Worried About Your Student Loans? Here is a Guide to Help You

In India, a lot of people study abroad for exposure, for access to global opportunities and well, to land a better salary when they come back home. Some might want to pursue a specialised course in another country. People might also choose to study at premium institutions in-country.

Whatever your reasons may be for going abroad to study or sending your child abroad to study – whatever your incentive for pursuing higher education in the country, all of the above require big doses of Vitamin M, with their heavy fees and tuition. Not having the savings or earnings to support an education abroad or higher studies at an IIT or IIM or any other premier institute in the country should not stop people from pursuing their dreams. But the idea of taking a loan often stresses aspiring students and their parents to a great extent.

Unfortunately being stressed will not get you any closer to paying off your loan and will negatively affect your ability to focus on class and homework, and eventually excel in your studies. We’ve got you covered. Here are 6 simple ways to keep loan stress at bay. We’ve also thrown in the best kept secret of successful professionals who have paid off their loans without breaking a sweat. This pro tip is sure to help you pay off your monthly EMIs with zero stress.

1. Plan ahead and avoid the loan altogether

If you have plans to study abroad in a few years – or if you are a parent planning on sending your child abroad for further education – you can definitely finance the said plan yourself. You might not even need to take a loan in the first place. All you need is a little smart financial planning. The basic rule of thumb to reach such a goal is: Look for high yield investment options where you can access the capital and returns when it is time to sign up for the course/ degree and pay fees.

Understand the risk-reward scale. To pursue higher yield, there is a need to also accept a degree of risk. Once you have understood the relationship between risk and reward, carve out a section of your capital to be invested in potentially high yield investments. Have a mix of very safe to marginally or moderately risky investments.

Your investment horizon or your investment term – as discussed earlier – also needs to match the admission and fee payment dates. Stock market investments and mutual fund investments are good options to meet both requirements: the need for potentially high earnings and the need for liquidity. This will let you dig into your earnings as and when a new semester’s fees need to be paid off.

Additionally, the power of compounding will help you multiply your earnings substantially in the long term.

It might seem counterproductive to risk capital that you have because you are going to require more capital in the future, but look at it this way. The capital in hand has the potential of growing into the capital you require in the future. Moreover you can manage and minimize your risk by buying on lows, practicing rupee-cost averaging (which is done effectively by SIP investment, diversifying your investments, consulting a financial planner and by keeping a keen check on your investments.

2. Set up auto pay or direct debit

If you did not have the foresight (or the capital) to avoid having to take a loan, worry not, you still have 5 more tips and a pro tip, to help you on your way.  Auto pay is a convenience that lets you ensure that you never forget to make a payment. The amount will be deducted on the same day every month and you can plan it such that it will coincide with the start of the month – when you will eventually start receiving your salary.

Some insurance providers might even give you a small additional discount on your interest rate if you go with this option.

This option is not only fool-proof if your problem is that you tend to forget, but also if you are typically not able to save. If your problem is saving, then it absolutely makes sense that your EMI is debited right after payday before you have time to blow up your salary.

3. Halve your burden

You can lessen your burden by paying in bi-weekly or fortnightly installments. In your early jobs as a student abroad, it is not uncommon for you to get weekly wages doing part-time work or even sporadic freelance, gig-based sporadic payments. You can use the bi-monthly method to pay off interest incurred during the moratorium period with ease. The moratorium period is the period during which you need not make any payments on your loan, although interest does accumulate at this time. You can reduce your burden in the long-term by paying off accumulating interest during the moratorium period and in the short term, you can avoid the sting of paying a bigger lump sum every month, by paying half the amount every fortnight.

4. Refinancing – only if needed and if useful

Sometimes our first jobs haven’t got the best salaries, even when there is promise for growth. Such is the reality for most freshers. But with just a little work experience, you’ll soon be gettin payper, and how! In such a situation you could get a second loan to pay off your first loan. You will only be able to get this loan if you have been regular with your payments thus far and if you have a steady income. However, getting a refinancing loan only makes sense if

I – the second loan comes at a lower rate of interest than the first. This is where that good credit score comes into play. Banks will usually extend lower rates of interest to those who are deemed more creditworthy.

II – if you have a steady income and will eventually be able to pay off both loans

III – if you really are not earning enough to pay off your first loan. Don’t be accumulating and paying interest for nothing! Pay off your debts before living like a king (or queen).

5. Use that raise to get fancy pay off your loan

We recommend using 50% of any bonus income, big gifts from wealthy aunts and uncles, and of course raises fast track the repayment of your student loan. Put 30% in savings – divide that up into some investments and some capital for a rainy day when you might struggle with your EMI. Enjoy the remaining 20% – it’s not like we have any rules against enjoying life.

The investments you make can eventually be linked to some financial goals linked to little treats you can give yourself.  An annual vacation, a better rental apartment, a new car – you can make these possible alongside paying off your loan with a little smart investment. After all investing means that your capital will earn for you.

PRO Strategy: Have your money pay your loan for you

And finally, here is the promised pro strategy – the icing on the cake if you may. Imagine if you did not have to pay off the loan out of your salary every month. Imagine… having your previously saved up money, paying off your loan for you. It IS possible – short term mutual fund investments, stock market trading (medium term, short term and intraday trading) have the potential to give investors a high level of return on investment. You could use the earnings from a stock market investment or a mutual fund investment to pay off your EMIs.

Alternatively, you could invest in a mutual fund short term and opt for an SWP, or a systematic withdrawal plan. You can time it such that the capital is credited to your account on the day prior to when you need to pay your EMI. Or use our recommendation from point 1 – plan your auto debit for the day after your SWP amount credits into your account.  If you are going with our second recommendation to halve your burden, you can divide the said investments into two mutual funds and plan your SWP dates around your fortnightly EMI payments.

Calculate your ideal withdrawal strategy with our SWP calculator and plan your financial future today!

Best of all, you can browse and choose investments with great ease and convenience apps such as the Angel One app. You do not need to waste precious study (or party) time on running to banks and filling up forms. The app is free for download and registration – although it is sufficiently thorough for your safety – is completely virtual. You can choose from a wide variety of potentially high yield investment options. The app even gives you literature, like this blog that you are reading right now, to educate yourself.

EveryoneCanInvest – it does not matter what your age, salary or occupation is. You can start small and invest for the short term, if need be. Investing is a good way to help yourself pay your loan off, without any stress. Get your investing game off the ground with Angel One.