Financing options like loans help us tide over many situations, higher education being one of them. The circumstances in which you avail a loan may not have been a favorable one and hence you might have availed a loan at a higher rate of interest. Education loans are big-ticket loans and servicing such loans on a high rate of interest may upset your finances as you start working or the tenures may be longer/shorter than you expected. So is there no exit from such situations? 

Worry not!! There is an option called refinancing available to student loans too.  

What Is Refinancing of Loans? 

Refinancing means availing a new loan to clear off the existing loan with a new rate of interest or tenure, either with the existing lender or a new lender. 

Situations When You Should opt for Refinancing of Loans and how does Refinancing Help You 

Situation 1: Stuck with Higher Rate of Interest 

Education loans are big-ticket loans. When you went in for the loan, the circumstances might have left you with no choice other than this high-interest one due to various reasons like lack of time, current interest rate scenario, a credit score of the co-applicant or any other credit related reason. But now that you have completed your education and are working, the high EMIs may feel a drag on your finances or are in a better position to negotiate.  

Let us look at a small example to see how a drop-in interest rate will prove beneficial for you 


  An example of refinancing from a higher rate to a lower rate of interest after 2 years 


  Loan at earlier Rate 

  On refinancing to a lower rate 


Rs 20 lakhs 

Rs 17,54,704 

 Rate of Interest 



 Original Tenure 

8 Years 


 Leftover loan tenure 


6 years 


6 years 

 Interest payable over leftover tenure 


Rs 7,85,453 


Rs 6,17,806 

 Refinance charges  (0.5%) 


Rs      8,774  

 Saving on refinancing the loan 


Rs  1,58,873 


In spite of paying refinance charges, refinancing proves to be a better option.  

However, it cannot be a blanket solution, you would need to do your own calculations to see how refinancing would work for your case as this is an illustrative example. If the leftover tenure is not much, then it may not prove worthy.  

When You Need A Change in Tenure 

There may be cases where you could not complete your education within the stipulated time due to some reasons. How would you be able to start EMIs of your loans in those cases? Or it could also be a case of underemployment with a salary not enough to pay the EMIs. A refinance option, where you can change the loan tenure, would be extremely helpful in these situations.  A longer tenure loan would mean more interest is payable over the term of the loan, however, it works as an immediate solution.  

Also if an individual prefers to curtail the tenure of his/her loan due to any reasons, the same can also be done through refinancing.  

Need for Top-Up Loan 

There may arise some situations which require top-up loans (Ex: Course not completed on time). These needs also can be covered under Refinancing options. 

Refinancing options are aplenty. Services are provided at the doorstep by many service providers. Some of them also promise no switch/refinance charges. Before you take the step, make sure you have read and understood all the conditions before you decide to refinance your student loan. Also have an eye on your credit score by checking your credit profile here