Over the years, higher education has become so expensive that Education Loans have become a necessity for students. Therefore, it’s a must for a student to understand the External Benchmark Rate (EBR) while deciding on an Education Loan. This article will help you to know what it EBR and how it imapcts educational loan and the important estimation you have to do.
Understanding EBR in Education Loans
Question is, What is EBR, or External Benchmark Rate? Ans, EBR is a rate that banks choose to charge on loans. It was implemented by the Reserve Bank of India (RBI) to keep the transparency and better exachange of the policy rates.
Earlier, the banks used Marginal Cost of Funds-based Lending Rate (MCLR) system, that often delayed the communication of RBI’s policy rate changes to customers. By EBR, banks, are required to pick their lending rates that are linked to such benchmarks as:
The current move serves to influence the transmission of RBI’s policy rate changes to customers more effectively.
How Does EBR Affect Education Loan Interest Rates?
According to the EBR sectional system, banks can determine the education loan interest rate as the sum of the spread and the risk premium of the selected external benchmark. The formula is:
Education Loan Interest Rate = EBR + Spread + Risk Premium
Big banks like ICICI Bank and others are arranging their EBR system to offer students the most suitable loan conditions, the most transparent and even faster.
Benefits of EBR-Based Education Loans
1. Better Interest Rate Transparency
Because of new EBR rules, if you are a student or a parent, you will be able to trace the movement of the central bank’s policy rates in RBI and thereby speculate over changing rates on the education loan.
2. Quicker Transmission of Rate Cuts
Students having a Student Loan through the EBR system have an opportunity to receive lower interest rates following RBI’s reduction of the repo rate when compared to the previous lending methods.
3. Competitive Loan Offerings
The principal objective of the banks lies in providing cost-effective Education Loan rates by means of EBR, that are instrumental in attracting potential borrowers and, therefore, result in outstanding loan conditions and the lowering of repayment burdens.
4. Predictable Loan Adjustments
EBR is a debtor-friendly loan system as it undergoes reviews at periodic intervals (like quarterly reviews) that help in the anticipation of changes in interest rates and thus, lead to better planning of monetary resources.
How to Calculate Your Education Loan EMI Using an Education Loan Calculator
An Education Loan calculator is a powerful tool that enables students and parents to figure out the estimated amount of their monthly installment. It is a fact that most banks, for example, ICICI Bank, offer online Education Loan calculators for easy access. Here is a guide for you on how to make use of it:
How to Use the Education Loan Calculator
Not only does the usage of an Education Loan calculator be of great in comparing different loan options, but it is also a smart way to make better financial decisions.
Factors to Consider Before Choosing an EBR-Linked Education Loan
1. Moratorium Period
Most Education Loans offer a moratorium period where students don’t have to start repaying the principal amount until after course completion. However, interest may accrue during this period.
2. Rate Fluctuations
While EBR provides transparency, it is subject to market fluctuations. A decrease in repo rates benefits borrowers, but an increase can raise interest costs.
3. Loan Processing Fees & Other Charges
Apart from interest rates, consider processing fees, prepayment charges, and other associated costs before finalising a loan.
4. Government Subsidy Schemes
Several government schemes offer interest subsidies on Education Loans for eligible students. Check if your loan qualifies for such benefits.
5. Loan Repayment Options
Leading banks like ICICI Bank provide flexible repayment options, such as step-up EMIs or interest-only payments during the study period, to ease financial stress on students.
Conclusion
The External Benchmark Rate (EBR) has brought in changes to easily understand the interest rates in Education Loans. With this EBR, the borrower will not only find out about the current rates but also the ones that are expected, and from there they can learn to make wise financial choices.
Use an Education Loan calculator to calculate your loan repayment, compare offers, and select a bank that has the best terms for your academic and financial goals. ICICI Bank and other top banks come up with good offers for students’ Education Loans and provide variations of repayment options so students can concentrate on their studies as it also supports them in bearing their expenses.
You have to be well-updated with the EBR-linked interest rates and RBI policies if you are planning to take an Education Loan in 2025. This will enable you to make your borrowing experience the best it can be.
