Top Benefits of Refinancing Education Loans in India and the US

The above post about refinancing a student loan isn’t a one-off case. Every year, many Indian students refinance their US education loans.  The process definitely takes some time and effort. But ultimately it yields several advantages, including:

• Tax benefits
• More manageable repayments
• The opportunity to build a USA credit history. 

Replacing your current loan with a new one sounds simple, but isn’t. You need proper planning and careful consideration.

In this guide, we’ll guide you through the entire process. We’ll also discuss the top benefits of refinancing education loans in India and the USA. Plus, we’ll offer the insights you need to decide if refinancing should be your next step or not.

What is education loan refinancing?

Education loan refinancing refers to swapping your current education loan for a new one with better terms.

A new lender pays off your old loan, and you start fresh with them. The refinanced loan is usually at a lower interest rate or with a repayment plan that better fits your life.

Let’s understand it with an example.

Below are sample amortization schedules using the reducing balance method for a loan of INR 50 lakhs over 10 years. 

The tables show the first three months for two scenarios: 

• One with an annual interest rate of 12%
• Another refinanced at 10%. 

In each case, the monthly EMI is calculated using the standard formula:

EMI =  P × r × (1 + r) ^n​  / (1 + r) ^n​  – 1

where:

P is the principal (INR 50,00,000),

r is the monthly interest rate (annual rate divided by 12), and

n is the total number of months (120).

Table 1: Amortization Schedule (First 3 Months) at 12% Annual Interest

Month	Opening Balance (INR)	EMI (INR)	Interest (INR)	Principal Repayment (INR)	Closing Balance (INR)
1	50,00,000	71,750	50,000	21,750	49,78,250
2	49,78,250	71,750	49,783	21,967	49,56,283
3	49,56,283	71,750	49,563	22,187	49,34,096
…	…	…	…	…	…
120*	~72,000*	71,750	~720*	~71,030*	0

Total Payment (over 10 years): ₹ 86,10,000
Total Interest Paid: ₹ 36,10,000

Table 2: Amortization Schedule (First 3 Months) at 10% Annual Interest

Month	Opening Balance (INR)	EMI (INR)	Interest (INR)	Principal Repayment (INR)	Closing Balance (INR)
1	50,00,000	66,000	41,650	24,350	49,75,650
2	49,75,650	66,000	41,464	24,536	49,51,114
3	49,51,114	66,000	41,259	24,741	49,26,373
…	…	…	…	…	…
120*	~52,000*	66,000	~433*	~65,567*	0

Total Payment (over 10 years): ₹ 79,20,000
Total Interest Paid: ₹ 29,20,000

This clearly shows how refinancing from a 12% to a 10% annual interest rate reduces the EMI and overall interest paid by close to 7 lakhs. 

Benefits of refinancing loans in India

India’s lending market is competitive. Banks and NBFCs are actively seeking borrowers. This offers valuable opportunities for refinancing and financial gains.

Here are some advantages of loan refinancing:

Lower Interest Rates

Indian education loans start at 10-14%. Refinancing can bring down the rate of interest by 5% to 7%.

Even a 2% drop as seen in our example results in tremendous savings, which breath room in your budget for a future investment.

Switching From Secured to Unsecured Loans

Many loans in India are secured, tying up family assets like a house or FD. If you refinance secured loans to an unsecured loan you can eliminate the need for a collateral.

Note: You can also refinance unsecured loans and get better terms with a secured loan if needed. 

Flexible Repayment Terms

Life after graduation is uncertain. You might have expected something while things turn the other way. With education loan refinancing, you can tweak your repayment terms to better meet your current situation.

For example, you can stretch your loan to 15 years and get a lower monthly payment obligation. Or you can shrink the loan tenure to 7 years to pay off the debt faster and save on interest. This flexibility ensures your loan aligns with your financial goals.

Improved Loan Terms

When you get a loan refinanced, banks often provide better terms. Some lenders waive prepayment penalties, so you can pay off the loan early. Others might reduce processing fees or offer better customer support. These enhancements can make the loan more affordable and easier to manage over time.

There are many advantages of loan refinancing in India given the competitive lending market. Banks and NBFCs frequently adjust their offerings to attract borrowers. And you can get the maximum benefits of switching loan banks by shopping around for optimal terms. 

Benefits of refinancing loans in the US

With loan refinancing with a US-based lender, you can reduce the education loan burden. But that’s not all. It can also unlock a host of benefits that are different from what you’d get with Indian lenders. Let’s explore the benefits of refinancing loans in the US below:

Lower Interest Rates Compared to Indian Lenders

US lenders often offer interest rates significantly lower than those in India. Indian loans usually carry interest rates of 12-14%. But US rates for qualified borrowers can dip to 4-6%. This  switch to lower interest education loans translates to lower monthly payments and less interest paid overall.

For example, say you have a $50,000 loan (about INR 43 lakhs):

• Indian Loan: 12%, 10 years
  • Total Interest: $35,941
• US Refinance: 5%, 10 years
  • Total Interest: $13,728
  • You Save: $22,213

Building US Credit History

Refinancing with a US lender allows Indian students to establish a credit history in the US.

If you plan to stay in the US after graduation, this can open doors to future financial opportunities. With a good credit score, a lot of things become easier. You can use your credit score to easily rent an apartment, secure a car loan, or apply for a mortgage.

Releasing a Cosigner

Most Indian students need a cosigner for US loans. This is usually a parent or relative who faces financial exposure with your loan. Once you’re earning, refinancing can help release the cosigner. This not only relieves your cosigner of liability but also gives you full ownership of the debt.

Additional Perks from US Lenders

US lenders often provide benefits unavailable with Indian loans. These might include:

• Forbearance options (pausing payments during financial hardship)
• Income-driven repayment plans
• Personalized customer service.

Such features can make loan management less stressful, especially for early stage professionals.

For Indian students, refinancing in the US can transform an expensive loan into a more manageable commitment. Plus, it can also be aligning with their career trajectory abroad.

Lower interest rates: The most significant benefit

There are many different benefits of refinancing loans in India and the US. But a lower interest rate is the most compelling one among the benefits of refinancing loans.

Why? Simply because even a modest reduction in interest rate can yield dramatic savings. Especially for large loan amounts, which is common in higher education.

Why Does It Matter?

Lower interest rates reduce both the total cost of the loan and the monthly payments. For recent graduates with limited income, this is a win-win situation. It often is the difference between financial strain and stability. And over time, these savings can be redirected toward investments, emergency funds, or other life goals.

Differences between refinancing secured and unsecured loans

Education loans are usually of two types:

• Secured education loans
• Unsecured education loans

The benefits of refinancing loans and the options for that vary depending on the type.

Knowing the differences between the two is key to choosing the right approach.

Refinance Secured Loans

A secured loan is the one that requires collateral (e.g., property, fixed deposits). The lender can seize this collateral if you default on your loan

Secured loans usually offer lower interest rates due to reduced lender risk. However, it ties up the assets and poses a risk to the collateral provider.

You can refinance secured loans to another secured loan with a lower rate or switch to an unsecured loan. This is provided you meet credit and income requirements of the new lender.

Refinance Unsecured Loans

An unsecured loan is the one where there is no collateral required. Such loans often need a cosigner or strong credit history.

Also, while there are no assets at risk, the interest rates are higher due to increased lender risk.

You might want to refinance unsecured loans if you wish to release the cosigner. It can also lower the rate if you switch to a secured loan. 

Refinancing options for students in India

Many public banks, private banks and NBFCs refinance loans for students in India.

Here’s what you need to know about education loan transfer in India

Eligibility Criteria

• Existing education loan for studies in India or abroad.
• Completed education and started repayment.
• Good repayment history with no defaults.
• Stable income or co-applicant support (for some lenders).

What Lenders Assess

• Income and employment status.
• Credit score and history.
• Debt-to-income ratio.
• Residency status (Indian citizen or NRI).

Also Read: Education Loan Eligibility Criteria for Indian Students

Tips for successful education loan transfer in India

Here are some simple tips to make the process smooth:

• Compare multiple lenders to find lower interest rates and better terms.
• Check processing fees and other hidden charges before switching.
• Ensure your credit score is good to qualify for better offers.
• Gather all necessary documents like loan statements and repayment history.
• Negotiate with your current lender before deciding to transfer.
• Choose a lender with good customer service and flexible repayment options.
• Read the new loan agreement carefully before signing.

Refinancing options for students in the US

Indian students in the US face unique challenges when refinancing like not having a US credit history. But don’t get disheartened. Options exist.

Some of these options are discussed below:

• MPOWER Financing: Refinances international student loans without a cosigner. It also reports to credit bureaus, which helps build US credit history for the future.
• Prodigy Finance: Offers refinancing for international borrowers, sometimes requiring a cosigner.
• SoFi: Offers competitive rates, but typically needs a cosigner for non-US citizens.

Also Read: Prodigy Finance Education Loan For Studying Abroad: Interest Rates, Documents, etc. 

Benefits of refinancing for working professionals in the USA

Whether you are still studying or have started your professional journey, there are many benefits of refinancing loans. But for Indian professionals in the US, the benefits are significantly more.

The key benefits of refinancing loans for working professionals include:

• Lower interest rates help reduce monthly payments and the overall cost of your loan.
• Refinancing allows you to combine multiple loans into one. This makes repayment easier and potentially lowers interest rates.
• It removes the cosigner, which gives you full control over your loan. This also frees them from financial responsibility.
• Paying your refinanced loan on time improves your US credit score. Building this credit history makes it easier to secure better loan terms in the future.

So don’t let your education loan restrict your financial freedom. Leverage the benefits of refinancing loans and ensure peace of mind. 

Steps to transfer loans to a new lender

Thinking about reaping the benefits of refinancing loans? Here’s a simple, step-by-step guide to make the transfer smooth and stress-free:

What to Do	How to Do It
Request a Foreclosure Letter	Contact your current lender via phone, email, or in-person to get a foreclosure statement. This document includes the outstanding balance and any prepayment charges.
Compare New Lenders	Research lenders offering lower interest rates, flexible repayment terms, and better policies. Consider both Indian and US-based lenders that serve Indian borrowers.
Gather Your Documents	Prepare necessary documents such as proof of employment, income statements, credit history, passport, and PAN card.
Approval and Loan Payoff	Once approved, your new lender will pay off your existing loan, and you’ll begin repayments under the new terms.

Pro Tip: Always check the fine print. Ensure the new loan truly benefits you in terms of interest rates, tenure, and total cost. A hasty decision can undo the savings

Also See: Education Loan EMI Calculator 

How GradRight facilitates better loan refinancing terms

GradRight is an innovative platform that connects borrowers with top lenders. It connects you with trusted lenders and helps get good refinancing deals. 

The key GradRight refinancing benefits include:

• Loan offers from different lenders.
• Personalized options based on your financial profile.
• Comprehensive support from applying to getting the refinance approved

Want to know how much you can save with education loan refinancing? Talk to the experts at GradRight to see if you qualify for refinancing.

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