5 strategies for managing your education loan in Singapore

You’re fresh out of school, and you’re all set to make waves on your career front. But hang on a minute, there’s still an education loan shackling you down. How should you manage your tuition fee loan repayment while starting out your career?

Here are 5 strategies you can consider to pay off your student loan:

Check your loan repayment requirements

Grab your copy of the loan repayment terms and study it. Some loans have a short window between graduation and loan repayment, while others offer flexibility when it comes to your loan tenure or monthly repayment amounts. If your loan does not charge interest before graduation and allows for early repayment, it may be prudent to pay off part of the loan before interest starts accruing. This means lesser interest, on a lesser portion of the overall loan.

Work out a reasonable budget

If you’ve secured a job immediately after graduation, then use the time between starting your job and the onset of the repayments wisely. For example, saving as much as possible to reduce your loan amount. Or, building up your emergency fund. With three to six months’ savings in your rainy-day fund, you’ll have ready cash on hand in the event of any emergency.

To work out your repayment amount, list down your living expenses (food, transport, the occasional treat) and financial commitments (insurance premiums, parent allowances). From the balance, determine a sum that you can comfortably afford for your tuition fee loan repayment.

Stay disciplined and on track

In general, you should aim to repay student loans as fast as possible. Every month, prioritise your loan repayments over other expenses, such as concert tickets or short getaways. The sooner your education loan is paid off, the quicker you’ll be able to move on towards financial independence.

If your loan allows you to make a minimum repayment amount per month, opting for it may seem like an easy choice. But doing this will only prolong the tenor of the loan. Over time, your monthly student loan interest rates (depending on the loan size) could actually exceed the minimum monthly repayment amount – and instead of reducing the payable loan amount over time, it could grow even bigger.

If the loan maturity date is further overlooked, one might get a rude shock when the loan matures at the end of the loan tenure and the remaining outstanding balance becomes due in full – along with late fees that will pile up on a monthly basis for as long as the loan is not fully settled.

Chip away at the principal with lump sum payments

Most student loans allow you to make additional payments without penalties. So use any bonus from work or income from side gigs to constantly reduce this amount.

If your financial situation improves or you get a raise, remember to adjust your instalment amount accordingly. Will this really help? Yep, especially when you consider that the current tuition fee loan interest rate is minimally upwards of 4% per annum.

Investing can be in your interest

For those who have the means to pay off their student loans upon graduation, the question is whether there could be a better use of their funds. For example, investing it.

However, bear in mind that in order to come out ahead, your investments must consistently outperform the interest rate that your education loan incurs over the entire tenure.

Since investments inevitably carry some risk, especially if you’re after higher returns, you’ll need to have the risk appetite for this route. Plus, you should also have an alternative plan if your investments do not generate the returns hoped for.

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