With so many banks and NBFCs in India offering access to education loans online and offline, it is now easier than ever to apply for a loan. Therefore, we see more and more meritorious students applying for a study loan. A report from RBI shows that the number of student loans in India is up by 17% in 2024 compared to 2023! However, there is a concern among students who have applied for an education loan. They often find themselves contemplating about their future and overthinking how they would be able to repay the huge loan amount. For such students education grants and scholarships are rays of hope which can help them reduce their student debt. We discuss here the strategies that you can follow to reduce your education debt using your scholarship money and grant funds smartly.
What are Grants & How Can they Help You Reduce Your Student Loan Debt
Grants are financial awards provided to students to support their education and research. Unlike education loans, students do not need to repay them. Students selected for grants are usually based on need and other criteria set by the grant provider. A grant to a student can be paid by the government, university or an NGO. Students are free to use the grant amount as they see fit and that is what separates it from a scholarship, which can only be used for educational purposes. Most people choose to pay off their student loans, fund their research, invest it in an advanced course, or publish their research papers with it.
Grants play a crucial role in reducing the overall cost of education loans, and here is how:
- Reduce your EMIs: Grants can cover a portion of your study loan EMIs, reducing the amount you need to pay every month. For example, if your annual tuition is ₹2 lakhs and your EMI during the moratorium period is ₹1000. So if you receive a ₹10,000 grant, you can use the amount to pay your monthly EMIs.
- Lower Overall Debt: By receiving grants, you can pay off a big chunk of your education loan in one go. This will reduce the total amount of debt you need to repay after graduation. Less debt means lower monthly payments and less interest over the loan duration.
- Eligibility for Additional Aid: Receiving grants can boost your educational credibility, and it may make you eligible for other forms of financial aid, such as scholarships, work-study programs, or reduced-interest loans. This can further reduce your financial burden and help you manage your education loan EMIs.
Is Getting a Scholarship the Best Way to Reduce Your Study Loan EMI?
Students who receive a scholarship during their education can use this opportunity to reduce their education loan debt. Typically, only one scholarship can be claimed per course, and the awarded amount is directly transferred to the student’s bank account. However, in most cases, students already have an education loan covering their educational expenses, leaving the scholarship funds unused.
Unfortunately, some students end up spending this money on non-essential items instead of utilizing it wisely. Many are unaware that the interest on their loan continues to accumulate during the moratorium period, course duration plus one year when no EMI payments are required. This accumulated interest is then added to the principal amount, increasing the overall repayment burden.
By using their scholarship funds to start repaying their education loan during the moratorium period, students can significantly reduce their effective EMI compared to their peers who delay repayment. Students can use their scholarship amount either by making monthly EMI payments or paying a lump sum to the bank to lower the principal amount. This step can ease the financial burden and lead to a smoother repayment journey.
Additional Strategies to Reduce Student Loan Debt
- Pay more than your EMIs – One of the best ways to reduce your student loan debt gradually without hampering your quality of life is to pay more than your EMIs. Suppose your monthly EMI is ₹10,000, but if you can, then may start paying a little additional amount than your EMI. Just add a little as per your pocket size every year. The extra money will help you reduce your principal amount, which will in turn, help you pay off your debt before time.
- Loan Refinancing – To understand this, let’s consider the case of Niharika, who has taken an unsecured loan of ₹10 lakhs, and her EMI is ₹7,000 per month. However, the EMI is proving to be quite difficult for her to pay, and she wants to reduce her loan EMI. The best way to do it is to refinance her education loan from some other bank. She can add collateral in the refinanced loan to reduce her interest rates and thus, the EMIs will get lower as well.
- Extended repayment – Sometimes, your salary after graduation is not as per your dreams, and that can really affect your financial conditions. If you are having trouble paying your monthly EMIs, then you can ask your bank for an extended repayment option, which adds the loan repayment period to reduce your EMI per month. Keep in mind that the bank will check your credit history before agreeing to extend your loan period.
- Pay back a portion of the principal amount – One great way to pay off student loan debt faster is to put extra money toward the principal whenever you can. This decreases the principal amount, and since interest is calculated monthly on the principal, reducing the principal amount means lower interest payments.
FAQs
Q. Can a student apply both for an education loan and a scholarship simultaneously?
Yes, an eligible student can apply for an education loan and a scholarship at the same time. Since scholarships and student loans are fundamentally different, they do not contradict each other. Some financial institutions may ask you to disclose the names of scholarships for which you applied for financial aid at the time of filling out the study loan application.
Q. What is the best strategy to pay off student loans?
The best strategy to pay off your student loans is to start paying back your loan during the moratorium period using your scholarship or grant amount. Next, you need to find a job as soon as you can and pay your monthly EMIs on time.
Q. How do you waive a student loan?
In India, there are no government-backed student loan forgiveness programs that can completely waive your student loan amount.
Q. Is there any subsidy for education loans?
Yes there are various schemes run by the Indian government that offer subsidies for the interest that is accrued during the moratorium period. Some of these schemes are the Dr Ambedkar Scheme for Socially and Economically Backward Students, the Central Sector Interest Subsidy Scheme (CSIS), etc.
Q. Can I pay off my student loan debt in one go?
Yes, it is possible to pay off your student loan debt in one go if you have the amount. However, for some banks, you may need to pay foreclosure charges which are usually 1-2% of the total loan amount.