How Refinancing Your Education Loan Can Save You Lakhs

Taking an education loan is easy.  

But paying it back, especially with high interest rates, can feel like an endless burden.

Most Indian students borrow ₹10-15 lakhs at 8-14% interest, which means they often end up paying double the amount they borrowed over time. 

If you took a ₹20 lakh loan at 12% for 10 years, you’d repay ₹39.68 lakhs in total. But what if you could reduce your EMIs, lower your interest rate, and save lakhs? 

That’s exactly what education loan refinancing does. It lets you switch lenders to get a better deal, cutting down your repayment burden significantly.

In this article, we’ll break down how refinancing works, who should do it, and how much you can actually save.

What is education loan refinancing?

Refinancing means replacing your existing loan with a new one but with better terms. 

Your goal here is to get a lower interest rate, smaller EMIs, or a more flexible repayment plan. The new lender pays off your current loan, and you start repaying the new loan under the improved terms.

For example, if you take a ₹20 lakh loan at a 12% annual interest rate over 10 years, standard EMI calculations might show total repayments in the range of ₹34–35 lakhs. Refinancing that loan at a lower rate of 10% could potentially reduce your total repayment to about ₹31–32 lakhs, resulting in meaningful interest savings.

In refinancing, you replace one loan with a new loan that has better terms. In consolidation, you combine multiple loans into one, but it may not always give you a lower interest rate.

Also Read: Education Loan Without Co-Applicant & Co-signer in India 2024 [Guide]

Benefits of refinancing education loans

The most basic reason why people opt for education loan refinancing is to reduce the overall cost of the loan or to improve the repayment terms. 

If you’re still wondering if it’s worth the effort, we’ve listed a few other reasons why refinancing is a good option:

Lower Interest Rates 

A lower rate of interest directly reduces the total interest you pay over the loan tenure and also the overall cost of the loan. 

If you originally borrowed at 12-14% interest, you could refinance to a lender offering 8-10%. Even a small rate reduction leads to substantial financial savings on loans.

If you look back at our previous example, you’ll see even if the interest rate drops by just 1% (from 12% to 11%), you would save ₹4.5 lakhs over the loan tenure.

Lower EMIs 

Refinancing can also help you lower your monthly EMI amount, which is one of the biggest refinance student loan benefits.

You can either refinance your loan to a lower interest rate or extend the repayment tenure. 

Let’s say you have a ₹20 lakh loan at 12% for 10 years, and your EMI is around ₹28,694. 

If you refinance it at the same rate of interest for 15 years, your EMI reduces to ₹24,003. Although it increases the total cost of the loan to a huge extent, it eases the immediate pressure of heavy EMIs. 

Removing a Co-signer or Collateral

Many education loans require a parent or guardian as a co-signer or property as collateral. Refinancing gives you a chance to remove these obligations once you have a stable income and a good repayment record.

Some lenders even offer unsecured refinancing options, which means you no longer need to pledge assets or involve a co-signer if you want to take a loan.

Improving Your Credit Score

The lower your interest rate, the smaller your EMIs will be. But it also means that your total cost of the loan will be lower compared to a high-interest loan. 

Flexible Repayment Options

Refinancing gives you control over your repayment structure. You can choose between:

• Fixed rates where your EMI amount is fixed.
• Floating rates that change based on market conditions.

How refinancing saves you lakhs (with a practical example)

While refinancing an education loan sounds simple, the actual savings you make depends on many factors, like the size of the loan, your old and new interest rates, and the remaining repayment period.

The Compound Effect of Savings

When you refinance to a lower interest rate, the immediate impact is a loan interest rate reduction. But, what’s most overlooked is the compounding effect of this reduction.

Over a 10-15 year period, a minor 1-2% reduction in interest compounds into massive savings. This is one of the most effective ways borrowers save money on education loans, as even a small change in interest rates translates into lakhs saved over time.

The Opportunity Cost of Money

Your EMI is probably one of your biggest monthly expenses. Refinancing can help you reduce your EMI, either by lowering your interest rate or extending your loan tenure. This means you’ll have more cash left at the end of the month.

For example, saving ₹5,000 per month on EMI and investing it in an index fund yielding 10% annually can grow to ₹10-12 lakhs in 10 years. We usually don’t look at the opportunity cost of overpaying on EMIs.

Tenure Adjustment

A longer tenure reduces your EMI, but it also means you pay more interest in the long run. 

Some borrowers refinance not to lower their EMI but to reduce their loan tenure and pay off the debt faster.

Example Calculation

If you take out a loan of ₹20 lakhs at 12% for 15 years, your numbers will look something like this:

• Total repayment: ₹42.6 lakhs
• Total interest paid: ₹22.6 lakhs

But if you refinance it to 10% for 10 years, it looks like this:

• Total repayment: ₹31.39 lakhs
• Total interest paid: ₹11.39 lakhs
• Savings: ₹11.21 lakhs

If you can handle a slightly higher EMI, this is the best way to get out of debt quickly and save the most money.

Prepayment Flexibility

For loans that have a prepayment penalty, you will end up paying extra just to clear the loan early. 

However, some lenders allow you to close your loan without penalty. It gives you control over your debt rather than letting the lender dictate your repayment.

So, you should definitely opt for refinancing if you are someone who is:

• Paying loans with high interest rates (above 10%)
• Struggling with high EMIs
• Wants to clear their loan faster

If you already have a low-interest loan (below 8%) or are close to finishing your loan, refinancing might not be worth it.

Eligibility criteria for refinancing

Not everyone qualifies for refinancing. To get approved, you usually need:

A Good Credit Score (700+ preferred) 

The higher, the better your chances of getting a lower rate. That is because lenders use your credit score to determine your repayment reliability. 

If you have a score below 650, it may be difficult to get refinancing approval unless you can show a high-paying job or a co-signer.

Stable Employment & Income 

To be eligible to apply for a loan refinancing option, lenders want to know you can pay them back. So, most lenders require a minimum monthly salary. 

Good Loan Repayment History 

If you don’t have a good repayment history, where you have missed EMIs or delayed payments, lenders can reject your application or offer a higher interest rate. 

Minimum Loan Amount 

Refinancing is usually only allowed for loans above ₹5-10 lakhs. Some lenders also do not refinance government education loans. They only refinance private banks or NBFC loans.

Step-by-step guide to refinancing your education loan

If education loan refinancing sounds like a good option, here’s a step-by-step guide to do it:

Step 1: Compare Lenders 

Use loan comparison tools or consult financial experts to find the best lender for your situation.

Step 2: Check Your Eligibility 

Before applying, check whether you meet the lender’s eligibility criteria we mentioned in the previous section. 

If you don’t meet the criteria, improve your credit score and repayment history before applying.

Step 3: Apply for Refinancing 

Submit all the documents like loan statements, income proof, KYC documents, etc. 

Step 4: Loan Approval & Offer 

When you get the loan, check the processing fees, prepayment charges, and EMI structure, and only accept the offer if the new terms provide clear savings.

Step 5: Old Loan Closure 

Your new lender pays off your existing loan. Then, your old lender will issue a loan closure certificate. You start repaying the new loan under the revised terms.

Also Read: Compare Education Loan Interest Rates of Top Banks in India 2024

Things to consider before refinancing

Refinancing can lower your loan costs, but it’s not always the right choice. The actual benefit depends on how much you save compared to the costs and risks involved. 

How Much Will You Actually Save?

A 1-2% reduction in your interest rate doesn’t always mean you save a lot. It depends on your loan amount, the tenure you have left, and the new interest rate.

For example, if you refinance from 12% to 10% on a ₹20 lakh loan, you save ₹8.3 lakhs in total interest over 10 years. But, if you have just 2-3 years left on your loan, refinancing may not offer that big a saving. 

That is because during the first stage of the repayment, the EMI covers the interest for the loan, and a small amount goes to your principal.

Processing Fees and Refinancing Costs

Most lenders charge processing fees, around 1-2% of the loan amount, and some loans even have prepayment penalties.

So, if you refinance a ₹30 lakh loan and the processing fee is 1.5%, you pay ₹45,000 upfront. If the savings from education loan refinancing are not much higher than this, refinancing does not make any sense.

Loan Tenure and EMI Adjustment

Refinancing allows you to increase or decrease your loan tenure, which affects your EMI.

A longer tenure lowers EMI but increases total interest paid. A shorter tenure raises EMI but reduces your overall interest costs.

For example, if you extend your ₹20 lakh loan from 10 to 15 years at a lower rate, it may reduce EMI by ₹7,000 per month, but it could increase your total interest cost if not calculated carefully.

Lender Reputation and Terms

Some lenders have hidden fees, poor customer service, or rigid repayment rules. Always check reviews and terms before refinancing.

Know that education loan refinancing only makes sense if it lowers your total repayment cost significantly and fits your long-term financial goals. So, calculate the savings after all fees and charges before making a decision.

How GradRight helps students save on education loans

Many Indian professionals in the USA end up overpaying on their education loans simply because they don’t explore refinancing options. But is refinancing right for you? That depends on factors like your credit history, your visa status, and the fine print hidden in lender terms.

Finding the right lender and speeding up processing—especially when dealing with Indian banks—can be complex. That’s where GradRight helps. Instead of spending hours navigating different eligibility criteria and comparing lenders, you can connect directly with a refinancing expert who guides you through every step.

Many professionals start with interest rates above 10%, but with the right refinancing plan, they’ve reduced their rates to 7% or lower, saving thousands in the process. And the best part? GradRight doesn’t charge a fee to help you refinance.

If you’re still paying a high interest rate, it’s worth exploring whether refinancing is the right move for you. Contact GradRight today for expert guidance.

📞 +91 92402 09000

📧 grad@gradright.com

Conclusion

Most borrowers don’t realize how much they overpay on education loans simply because they never reconsider their repayment terms. 

Even a 1-2% reduction in interest rates can save you lakhs over the loan tenure. But refinancing is not for everyone. If your loan is already at a low interest rate or if you’re in the final years of repayment, it may not make sense. 

The best way to decide is to run the numbers. Calculate how much you can actually save after factoring in processing fees, tenure changes, and prepayment terms. If refinancing reduces your financial burden, it’s worth it to switch your education loan lender.

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