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

Loan management

If you have already taken out a student loan:

Refinance your student loan: Rising interest rates will impact EMIs, especially if the loan term is lower. Explore refinancing options with other lenders. Refinancing the college loan lowers the interest rate, especially if you graduated and are earning now. Students are in a better position to negotiate the student loan with a job in hand and a stable income.

Budget for your finances and evaluate options for repaying the loan: If you have the funds to repay the loan in a lump sum, this is a viable option with two conditions.

a) If the moratorium period of your student loan is over and you have used the schemes to waive the interest amount, repayment of the loan would be an ideal condition. Most plans help reduce the interest burden during the study period.

b) The interest you pay on the loan to the lender is greater than the after-tax interest you make on your investment.

Income Currency: Explore options to save money in forex if you earn in a currency stronger than INR. There are options to save money in forex if you explore channels like GyanDhan through which money can be transferred without much cost. Students often pay large sums for exchange services.

If you are taking out a student loan:

Calculate the total loan: Student loan applicants should calculate the total expenses they incur and the amount they need from the bank. Then, explore lender options for the lowest total cost deal with the lowest interest rate, processing fees, and ancillary fees. Students can benefit from the help of student loan marketplaces to get the best deal when negotiating the deal on the student’s behalf.

Know the conditions: After assessing the amount of loan you need, detail the terms and conditions of the different loan products. The amount of interest during and after the study period, repayment terms, vacation period, loan term, and penalty if you delay IME must be noted to manage the loan effectively. If in the event you are unable to find employment after the course, the terms and conditions of an extended grace period should also be discussed with the lender.

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

Make allowances for interest rate fluctuations: Since RBI has increased interest rates four times this year, this has increased the burden of EMI for students. Students are advised to maintain a provident fund to create a buffer in the event of such interest rate hikes. This will help students be regular with payments and avoid delays/defaults.

Capitalize on the government. provisions such as tax benefits and schemes: There are government interest subsidy programs that you can avail of to reduce the burden of interest amount during the holiday period. Apart from this, the Section 80E tax deduction helps reduce the financial burden of the student. Students will need to request these arrangements when finalizing the student loan.

In any case, students must not default on their student loans. Failure to pay has a negative impact on credit rating, which in turn reduces the possibility of obtaining future loans at reduced interest rates with terms and conditions.

Expense management

With rising inflation, living frugally should not be in question. We list some tips for managing expenses without losing a life for continuing students and graduates alike:

1. Check where you spend and make a practical budget plan: Whether you study or work in India or abroad, inflation means that you automatically have a limited budget. Make a list of your expenses and what can be removed from this list. Be honest when listing and blunt when winnowing.

2. Learn to cook: You have already made a list of your expenses. This should give you a clear picture of how much you spend at restaurants. Use this budget to buy groceries and make your own food. You’ll end up saving 30% to 50% of that budget when you cook your own food.

3. Find a roommate: Colocation helps you reduce your rent and related costs. If you choose to stay alone, you can look for a cheaper rental option.

4. Get Student Discount Cards: Students studying abroad can use student discount cards for travel, shopping at retail stores, buying books or laptops, etc. These cards are handy for getting discounts of up to 10% to 30%.

5. Buy used books and digital copies: If you’re furthering your education, consider downloading the PDFs of the books you need or buying used books. You can get in touch with an older person if they are willing to sell you the books for less.

6. A part-time job to help with expenses: There are expenses that you cannot reduce. Find a part-time job to help pay for these expenses while in school. The average salary depends on the country in which you currently reside.

7. Ditch expensive hobbies and explore the city: Look for ways to further reduce your expenses by giving up activities that require you to spend too much money. Have your group of friends go for a picnic instead of a fancy cafe. Host a movie night with your friends instead of going to the movies. Explore the amazing places, which come at minimal cost.

Inflation is not going anywhere anytime soon. Students would do well to adapt to frugal living and effectively manage their student loans and subsequent expenses.

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

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