Every year, thousands of Indian students take out education loans in India to study abroad. These loans often carry high interest rates reaching 12 – 14% and are costly to service once students graduate, complete their degree, and join their first job. The starting salary is simply not enough to meet the cost of rent, living, and paying EMIs.
For this reason, student debt refinancing makes sense. When you refinance education loans, you can avail of far lower interest rates, which translates to manageable EMIs. This is because interest rates in developed countries are far lower and hover between 5 – 8% annually.
This article provides an exhaustive checklist for fresh Indian graduates considering student loan refinancing. We explain how to assess your current loan, check eligibility, and compare lenders. Let’s proceed.
Why does student debt refinancing make sense?
Student loan refinancing means replacing your existing education loan from an Indian bank or NBFC with a new loan from a US or international lender. Its purpose is to make repayment easier and more affordable.
There are several reasons why refinancing may make sense:
Lower interest rates: When you first applied for an education loan in India, you were a student. As an employee, you have considerably greater bargaining power. It is easier for you to obtain a loan at a lower rate of interest.
Flexible repayment terms: after completing your degree and practical training, you have a better vision of the future and your career trajectory. You can accordingly opt for a shorter or longer tenure as necessary.
Releasing the cosigner: You originally needed a cosigner for your loans. But when you refinance, you have sole responsibility for the debt. The old loan is repaid, and it releases your parent or guardian from their obligation.
Student loan refinancing checklist for Indian graduates abroad
Refinancing education loans can feel complicated if you are an Indian graduate. You have to pay off one loan and enter into another loan agreement with new terms and conditions. To make it simple, here is a step-by-step checklist. We explain in detail what you need to do and why it matters.
- List your current loans and loan details.
Begin by collecting all the details of your existing loans. This would include your education loan from an Indian bank, credit card loans in India and abroad, and any other loan you have obtained. For each loan record details including the total number of EMIs, EMIs paid, EMIs outstanding, and amount outstanding.
This exercise gives you a clear view of your total outstanding and the tenure of each debt. It is important to know what you owe before you set out to restructure your loan.
- Separate education and private loans
This might not apply to everyone but for the sake of comprehensive information, we mention this part.
Your loan to study abroad might be partly an education loan from an Indian bank, and part of it might have been funded by a personal loan from a bank or NBFC. Take a moment to classify your loans since only education loans from Indian banks and NBFCs can be paid back through student loan refinance.
- Check student loan refinance eligibility.
You know the details of what you want to refinance. The next step is to check your eligibility.
Here are the common eligibility factors for student debt refinancing:
- You need a valid work visa abroad (H1-B visa for the USA and Skilled Worker visa for the UK).
- You have to demonstrate proof of employment and stable income. Gig employment, internship, and practical training do not count as stable jobs.
- Your credit report must meet minimum standards. A FICO score of 650 is mandatory, and 700+ is preferable.
- You have to offer complete Indian loan documents and EMI repayment history. No EMI can be outstanding.
The lender may or may not ask for a cosigner who has citizenship of permanent residency. It depends on your financial profile.
- Check your credit score.
You require a FICO score of at least 650 to qualify for student loan refinancing. Note that your CIBIL score in India does not get transferred abroad. A strong credit profile is built over time through a disciplined repayment schedule. Here are some tips:
- When you arrive in the USA, you have to apply for a credit card and build a credit score from the ground up. Since your master’s would last about 2 years, it is best to apply for an American credit card about -6 months after you arrive. This would give you at least 18 months of credit history.
- Make regular purchases using the card. Make it a habit to use the card at least 1-2 times a week. Frequent use would qualify you for a higher credit limit and card upgrade.
- Do not utilize more than 30% of the card and never more than 40%. If your card limit is $2,000, keep the debt between $600 and $800 at all times.
- Pay back the debt within 60 to 90 days. Do not pay it back immediately, nor delay for six months to repay the entire debt. A 60 – 90 day repayment cycle would mean about 6 – 9 complete pay outs in 18 months and qualify you for a 650 – 700 FICO score.
Do not take on too many credit cards. Having two cards and using them as necessary is ideal.
- Compare lenders carefully
There are several lenders in the USA who offer student loan refinancing. Just like elsewhere, they offer a wide variety of terms and conditions. Some of them take on subprime loans (loans where the applicant doesn’t have a stable income) in return for higher interest rates, while others insist on a clean and strong financial profile.
When comparing, look beyond the headline interest rate. Always check for the following criteria:
- Fixed vs variable interest options
- Shorter vs longer tenure (5 years to 20 years)
- Fees for late payment and early repayment
- Eligibility criteria and relaxation
- Discounts for automatic payments
- Co-signor policies (whether a US-based co-signor is necessary)
- Prequalify and compare offers
Most lenders abroad let you prequalify after a soft credit check. Prequalification for student debt refinancing gives you an idea of the interest rate and tenure you may be offered. Use financial calculators to check your new monthly payment and how much interest you have to pay over time. Lower EMI does not always translate to lower cost of borrowing, and you must know the impact.
An example:
Manish Sinha has taken a ₹50 lakh loan from ICICI Bank for study abroad.
The original loan has a tenure of 8 years at 14% APR
He has several refinance offers in the USA –
- Repayment in 10 years at 12% APR
- Repayment in 15 years at 9% APR
- Repayment in 20 years at 6% APR
He has created a table that shows EMI, total interest, and total payout.
Education Loan Repayment Comparison
| Tenure (Years) | Annual Interest Rate (%) | Loan Tenure (Months) | Monthly EMI (₹) | Total Interest Payable (₹) | Total Amount Paid (₹) |
| 8 | 14 | 96 | 78,973 | 25,75,808 | 75,75,808 |
| 10 | 12 | 120 | 71,735 | 36,08,260 | 86,08,260 |
| 15 | 9 | 180 | 50,713 | 41,28,400 | 91,28,400 |
| 20 | 6 | 240 | 35,822 | 35,97,170 | 85,97,170 |
The original loan is the cheapest in terms of overall cost. But it has a very high EMI of ₹78,000 per month that Manish finds unaffordable.
Loans with repayment in 10 years at 12% and 20 years at 6% are lower in terms of overall cost. Manish chooses 20 years at 6% APR due to its manageable EMI. Manish is confident that his career growth would allow him to repay the debt in 10 years with a 4% penalty. He gets low EMI, low overall cost, and the possibility of early retirement of debt at the least cost.
- Review terms and complete the process.
The final step is to read the agreement carefully before signing. Take a week and read the entire loan document at your leisure. If you are in doubt, it is advisable to consult a legal expert or a CPA (same as a CA in India) and understand the true picture.
It is important to ensure that the lender will pay off your old loans directly and in a single installment. After the repayment, get a No Outstanding Dues certificate from the Indian lending bank. They should also return all the FD certificates and property deeds with them immediately.
Student Loan Refinancing Process Checklist Summary
| Step | Description | Timeline | Key Goal |
| 1 | Gather Your Financial Documents | 6 weeks before applying | Prepare all required documentation for a smooth application |
| 2 | Check Your Credit Score | 4 weeks before applying | Know your creditworthiness, identify areas for improvement |
| 3 | Research and Compare Lenders | 3 weeks before applying | Find lenders that work with international graduates |
| 4 | Get Prequalified and Compare Offers | 2 weeks before applying | Compare rates without impacting your credit score |
| 5 | Read the loan agreement | 1 week before applying | Read from end to end, and if necessary, ask for legal advice |
| 5 | Submit Your Formal Application |
|
Submit a complete application with all documents |
| 6 | Review and Accept Your Final Offer | 3 – 5 business days after applying | Carefully review terms before commitment |
| 7 | The Payoff Process | 1 – 2 weeks after applying | Ensure proper loan closure and new payment setup |
Practical tips for the best student debt refinancing
Refinancing education loans abroad is a major financial decision. These tips can help you get the best outcome:
- Don’t waste time on lenders with strict citizenship requirements.
- Don’t get locked into a variable rate in a rising interest rate environment.
- Understand the implications if your visa status changes or you move back to India.
- Ensure your monthly repayment fits comfortably within your salary.
Best student loan refinance lenders
There are several popular and highly tested lenders who refinance education loans. Here is a summary table to guide you.
Lender Comparison For Student Debt Refinancing
| Lender | Co-signer Required | Rate Type | Loan Term | Countries Supported | Special Features |
| MPOWER Financing | No | Fixed | Up to 10 years | USA, Canada | No cosigner, career services |
| Prodigy Finance | No | Fixed & Variable | Up to 20 years | 19 countries | No cosigner, global reach |
| SoFi | Yes | Fixed & Variable | Up to 20 years | USA only | Low rates with a cosigner |
| Citizens Bank | Yes | Fixed & Variable | Up to 20 years | USA only | Competitive rates |
| Discover Student Loans | Yes | Fixed & Variable | Up to 20 years | USA only | Student-focused benefits |
Instead of approaching multiple lenders and submitting the same set of documents again and again, you can use a single window approach to sort it out.
Gradright brings you the benefit of reverse bidding for student loan refinancing. Upload your documents and write a few words about your financial profile, and leave the rest to the system. Lenders will offer bids, and you have to simply accept the one that offers the best terms. It’s simple, saves time, and is the best possible way to go for a student loan refinance.
To know more, write to grad@gradright.com or call 09240209000 and get in touch with an expert who will guide you.
Take the first step
Refinancing an education loan will offer you real financial relief. A lower interest rate coupled with a longer tenure will make it easier to manage your budget and plan ahead. Take the time to evaluate your options and make haste slowly. Follow the checklist, and you will be able to manage your financial future with utmost confidence.
