Have you wrapped up a degree & trying to figure out your next academic venture? You're probably researching top universities in India/abroad — but have you considered what is the interest rate on student loans these days? It's vital as student loan interest rates determine your total debt liability in the long run.

Decoding Student Loans

Student Loans — the sum you borrow to finance your education — have several parts.

• Principal: The money you borrow in the first place for tuition, fees & school expenses.
• Interest: This is the cost of borrowing the money and can be a fixed or variable rate.
• Fees: There may be origination or application fees or other charges with the loan.
• Repayment Period: How long you have to repay the loan (usually 5 to 30 years).
• Grace Period: Time after you leave school when you don't have to make payments yet.
• Deferment or Forbearance: Allows you to stop or lower your loan payments temporarily.
• Credit Score: Lenders will look at this to determine your interest rate and other loan terms.

Understanding Interest Rates

However, lenders charge a certain interest (starting from 6.70%) on the sum to hedge the risks associated with lending. So, your EMIs will constitute both the principal amount and interest charged. The higher the interest rate, the higher your EMI payments.

The interest on your borrowed sum depends on the type of interest rate levied on the amount. Interest rates on a student loan can be one of the following two:

• Fixed Interest Rate - The interest rate is locked in when the loan is sanctioned and remains constant throughout the repayment period. While these rates prevent uncertainty, you can’t reap the benefits of lowered interest payments when the market changes.
• Floating Interest Rate - Floating rates are generally 1%-2% lower than fixed rates, so even if they increase during the tenure, they can remain lower than fixed rates.

Note: Most lenders allow you to switch from fixed to floating rates during your loan tenure.

Student Loan Interest Rates

If you’re wondering what is the interest rate on student loans in 2023, here’s a quick overview of the latest rates offered by top banks in India:

‍*Disclaimer: Student loan interest rates as of 13.2.2023. Rates are subject to change per lender.

While these are the stated interest rates, the applicable ones will depend on the following factors:

• Your academic record- If you have an excellent academic record, you can get a student loan at a discounted rate.
• Your cosigner’s credit score - Since your co-signer is the guarantor for the loan, a credit score above 750 makes them reliable borrowers.
• Your deposited collateral - Secured loans lower the lender’s risk, reducing interest rates.
• Your selected institution and course - Lenders have lists of affiliated institutions and courses. If your chosen course or institution is part of this list, your interest rates will be lower.

Conclusion

Interest rates on your student loan determine your EMI amount and the total cost of the loan. Ideally, comparing lender rates to get the best deal on your student loan would be best. Moreover, to keep your EMIs manageable, you can use the EMI calculator tool available on Fi Money. With Fi's Analyser tool, you can map out your expenses to save more and meet your student loan EMI due dates on time.

Frequently Asked Questions

1. Do student loans have a higher interest rate?

Generally, student loan interest rates in India start from 6.70% onwards, which is low. However, student loan interest rates are fixed depending on the risk associated with the borrower. So, if your co-signer has a good credit score or you’re taking a loan against collateral, the risks involved are significantly lowered. You can choose a floating rate of 1%-2% lower than fixed rates for lower rates.

2. Is 6% interest high for a student loan?

No. In India, student loan rates start from around 6.70%. So, a 6% interest rate is low.