Complete Guide to Education Loan Repayment Methods

While finalising the Loan Sanction or managing the Expenses of Study Abroad, we often come across the selection of the Repayment Method. So, many students ask - "How are we suppose to repay the Education Loan ? Because we will not work during the study. " or Which repayment method would be beneficial for them? So, let's look at the Complete Guide on What are the available Repayment Methods and how to choose the right Repayment Type wisely. 

Types of Repayment Methods for Education Loan for Study Abroad

For the Education Loan, the Banks and Financial Institutions across the World charge Simple Interest during the Moratorium period and compound interest on the remaining tenure. The Education Loan in India has 4 Repayment methods with aligned benefits. The applicability of the Repayment method varies based on the Loan Application Profile. 

1. Full EMI (EMI)
2. Simple Interest EMI (SI)
3. Partial Interest EMI (PSI) - Most Popular
4. Zero EMI

Full EMI (EMI)

In the Full EMI, you have to pay the Full incurred Simple Interest and a part of the principal amount every month during the whole Education Loan tenure. Since there is no moratorium period involved, you have to pay the same EMI throughout the Loan tenure. This option is Best Recommended to save on the total repayable amount if you can afford to pay. 

The option of Full EMI is generally provided by Private Banks & NBFCs for the Unsecured Education Loan applications for Bachelors, MBBS, and Pilot Training Abroad. 

Simple Interest EMI (SI)

In the Simple Interest EMI, you have to incur Interest on the Education Loan during the Moratorium period every month and Full EMI during the remaining tenure. So, at the end of the Moratorium period, the repayable amount will be the same as the disbursed amount because you already paid the Interest part and only the principal amount is pending for repayment. 

The option of Simple Interest Rate is offered by all Government Banks, Private Banks and NBFCs in India. However, in particular applications, the Bank may not approve your application for Simple Interest EMI and instead give an option of Full EMI based on their Internal Risk Factor

Partial Interest EMI (PSI)

The most popular option among students is Partial Simple Interest EMI or commonly known as PI. In this method, the student has to pay a partial interest EMI each month between ₹2000 to ₹10,000 during the Moratorium period and the Full EMI after the completion of the Moratorium period. Generally, the PSI is ₹5000 monthly with an option to change at the time of approval. 

The student gets relief from paying the Full EMI during study and can legally delay paying the Full EMI. The option is provided by Private Banks, and NBFCs such as Credila, Avanse, Auxilo, InCred, etc. 

Zero EMI

The Zero EMI refers to a repayment method where an applicant does not have to pay any amount or EMI during the Moratorium period. The Complete EMI will be serviced after the Moratorium period. 

The Zero EMI option is generally available with Government Banks such as State Bank of India, Union Bank of India, Punjab National Bank, etc, in India that provide Secured Education Loans with additional benefits of a discount in Interest Rate if the applicant switches to the Simple Interest EMI option. 

Comparison between Study Loan Repayment Methods

Let's have a look at the Comparison between the repayment amount if an applicant takes an Education Loan and has all four repayment methods available. 

For example, we assumed that a student has to avail an Education Loan of ₹25 Lacs at a 10% Interest Rate for a period of 10 years, including a Moratorium period. The Course duration is 1 year, and an additional 1-year Grace period. You may notice that the difference between the Repayable amount is huge, depending on the Repayment option. 

Note: You can use our tool for Education Loan EMI Calculator & Analysis for Customized and Instant Calculations. 

What is the Moratorium Period

The Moratorium Period, also known as the Holiday period, where the applicant does not have to pay the EMI during the period. It does NOT mean that the Lender will not charge you any Interest during the Moratorium. During the period, the Interest incurred gets charged and added to the principal period. For most of the Banks and NBFCs in India, the Moratorium period is equal to the Study Period + 1 year as a Grace period. For example, if the student is going to a 2-year Master's in the USA, the moratorium period will be 3 years. 

The grace period refers to the time provided by the Lender to search for the appropriate job and get ready to pay the upcoming EMI every month. Most of the Banks and NBFCs provide a grace period of 1 year after the completion of Studies, but some lenders, such as Prodigy Finance and Mpower Financing, may give only a 6-month grace period. 

Course-Wise Repayment Methods for Abroad Education Loan

The repayment method also varies based on the Course Level with Flexible methods for Masters and stricter repayment methods for Bachelors, MBBS and Pilot Training programs abroad. Due to the longer duration of Undergraduate programs, the chance to get an option of Partial Interest EMI is very hard or near impossible. 

Master's Abroad Education Loan

For the Master's in Abroad Countries such as the USA, UK, Canada, Australia, Germany, etc, the Banks and NBFCs provide flexible repayment methods. The repayment method varies based on the Lender. 

Bachelors Abroad Education Loan

For the Bachelor's Education Loan for Foreign Universities, the Lenders provide an option of Zero EMI & Simple Interest EMI for Secured Loans. However, for the Unsecured Loan, they have a choice of Full EMI and Simple Interest EMI only. 

Bank-Wise Repayment Methods of Abroad Education Loan

The Government Banks, Private Banks, NBFCs and International lenders have different repayment methods available based on their Internal Policies and Risk Level. Some Banks, such as State Bank of India and Punjab National Bank, provide additional benefits in Interest Rate up to 1% if the applicant chooses the Simple Interest option over Zero EMI. Here is the List of Lenders with their available Repayment Methods for Study Abroad Education loans.

Government Banks

Private Banks

NBFCs

International Lenders