There is no greater pillar of stability than a strong, free, and educated woman, said Angelina Jolie. The fight for women to have equal access to higher education isn’t new. Although girls in India have access to primary education, their enrolment in higher education – both in India and overseas – shows a dip. Over the last couple of years, this trend seems to be changing. According to the All-India Survey on Higher Education (AISHE), there was an overall increase of 18 per cent in the enrolment ratio of women students in higher education, between 2015 and 2019. The same survey also reported a spike in females pursuing their Master’s Degrees.
But education is expensive. A college course would start anywhere from ₹5,00,000 – ₹6,00,000 domestically, and the number is exponentially higher if the student decides to go abroad. For those with lower socio-economic mobility, the only options are scholarships or fellowships, failing which they’ve got to fall back on student loans.
First, let’s take a look at the concept of student loans. This is actually self-explanatory – money borrowed from a financial institution to pay for higher studies. This includes not just the cost of tuition, but could also cover boarding, living expenses, and other miscellaneous expenses. Just like every other loan, this needs to be paid back later with interest.
“When you take out a student loan, make sure to read the fine print. This should include the actual principal amount, loan repayment term, interest rate, and also the loan repayment plan,” says Vaidehi Gandhi, an Ahmedabad-based banker in the loans division of a public sector bank. “There are repayment plans that are fixed, as well as variable based on your job and income. Repaying these loans can be a formidable task. It’s not as simple as finding a job and making the loan disappear! You also have other expenses that could eat into your income. If you feel that you’re unable to close the loan in time and that the interest rates could be higher, refinancing your loan is one way to grant yourself a little reprieve.”
Adds Gandhi, “Refinancing a student loan gives you the opportunity to pay off your existing loan with another loan, which has better interest and repayment terms. Banks and NBFCs both offer options to refinance your loan.”
According to data released by the RBI, the outstanding student loans in India as on September 30, 2022 stand at ₹89,537 crores, as opposed to ₹79,917 crores just one year ago. The data indicated that loans grew by 12 per cent this year. Interestingly, some banks offered a 0.50 per cent concession on interest rates for girls – which could save you a pretty packet to begin with! As per the Indian Banks’ Association (IBA) model loan scheme, the RBI report stated that “education loans up to ₹4 lakh do not require any collateral to be provided by the borrower, education loans up to ₹7.5 lakh can be obtained with collateral in the form of suitable third-party guarantee, while education loans above ₹7.5 lakh require tangible collateral. In all the above cases, co-obligation of parents is necessary.”
Student Sakina Afraaz, who completed a Bachelor’s Degree in Computer Science in the UK, followed it up with an MBA in Australia and found herself paying off not one, but two student loans side by side. “I’m working now, but it was really hard keeping up with EMIs for both loans, and staying on top of things. That’s when my parents were adviced by a family friend to consider refinancing. Essentially, I was able to combine both my UG and PG loans into one consolidated loan, with better terms of repayment. For instance, I was stuck with a rigid 20-year repayment plan for my UG loan. Since I’m earning reasonably well, and have no significant financial commitments at this stage in my life, I wanted to foreclose the older loans at the earliest and move onto a plan where I could pay them back quickly. The penalty for that was negligible, in contrast to the interest I would have been paying over two decades.”
Although the documentation can be a bit hard to wrap your head around, getting a trusted financial advisor on board to help you with the nitty gritties can help. Don’t leap into the first option that comes your way. Explore several banks and study their terms and conditions before you decide to refinance your loan. If at the end of the exercise, you feel like you’d rather not switch, that is fine as well. You will also have to study the foreclosure terms of your existing loan and check if it is viable to carry on with it. If you’re working in some countries overseas, such as the US, there are options there to refinance a student loan that has been taken in India.
Gandhi says, “The documentation required is very simple – along with the usual statement of assets and liabilities of your co-borrower (usually a parent), you’ll also require existing loan documentation, KYC, and bank statements. Your CIBIL score will also be considered while offering you the terms of the refinanced loan. Also, there is no point trying to refinance your loan if you’ve already paid off most of the EMIs and there’s just a short period left. Explore the option as early in your loan repayment tenure as possible. Can you refinance your loan more than once? Sure, but I wouldn’t advice it unless really necessary. Of course, there are no guarantees in life. But as far as possible, once you have a sense of what your income might be like for the foreseeable future, come up with a plan to refinance your loan and then stick to it.”