Inflation rose 7.41% in September. What should students do to manage their loans and expenses in rising inflation?

Loan Management

If you have already taken an education loan:

Refinance your education loan: The interest rate hike will have an impact on the EMIs, especially if the loan tenure is less. Explore refinancing options with other lenders. Refinancing the education loan reduces the interest rate, especially if you have graduated and are earning now. Students are in a better position to negotiate the education loan with a job in hand and a steady income.

Budget your finances and evaluate the options to pay off the loan: If you have the funds to pay off the loan in a lump sum, it is a viable option under two conditions.

a) If the moratorium period of your education loan has ended, and you have made use of the schemes to waive the interest amount, paying off the loan would be an ideal condition. Most schemes help reduce the interest burden during the study period.

b) The interest you are paying on the loan to the lender is more than the post-tax interest you are making on your investment.

Income currency: Explore options to save money on forex if you are earning in a currency stronger than the INR. There are options to save money on forex if you explore channels like GyanDhan through which money can be transferred without much cost. Students often pay hefty amounts for forex services.

If you are in the process of taking an education loan:

Calculate the total loan: education loan seekers should calculate the total expense they will incur and the amount they need from the bank. Next, explore lender options for the lowest total cost deal with the lowest interest rate, processing fees, and ancillary charges. Students can take the help of Education Loan marketplaces to get the best deal as they negotiate the deal on behalf of the student.

Know the terms and conditions: After you have sized up the loan amount you need, itemize the terms and conditions of different loan products. The interest amount during and after the study period, repayment terms, holiday period, loan tenure, and penalty if you delay the EMI should be noted to manage the loan efficiently. If in case you are unable to secure employment after the course, the terms and conditions for an extended grace period should also be discussed with the lender.

Types of interest rates: Understand the difference between fixed and floating loans. Assess types of rates and compare the benefits of each. Floating rates of interest tend to fluctuate with market trends. An increase or decrease in the repo rate will have a direct impact on the interest rate. Whereas the fixed rate of interest remains the same throughout the loan tenure. If the repo rate in the future reduces, students with a fixed interest rate will not benefit. The decision rests on your ability to manage the increase in the rate of interest.

Make provisions for interest rate fluctuations: Given that RBI has hiked interest rates four times this year, it has increased the EMI burden on students. Students are advised to maintain a contingency fund to create a buffer in case of such interest rate hikes. It will help students be regular with the payments and avoid delay/default.

Capitalize on Govt. provisions such as tax benefits and schemes: There are government interest subsidy schemes that you can avail of to reduce the interest amount burden during the holiday period. Apart from this, Section 80E tax deduction helps reduce the financial burden of the student. Students will have to apply for these provisions at the time of finalizing the education loan.

In any case, students should not default on their education loans. A loan default negatively impacts the credit score, which in turn reduces the possibility of securing future loans at reduced interest rates with terms and conditions.

Expense Management

With the rise in inflation, living frugally should not be second-guessed. We are listing some tips to manage expenses without missing out on life for both students pursuing education and those who have graduated:

1. Check where you spend and make a practical budget plan: Whether you are studying or earning in India or abroad, inflation means you are automatically on a budget. Make a list of your expenses and what can be cut from that list. Be honest when making the list and brutal when winnowing down.

2. Learn to cook: You have already made a list of your expenses. It should give you a clear picture of the amount you spend eating out. Use that budget to buy groceries and make your own food. You will end up saving 30% – 50% of that budget when you make your own food.

3. Get a roommate: Sharing accommodation helps you cut down your rent and subsidiary costs. If you choose to stay by yourself, you can look for a less expensive renting option.

4. Get student discount cards: Students pursuing education abroad can use the student discount cards for travel, shopping at retail stores, buying books or laptops, etc. These cards come in handy to get discounts of up to 10%-30%.

5. Buy used books and digital copies: If you are still pursuing your education, consider the option to download PDFs of the books you need or buy used books. You can get in touch with a senior if they are willing to sell you the books at less price.

6. A part-time job to help with the expenses: There are expenses that you cannot cut down. Get a part-time job to help pay for those expenses while studying. The average pay depends on the country you reside in currently.

7. Ditch expensive leisure activities and explore the city: Look for ways to further curtail your expenses by ditching activities that require you to spend excess money. Get your group of friends to go for a picnic rather than a fancy cafe. Host a movie night with your friends instead of going to the cinemas. Explore the amazing places, which come at a minimal cost.

Inflation isn’t going anywhere anytime soon. Students will do well to adapt to frugal living and manage their education loans and subsequent expenses efficiently.

Author: Mr Ankit Mehra, CEO and Co-founder of GyanDhan