current financial capabilities, reduces the risk of missed payments and penalties. Students should compare different EMI options and use online calculators to find a comfortable, sustainable repayment schedule, ensuring regular payments without straining finances.
Pay More Than the EMI
Whenever possible, make payments above the minimum EMI amount. Paying extra directly reduces the loan principal, lessening the interest burden and shortening the loan tenure. Even small periodic top-ups accelerate debt-free status and save substantial money over time.
Opt for Shorter Tenure Loans
Choosing a loan with a shorter repayment period means paying higher EMIs, but it greatly reduces overall interest outflow. If income allows, select the lowest feasible tenure to swiftly clear the debt and avoid prolonged financial commitment.
Refinance for Better Rates
After building a good credit score, consider refinancing the loan for a lower interest rate. Refinancing consolidates multiple loans, streamlines EMIs, and results in major savings on interest, making repayment easier as financial health improves.
Earn While Studying
Seek part-time work, internships, or campus jobs while studying abroad. Extra earnings offset living expenses and can be channeled directly into loan repayments, effectively decreasing the principal more quickly and minimizing stress after graduation.
Apply for Scholarships
Actively look for and apply for scholarships and financial aid whenever eligible. Scholarships can be used to pay off portions of the loan or minimize subsequent borrowing, significantly reducing the final repayment burden.
Enable Autopay
Set up automatic payments for EMIs to ensure timely repayment. Autopay helps avoid missed deadlines and penalty charges, improves credit scores by maintaining a positive repayment history, and keeps the repayment process streamlined and disciplined.
Stick to a Budget
Prepare and stick to a strict monthly budget. Track income, expenses, and savings, separating discretionary and necessary spending. Controlled budgeting ensures sufficient funds for EMIs and helps avoid impulsive expenses that lead to missed payments.
Explore Income-Based Repayment
Look for income-based repayment options where EMIs are adjusted as per earnings. This flexibility eases financial pressure in low-income periods and makes loan repayment more manageable for students starting out in their careers abroad.
Avoid Additional Loans
Resist the temptation to take any new loans until the education debt is repaid. Taking on more debt complicates financial obligations and may increase default risk. Focus on clearing the current education loan before seeking further credit.
Now that we have some tips that can help students to help them with loan repayment, let’s see which loan repayment strategy is better for them: early repayment or lower EMI.
Early Repayment Vs Lower EMI: Which One is a Better Strategy for Repayment of Education Loans to Study Abroad?
As we saw in the previous sections, an education loan depends on various factors, and there are ways to make it efficient, but it is also important to choose the best strategy. One offers the lowest interest rate on education loan but high monthly payments, while the other offers low monthly payments for a longer period. Let’s see which one is better:
| Key Aspect | Early Repayment | Lower EMI |
| Interest Saving | Significantly reduces the total interest paid over the loan tenure by lowering the outstanding principal amount faster, leading to cost savings. | Monthly payments are smaller, easing cash flow, but interest accumulates over a longer period, resulting in higher total interest paid. |
| Loan Tenure | Shortens the loan tenure, freeing borrowers from debt obligations sooner and improving financial freedom. | Extends loan tenure, allowing more time to repay, reducing the monthly financial burden. |
| Credit Score Impact | Positive impact due to demonstrated ability to repay loans ahead of schedule, improving creditworthiness. | Helps maintain steady repayments, which also supports a good credit score, but slower loan completion. |
| Financial Flexibility | Frees up future income sooner for other goals like investments, savings, or home loans once the loan is cleared. | Provides monthly budget relief, allowing for greater short-term financial flexibility and comfort. |
| Debt-to-Income Ratio | Reduces DTI by paying off loans quickly, making borrowers eligible for other loans more easily. | Smaller EMIs help maintain manageable debt levels relative to income, helpful if cash flow is tight. |
This brings us to the end of the article, where we looked at some tips that can help students to repay their education loan to study abroad. We also saw the factors affecting repayment and which strategy is better for students.
Students who want guidance in choosing the right kind of abroad education loan in terms of coverage as well as repayment should consult an education loan consultancy. They have loan experts who know about the loan schemes offered by different banks and financial institutions. With their help, students can make the right choice and be worry-free about their journey abroad.