Summary
- In simple terms, refinancing a student loan means replacing your existing loan from an Indian bank or NBFC with a new loan from a lender abroad.
- A 1% difference would not matter that much, but a 5-9% difference saves you a considerable amount of money over the life of the loan.
- Amit Mehra took an education loan of ₹50 lakhs in 2023 to study MS in Computer Science at the University of Wisconsin.
It is estimated that 1.8 million students are studying abroad. A vast number of them have taken an education loan from an Indian bank or NBFC. Although education loans make it possible to acquire degrees from the best universities in the USA, UK, and Europe, they come at a steep cost with interest rates between 10% and 14%. For large education loans of ₹30–50 lakhs, this creates a heavy repayment burden in the first few years of the career.
Refinancing student loan debt is an option that many graduates explore once they obtain employment overseas. In simple terms, refinancing a student loan means replacing your existing loan from an Indian bank or NBFC with a new loan from a lender abroad. The interest rate is far lower, and thus, you gain substantially through refinancing your student loan.
The key question every borrower asks is: Is student loan refinancing worth it? The answer depends on your career and employment profile as well as your financial situation. In this guide, we help you understand how refinancing works and if it is right for you.
What exactly is refinancing student loan debt?
You must already have some idea of refinancing student loan debt. Here is a quick recap of the concept.
Refinancing involves taking out a new loan that replaces the existing loan. This works to your advantage as long as the interest rate on the new loan is low enough.
A 1% difference would not matter that much, but a 5-9% difference saves you a considerable amount of money over the life of the loan.
Your debt moves from an Indian bank like SBI, HDFC Credila, to an international lender like SoFi or Prodigy Finance.
Objectives Of Refinancing Student Loan Debt
These are the primary reasons for student loan refinancing:
Lower Interest Rate
Refinancing allows you to swap a higher Indian interest rate (e.g., 11.5%) for a lower one (e.g., 6%). You will save thousands of dollars due to this interest spread.
Lower EMI
Less interest invariably translates to smaller monthly payments. In addition, you can seek a longer tenure that further brings down EMI.
Co-signer Release
This is a crucial point. When you get a loan for study abroad, your parents or guardian has to be a co-signatory. Refinancing your student loan abroad releases you from the obligation.
Collateral Release
For education loans above ₹7.5 lakhs, banks may require collateral, such as property or fixed deposits. Paying off the existing loan also releases the property or asset that was mortgaged.
Overall, refinancing your student loan is a smart and effective way to bring down the cost of borrowing.
The Upside: Why refinancing can be a game-changer
The appeal of refinancing is clear for many graduates. In this section, we look at the main advantages of refinancing student loan debt. We have focused on the realities Indian students face after completing their degree abroad.
Substantial Interest Savings
How does refinancing save interest payments? Let’s understand with an example:
Amit Mehra took an education loan of ₹50 lakhs in 2023 to study MS in Computer Science at the University of Wisconsin. He graduated in 2025 and is currently undergoing Optional Practical Training. He expects to be inducted into a reputed software development firm by the end of 2025.
Amit’s education loan was at 13.85% interest and has a tenure of 8 years. He can refinance at a 6.12% interest rate with a 12-year tenure.
Calculations show that Amit would reduce his monthly financial burden by ₹37,327 by refinancing student loan debt. Overall, refinancing would save him a huge ₹12.26 lakh in total interest.
Here is a summary of his loan situation.
Loan Comparison: Existing vs New
| Parameter | New Loan | Existing Loan | Difference |
| Loan Amount | ₹50,00,000 | ₹50,00,000 | – |
| Tenure | 12 years | 8 years | +4 years for New Loan |
| Interest Rate (P.A.) | 6.12% | 13.85% | -7.73% for New Loan |
| Monthly EMI | ₹49,104 | ₹86,431 | -₹37,327 for New Loan |
| Total Interest Payable | ₹20,70,915 | ₹32,97,397 | -₹12,26,482 for New Loan |
| Total Amount Payable | ₹70,70,915 | ₹82,97,397 | -₹12,26,482 for New Loan |
Note – For easier comparison both have been shown in rupee terms though refinancing would be in USD.
Ironing Out Forex Fluctuation
When Amit signed the loan documents, one USD equalled ₹82. Now, after two years, one USD equals ₹88.
As long as the USD strengthens against the dollar, Amit gains. But if the rupee strengthens, Amit will have to pay more.
This fluctuation might not always work out in the student’s favour.
After all, India is the world’s fastest-growing major economy, and at some point, the rupee would become stronger. Also, now that the rupee is weaker, refinancing means less liability in terms of USD.
It therefore helps to refinance a rupee loan into a US Dollar (USD) loan. Paying back a loan in the same currency as one earns eliminates foreign exchange risks.
Building Your Credit Profile Abroad
Refinancing student loan debt allows you to build your credit score. Successfully paying it off is one of the best ways to build a strong credit history and a FICO score in the USA. Later, this would help you get better terms on a home loan and a car loan.
Besides the above three advantages, your parents in India are released from their obligation of being a cosigner. Their CIBIL score is no longer tied to the loan, and the family home is secure. This is often the primary motivation for Indian students who want to refinance their student loans.
Potential pitfalls of refinancing your student loan
Refinancing student loan debt has clear advantages, but it is not without drawbacks. Before you rush to replace your Indian loan, here is what you have to consider.
Eligibility Problems
Just because it is advantageous to refinance, you cannot do so immediately after your graduation abroad. You have to prove you’re a reliable borrower in your new country. Here is a more detailed look at various eligibility criteria.
- Visa Status
You cannot apply for refinancing of student loan debt on a student visa. You need a valid work visa, such as an H-1B (non-immigrant work visa in the United States) or the National (D) Visa in Germany and Skilled Worker Visa in the UK. Your new lenders want to see that you are legally established to work and live there long-term.
- Credit History
Your credit history from India does not transfer abroad. Your Indian CIBIL score is not transferred to the USA since credit history is country-specific. Lenders will need to see that you’ve built a good score. That involves a new US credit card with timely repayments to establish at least a year’s worth of credit history.
- Steady Job
This is likely one that won’t worry you since you have completed your education abroad. You need a stable job abroad that will allow you to repay your debt in full within a few years.
Loss of Original Loan Benefits
Section 80E of the Income Tax Act, 1961, allows the interest paid on an education loan in India for study abroad as a deduction from total income. If your loan was being repaid by your parents, they would lose this benefit. If you filed tax returns in India and you were also repaying the loan, you could avail of the 80E provisions. If you shift your loan abroad, there is no way to avail this deduction.
Returning to India
What happens if you relocate to India after a few years? The job situation in the USA is not optimal. Many who study abroad return after necessary experience and settle down in India. Refinancing your student loan would make that option difficult. You would need to approach an Indian bank to issue another fresh loan. Of course, it goes without saying that a person with experience working abroad would readily receive offers from Indian banks and NBFCs, but the hassle of submitting paperwork will remain.
How to choose the best student loan refinance
Not all refinancing offers are created equal. To find the best student loan refinancing, you need to compare carefully across lenders.
Interest Rate Options
You have the option of fixed vs. variable interest rates. Globally, interest rates are headed lower. The benchmark interest rate in the USA is 4.5% and is expected to decrease by the end of the year. Reuters has reported it could drop to 3.25%-3.50% by January. Waiting a quarter would give you an edge. Should the rates dip to 4% choose a fixed interest rate loan.
Loan Term Flexibility
If you foresee that you will remain abroad for the next 7-10 years at least, opt for a longer tenure. You could use the smaller EMI to fund private health insurance and pay off smaller loans.
Fees and Other Charges
Search for loans with low to nil prepayment penalties for paying off the loan early. The best refinance offers typically do not include these fees. Evaluate the loan terms and conditions before you sign up. There should not be exorbitant charges for late payment or missed payment.
Before refinancing your student loan, compare offers from multiple lenders to find the best rates and terms. It is an excellent idea to use a platform such as Gradright for the best student loan refinancing offers.
Using a reverse auction mechanism, Gradright asks lenders to bid for your profile. This increases your chances of getting the most favorable deal and, at the same time, gets rid of the time-consuming process of submitting the same documents multiple times.
Write to grad@gradright.com or call 09240209000 to connect with an expert who will guide you to the best student loan refinance option.
Is refinancing your student loan worth it?
For students from India who have stable employment abroad, refinancing student loan debt is absolutely the smart financial move. If you can take advantage of a low-interest rate regime and get a 10 – 15-year tenure, the total cost of your education abroad can drop dramatically.
Besides this obvious draw, refinancing your student loan helps you build a new credit history from scratch. This is invaluable when in the future you need a loan for buying a house or even funding your own business.
