Pursuing a higher education often incurs a large amount of expenses that would require significant financial support. It is for this reason that many students take out an education loan to help fund their educational pursuits. But even though education loans often provide the most needed assistance, repaying the loan largely depends upon the Equated Monthly Installments (EMIs) and is influenced directly by the interest rate being charged by the lender. What many borrowers do not realize is that the interest is tied closely to the Repo Rate established by the Reserve Bank of India (RBI).
The Repo Rate is the interest rate at which the RBI lends to banks and financial institutions. The Repo Rate plays a key role in controlling inflation, stabilizing the economy, and adjusting borrowing regardless of the end use (education loans being one). Any increase in repo rate would cause bank and NBFCs to pass this cost on to students and families, as a general rule, in the form of increased lending rates, which results in a higher EMI burden. Any decrease in the repo rate would reduce the cost of borrowing, which would provide some relief to EMI payments.
Being aware of how the Repo Rate affects your education loan can set you up to plan, manage your EMIs, and avoid financial stress during repayment. This blog will define the repo rate in simple terms, define its impact on educational loans, and give actionable tips on managing EMI fluctuations.
What is Repo Rate?
The Repo Rate is defined as the interest rate at which the Reserve Bank of India (RBI) lends funds to commercial banks when they are deficient in supply of funds. In plain words, when banks are in need of funds, they borrow funds from RBI and the RBI charges an interest rate on such borrowings. This interest rate is called repo rate.
If RBI raises the repo rate the banks have to pay a higher amount to borrow money. To recover such costs they usually transfer this increase to customer’s loan interest rates, which applies to education loans as well. In contrast, if RBI lower the repo rate, banks tend to lower their loaning rates, making education loans easier.
The repo rate is determined by the monetary policy committee(MPC) of the RBI which meets every two months to revise the rate. The committee raise the repo rate to curb inflation and reduce the repo rate to spark borrowing and spending when growth slows.
Why Should You Care About Repo Rate?
The repo rate is important because it directly influences your EMIs (Equated Monthly Installments) on an education loan. Even a small change of 0.25% does not seem to be a big deal but can cause your loan EMI to increase by ₹1,000 or more when you borrowed amounts of several lakhs of rupees. In the long run, it could hurt your finances.
Suppose you borrowed ₹10 lakhs for 8 years at an interest rate of 11%. Your EMI would be around ₹14,000–₹15,000 per month. Now if the repo rate goes up, and subsequently the interest on your loan goes up to 12%, your EMI could increase by ₹1,200–₹1,500 a month. That is nearly ₹18,000 in one year, which means over the period of the loan, it could increase over ₹1 lakh.
This becomes more relevant if your education loan has a floating interest rate, which is the typical case today, since floating interest rates are generally linked to repo rates. Fixed interest rate loans will not be affected.
It is essential to understand and monitor repo rate movements because they directly affect how much you will repay. Any change of a quarter point will have variance to your principal repayment, but ultimately, it can have a much larger context over the term of an education loan.
What is the Relationship between Inflation and Repo Rate?
The repo rate serves as one of the key instruments at the Reserve Bank of India (RBI) to maintain economic stability, particularly as it relates to inflation. Inflation is considered to arise when the cost of goods and services increases, and as a result, the purchasing power of money decreases. To address this issue, the RBI uses the repo rate as a monetary tool to affect the supply of money in the economy.
When the repo rate is increased, it becomes costlier for commercial banks to borrow money. In order for banks to pass the increase in repo rate, they raise the interest rates on loans to businesses and households. Since loans are costlier, people borrow less money and consume less, and businesses are less likely to expand. This reduces the liquidity in the market to start to help bring inflation down.
When the repo rate declines, it becomes cheaper to borrow money. Since the cost of borrowing is lower, banks can pass this reduction on to customers by reducing the interest rates on loans. This ultimately motivates people to borrow more money to consume more, which bumps up demand and helps the economy expand, particularly during economic slowdowns.
What is the Current Repo Rate?
The Repo Rate (short for Repurchase Agreement or Repurchasing Option) refers to the cost that the Reserve Bank of India (RBI) charges to commercial banks for lending money against the collateral of government securities. This process allows banks to manage their liquidity needs during times of fund shortages or situations in the market that involve volatility. At the same time, the RBI uses the repo rate to both regulate inflation and manage the money supply in the economy.
As of September 2025, the repo rate currently stands at 5.50%. Shortly after the RBI cut the previous repo rate of 6.00% on 6 June 2025 by 50 basis points (0.50%), the RBI made the announcement. The thinking behind the cut was intended to enhance liquidity and spur growth, while at the same time regulating inflation. Alongside the repo rate, the RBI also maintains other key policy rates:
- Reverse Repo Rate: 3.35%
- Bank Rate: 5.75%
- Marginal Standing Facility (MSF) Rate: 5.75%
- Standing Deposit Facility Rate: 5.25%
These rates together define how banks borrow from and lend to the RBI, and they have a direct impact on loan interest rates, including education loans, home loans, and personal loans.
Why is this important for students?
If you have taken an education loan on a floating interest rate, repo rate cuts usually mean that your loan interest rate may come down, reducing your EMI. On the other hand, if the repo rate increases in the future, banks may pass on the higher cost to you, leading to higher EMIs.
Interest Rates on Education Loans: Fixed vs Floating
When you think of an education loan, one of the first and foremost decisions you will have to decide is a fixed interest rate loan or floating interest rate loan. Each has their respective advantages and risks. Understanding the difference can only help you decide between the two general types of loans, while keeping your current financial situation in mind.
Fixed Interest Rate
In a fixed rate education loan, the interest rate remains fixed for the entire loan tenure. This means that the Equated Monthly Installments (EMIs) are fixed and your payments will not change from the day you made the loan until the time it is completely paid off. Your payments remain fixed regardless of market fluctuations, and the Reserve Bank of India (RBI) amendment. In summary, when you get a fixed rate, the interest rate is set and locked on the date of the education loan, which is why fixed rate education loans generally have a slightly higher rate than floating education loans.
A fixed rate education loan is a more favorable option for a borrower who would generally like to have some sort of stability/certainty when repaying the loan. This is beneficial as you’ll be able to more accurately budget over a longer period since you will know your payments will stay proportional to the loan.
Floating Interest Rate
In a floating-rate education loan, the interest rate changes during the loan period, depending on market benchmarks like the RBI repo rate. If the repo rate decreases, your loan interest rate may come down, reducing your EMI. However, if the repo rate goes up, your EMI will increase.
Floating-rate loans usually start with a lower interest rate compared to fixed loans, which can make them more attractive in the short term. But since the EMIs are not constant, this option requires closer tracking of RBI policy changes and financial flexibility to handle potential increases.
| Feature | Fixed Rate Loan | Floating Rate Loan |
|---|---|---|
| Definition | Interest rate remains constant throughout the loan period | Interest rate varies based on market rates like the RBI repo rate |
| Interest Fluctuation | No change, locked in at the beginning | Changes with RBI policy and can go up or down |
| Initial Interest Rate | Usually higher than floating rate | Usually lower at the start |
| Loan EMIs | Stay constant for entire tenure | EMIs may increase or decrease over time |
| Budget Planning | Easier, fixed EMI helps with long-term budgeting | Harder because EMI varies, needs close tracking |
| Best For | Those who prefer stability | Those who can handle fluctuations and want to benefit from rate cuts |
Tips to Manage EMIs When Repo Rate Changes
Due to the large sums and long tenures involved with education loans, even a slight change in the repo rate could significantly change your monthly EMIs. As the majority of education loans are offered at floating rate of interest, it is essential to be ready to adapt to these fluctuations. Here are some tips that will help you adjust to the hindrance that every repo rate change will have on your EMIs.
1. Track RBI Announcements Regularly
The Reserve Bank of India (RBI) revises the repo rate every two months. Keep a close watch on these announcements as they will give you some indication whether your loan EMIs are going to go up or down. This will help you prepare your finances in advance.
2. Opt for Longer Tenure if EMIs Rise
There may be occasions when your EMI has increased due to repo rate hikes. If this happens, you can always reach out to your lender to extend your repayment tenure. Although this means paying back your loan for a longer period of time, it could potentially help with reducing the overall EMI cost, even under an increased repo rate condition.
3. Make Prepayments Whenever Possible
When you receive a bonus money, scholarships, or other unexpected additional income, try to use some of the money toward making a lump sum payment towards your loan balance. You will find that even small prepayments will help to reduce the overall principal amount of your loan. This will in turn likely reduce the overall interest that will accrue on your loan balance and ultimately make you less affected by repo rate hikes.
4. Consider Switching Lenders
If your current lender charges a dramatically higher rate than the competition, look into balance transfer products. Shifting your loan from one bank or NBFC to another can markedly lower your EMIs as long as the new lender stays within a lower floating rate.
5. Negotiate With Your Lender
Don’t be afraid to approach your bank or NBFC about possible challenges with repayment. Some lenders will consider giving temporary relief by reducing your rates or extending your tenure options with flexible repayments, given your past repayment history.
6. Maintain an Emergency Fund
It is always a good practice to have at least 3-6 months’ worth of EMI in a savings account, set aside. This reserve would enable you to not worry about repayment, should there be repo rate hikes that make your EMIs unaffordable for a period.
7. Choose Between Fixed and Floating Wisely
If repo rate adjustments have made EMIs unpredictable, you can also look into converting your loan to a fixed rate of interest (if your lender will allow this). This option may cost you slightly more in the beginning, but is a way to provide stability in your repayment planning.
FAQs: Repo Rate and Education Loan EMI
Q. What is the repo rate in simple terms?
A. The repo rate is the interest rate the Reserve Bank of India (RBI) charges to lend money to commercial banks in the case of a shortage in their funds.
Q. How does the repo rate affect education loan EMIs?
A. In the event of an increase in the repo rate, it is possible that the banks and NBFCs will raise the interest rates on their loans to account for inflation, causing an increase in your education loan EMIs as well. In the event of a decline in the repo rate, the education loan EMIs would possibly also decline.
Q. Does the repo rate impact all types of education loans?
A. Repo rate would affect only education loans which have floating interest rates, as these are directly tied to the market conditions and repo rate. Education loans which have fixed interest rates cannot be affected.
Q. How often does the RBI change the repo rate?
A. The RBI’s Monetary Policy Committee (MPC) reviews the repo rate every two months, although the committee will sometimes make an adjustment in the interim to control inflation to promote economic growth.
Q. By how much can my EMI change if the repo rate increases?
A. Even a small increase of 0.25% can mean an increase in your EMI of several hundred or thousand rupees, depending on your loan amount and tenure. This will add up to a major cost over the years.
Q. Can I reduce the impact of repo rate hikes on my education loan?
A. You can avoid the effect by making prepayments, extending your tenure, switching to another lender with lower rates, or converting to fixed if offered.
Q. What is the current repo rate in India?
A. The repo rate is 5.50% as of September 2025 after the RBI cut the repo rate by 50 basis points in June 2025.
Q. Should students always choose floating rates since they start lower?
A. Floating rates will always be cheaper for the student, and it can be beneficial if the repo rates are falling, however, floating rates have the risk of future increased EMIs in response to repo increases. Fixed rates are safer if stability is more important to you.