What is education loan refinancing?


Taking an education loan abroad seems like a great financial tool to smoothly manage all the expenses of studying abroad. Tuition fees and living costs—almost all the important expenses that are covered under the education loan abroad to support the student in financing their abroad education dreams. But in some situations, this financial tool looks like a burden because most of the time people take the loan in a hurry at higher interest rates from an unsuitable lender, which later makes it a financial burden. This problem has a solution too: in case you took the education loan in a hurry and from an unsuitable lender, you have the chance to change lenders by refinancing your overseas education loan with a new lender.

How will refinancing be helpful in saving money?

Refinancing an education loan is a smart decision for those students who wish to take their loan at a lower rate of interest. Most of the students are not aware of this. Let’s understand this with the help of an example.

You took an overseas education loan of Rs. 35 lakh at 13%, which has to be paid in 8 years. The total interest you will pay is Rs. 21,47,328.

Now that you are refinancing your study abroad loan, a new lender is offering the same amount of loan at an 11% rate of interest. At that rate, you will pay Rs. 17,783,011. The difference in total payable interest amount is clearly visible here at Rs. 3,69,297. This is one of the major benefits of refinancing education with a new lender. The reduced rate of interest and the better option of repayment will have a positive impact on the total interest amount.

In some cases, students who first took out secured loans will refinance into an unsecured loan. This helps in freeing up their mortgaged property and reducing the burden of the collateral margin or stress about the collateral provided as security for the loan.

Benefits of refinancing the education loan:

  • Unification of various loans into one: Many students have taken various loans for their higher studies, like the loan for their graduation and another one for their masters. Refinancing provides them the liberty to unify their multiple loans into one. Instead of paying interest on multiple loans, they can ask the lender to merge them into a single loan and pay the interest only on that loan.
  • Extended loan tenure: If a student fails to repay the loan amount in the given time for repayment, refinancing the loan can be a smart decision. It will help you extend the loan tenure, and your EMIs will also be reduced. With an extended time for repayment, EMIs will be lower than the previous However, there is a crux in this: the interest rate will be slightly higher than the previous. The applicant needs to keep this in mind when discussing the repayment period extension with their new lender.

Eligibility Criteria for Loan Refinancing:

To refinance their study abroad loan, a student must meet the following eligibility criteria:

  • They have an existing education loan in India or abroad.
  • Working professionals with existing education loans can also avail themselves of this opportunity. It is advisable to discuss this with their loan provider.
  • Students who have completed their study period and completed the moratorium period can opt for refinancing their student loan for study abroad during the initial stage of their loan repayment period.
  • Students must make sure that the previous lender has not left any more disbursements.

Process for Refinancing the Education Loan

To refinance your education loan, there are certain steps mentioned below that must be followed by applicants looking for the option of refinancing.

Explore the Options: Once you are done exploring the variety of refinancing options, start arranging the documents required during the process of refinancing the education loan.

Cheque for the outstanding loan amount by the lender: Once your loan has been approved for refinancing, your new lender will provide an outstanding loan amount check to the previous lender.

Loan Foreclosure Application: Apply for student loan for study abroad foreclosure by following the below-mentioned steps:

  • Visit your nearest bank branch or lender for foreclosure of your existing education loan.
  • If your lender approves the foreclosure, fill out the foreclosure loan application form to initiate the foreclosure process.
  • Check for the loan balance amount to pay the outstanding balance via check or any other suitable method.
  • Get the No Objection Certificate from your lender, and then the foreclosure process is done for your existing education loan for abroad studies.
  • Once the foreclosure is done, your previous lender will release the original documents.

Documents required for education loan refinance

Certain documents that will be required to transfer the education loan for abroad studies are given below:

  • KYC documents of the applicant: Aadhar Card and PAN Card
  • Loan Application Form
  • Loan documents by the previous lender
  • Passport-size photographs
  • Identity proof
  • Address proof
  • Bank account statements of students, co-applicants, and guarantors for the last six months.

Financial documents such as income proof, bank statements of the co-applicant, business proof (in the case of the self-employed), and salary slips of the last three months are required for working professionals.

What would be the best time to apply for refinancing?


This is the general question that comes to mind when we think about refinancing our education loan: when would be the best time to apply for refinancing? Whether one should apply during the study period, afterward, or during the repayment period

The best time to apply for refinancing would be after getting the job. When you have a steady job, you are in a better position to negotiate the terms and conditions with the lender.

Let’s look at the following benefits of refinancing an education loan after securing a job:

  • A steady job will reduce the risk of defaulting on payments.
  • A high-paying job will make a good impression on the lender about your financial capability.
  • Banks are aware of the income and thus don’t hesitate to consider the profile for the loan. There is a higher chance you may get the education loan at better interest rates and some sort of relaxation in loan terms and conditions.

Terms and conditions for refinancing an education loan

  • Loan Margin: The loan margin is one of the major benefits of education loan refinancing: you will get 100% financing from the lender. Under the general condition, the lender grants only 80% to 90% of the loan, and the rest of the amount students have to pay as a loan margin. There is no loan margin in the refinancing of an education loan; 100% of the loan amount will be sanctioned only by the bank.
  • Secured Education Loan: If the student has taken out a collateral-based education loan, the new lender will take over the existing collateral.
  • Unsecured to secured loans: If a student is transferring their unsecured loan to a secured one, then they need to provide collateral matching up to the loan amount. Only 7.5 lakh INR can be taken without collateral as unsecured loans from a public bank. If there is any change in lender, such as from a private bank to a public bank, then you have to pledge collateral valued equal to the loan amount.

Important points to consider in refinancing an education loan:

These are some important points that must be taken into consideration during the refinancing of the education loan.

  • Read all the loan transfer documents carefully; ignorance can cause issues in the future.
  • Your CIBIL score must be more than 700 to get the loan at a lower rate of interest and on terms and conditions that favour you. A lower CIBIL score will not favour you in interest rates or in the terms and conditions of the loan.
  • Opt for loan refinancing only after completing your study period and at the early stages of loan repayment.
  • It is recommended by education loan experts to always compare the foreclosure charges of various lenders to decide what better suits you. It’s better to consider refinancing only when you have an ample amount of savings in your account.
  • Interest rate and processing fee: In order to reduce the risk of making unnecessary interest or EMI payments after taking out an education loan, it is better to compare and total the processing fees or interest rate offered by the new lender.

How will Education Loan Guru be your guide to loan refinancing?

Education Loan Guru aims to make the education loan process easier and smoother for students who wish to study abroad. An expert hand will not only support you in the entire journey but also make it easier for you in case of any confusion at every step of your education loan journey. That’s why connecting for instant student loans online with the Education Loan Guru is the smartest decision you will ever make.

By Education Loan Guru