Repaying an Education Loan After UK Graduation: Moratoriums, the 18-Month Graduate Visa and Salary Thresholds

UK VISA · STUDENT FINANCE SERIES 5 OF 5

What changes on 1 January 2027

From 1 January 2027, Graduate visa applications will grant 18 months of permission instead of 2 years (3 years for PhDs). The change applies to applications made on or after that date, regardless of when the course started.

The UK Government announced the reduction in the Immigration Rules changes published on 13 March 2025. The Graduate visa allows international students who have successfully completed a degree at bachelor's level or above to stay in the UK to work or look for work. Under the current rules, a successful applicant receives two years (or three years for PhD graduates). From 1 January 2027, this will be reduced to 18 months for all applicants, including PhD graduates. The change is part of a broader package of measures to reduce net migration. The Home Office impact assessment states that the reduction will apply to all applications made on or after 1 January 2027, irrespective of when the course was completed. For example, a student who completes a master's degree in September 2026 and applies for a Graduate visa in January 2027 will receive 18 months, not two years. The Government has not announced any transitional arrangements for students who started courses before the change. The reduction shortens the period during which graduates can work without employer sponsorship, which may affect their ability to repay education loans before they need to switch to a Skilled Worker visa.

Moratorium and when EMIs start

Most Indian lenders provide a moratorium period of course duration plus 6 to 12 months. Interest accrues during this period and is added to the principal, increasing the total repayment amount.

The Reserve Bank of India (RBI) does not mandate a specific moratorium period for education loans. However, the Indian Banks' Association (IBA) model scheme suggests a repayment holiday of up to one year after the course ends. Public sector banks like State Bank of India and Bank of Baroda typically offer a moratorium of course duration plus 12 months. Private lenders and NBFCs may offer shorter periods, often 6 months after the course. During the moratorium, interest accrues on the loan and is typically compounded quarterly. This interest is added to the outstanding principal, meaning the borrower pays interest on interest. For example, a loan of £20,000 at an interest rate of 10% per annum over a two-year course would accrue approximately £4,200 in interest during the moratorium, increasing the total repayment amount. The exact terms are specified in the loan agreement. Borrowers should check their loan sanction letter for the exact moratorium period and interest capitalisation policy. Some lenders allow borrowers to pay interest during the moratorium to avoid capitalisation, which can reduce the total cost. The co-applicant, usually a parent, is jointly liable for repayment. If the borrower fails to repay, the lender can pursue the co-applicant for recovery.

Repaying a rupee loan from a pound salary

Repaying an Indian education loan from a UK salary involves converting pounds to rupees and remitting the amount to India. The exchange rate risk can affect the rupee value of each payment.

When earning in pounds, the borrower must convert a portion of their salary to rupees to make EMI payments. The exchange rate between GBP and INR fluctuates, which can increase or decrease the cost of repayment in pound terms. For example, if the exchange rate is £1 = £100, an EMI of £10,000 would cost £100. If the rupee depreciates to £1 = £110, the same EMI would cost £90.91. The borrower can remit funds through banks or money transfer services. The RBI's Liberalised Remittance Scheme (LRS) allows Indian residents to remit up to $250,000 per financial year for permissible current account transactions, including loan repayment. However, the borrower must be an Indian resident for LRS to apply. If the borrower becomes a non-resident Indian (NRI) for tax purposes, they may need to follow different rules. The lender may require the borrower to maintain an Indian bank account for EMI debits. Some lenders allow NRI accounts and accept remittances from abroad. The borrower should inform the lender of their UK address and employment status. The timing of remittances can affect the exchange rate and the amount received. Using a forward contract or a regular transfer service can help manage exchange rate risk. The borrower should also consider the fees charged by banks for international transfers, which can add to the cost.

Switching to a Skilled Worker visa

To switch from a Graduate visa to a Skilled Worker visa, the applicant must have a job offer from a licensed sponsor and meet the salary threshold, which is generally £41,700 per year or the going rate for the occupation, whichever is higher.

The Skilled Worker visa route requires sponsorship from an employer with a valid sponsor licence. The job must be skilled to at least RQF level 3 (A level) and meet the relevant salary threshold. As of April 2025, the general salary threshold is £41,700 per year, but the specific threshold is the higher of £41,700, the going rate for the occupation code, or £30,960 for new entrants. The going rate is published in the Immigration Rules Appendix Skilled Occupations. For example, a software developer might have a going rate of £49,000, so the salary must be at least that. The new entrant rate applies to those under 26, those switching from a Student or Graduate visa, and those in certain post-study roles. The new entrant rate is 70% of the going rate, but not less than £30,960. The Graduate visa holder must apply to switch before their current visa expires. The application can be made from within the UK. The employer must issue a Certificate of Sponsorship (CoS) and pay the Immigration Skills Charge unless exempt. The applicant must also pay the visa fee and the Immigration Health Surcharge. The 18-month Graduate visa period may be insufficient to secure a Skilled Worker visa if the job market is competitive. Graduates should start job hunting early and consider roles that meet the salary threshold.

Refinancing and prepayment

Borrowers can refinance an education loan by transferring the outstanding balance to another lender, but they must consider prepayment penalties and the impact on tax benefits under Section 80E.

Refinancing involves taking a new loan from a different lender to pay off the existing education loan. This can be beneficial if the new lender offers a lower interest rate or better terms. However, the original lender may charge a prepayment penalty, which is typically a percentage of the outstanding principal. The RBI has mandated that banks cannot charge prepayment penalties on floating-rate loans to individual borrowers, but this may not apply to fixed-rate loans or non-banking financial companies (NBFCs). Borrowers should check their loan agreement for prepayment clauses. When refinancing, the new lender will assess the borrower's creditworthiness, including their UK income and credit history. The borrower must provide documents such as employment contract, payslips, and bank statements. The new loan will have its own moratorium and repayment schedule. Refinancing may also affect the tax deduction under Section 80E of the Income Tax Act, 1961. Section 80E allows a deduction for interest paid on education loans for higher studies, but only for loans taken from approved lenders. The deduction is available for a maximum of 8 years or until the interest is fully repaid, whichever is earlier. If the loan is transferred, the new lender must be an approved lender for the deduction to continue. The borrower should obtain a statement from the new lender confirming the loan is for the same purpose.

If repayment is not possible on time

If a borrower cannot make EMI payments on time, they should contact their lender immediately to discuss restructuring options. Defaulting can damage credit scores and lead to legal action.

Lenders may offer restructuring options such as extending the loan tenure, reducing the EMI amount, or providing a temporary moratorium. The RBI has issued guidelines for restructuring of education loans, allowing lenders to provide relief to borrowers facing financial difficulties. However, restructuring is not automatic and must be requested by the borrower. The lender will assess the borrower's financial situation and may require documentation of income and expenses. If the loan is restructured, the borrower may have to pay additional interest or fees. Defaulting on an education loan has serious consequences. The lender will report the default to credit bureaus, which will lower the borrower's credit score. This can make it difficult to obtain future loans or credit cards in India or the UK. The lender may also initiate recovery proceedings, which can include legal action, attachment of assets, or seizure of collateral if the loan is secured. The co-applicant is also liable for repayment. Borrowers should not ignore communication from the lender. Early communication can lead to a mutually agreeable solution. Some lenders have dedicated NRI cells to assist borrowers abroad. The borrower should also consider the impact of currency fluctuations and job loss on their ability to repay. Seeking advice from a financial counsellor may be helpful.

How long is the UK Graduate visa from 2027?

From 1 January 2027, the UK Graduate visa will be granted for 18 months instead of the current 2 years (3 years for PhDs). This change applies to applications made on or after that date. The reduction is part of the government's plan to cut net migration. Source: GOV.UK.

When does education loan repayment start after studying in the UK?

Education loan repayment typically starts after a moratorium period of course duration plus 6 to 12 months, depending on the lender. Interest accrues during this period. The exact terms are in the loan agreement. Source: RBI, IBA model scheme.

Can I repay my Indian education loan from the UK?

Yes, you can repay your Indian education loan from the UK. You will need to convert pounds to rupees and remit the amount to your Indian bank account. The RBI's Liberalised Remittance Scheme allows remittances up to $250,000 per year for loan repayment. Source: RBI.

What salary do I need for a Skilled Worker visa?

For a Skilled Worker visa, you generally need a salary of at least £41,700 per year or the going rate for your occupation, whichever is higher. New entrants may have a lower threshold of £30,960. Source: GOV.UK.

Can I claim Section 80E while living in the UK?

Yes, you can claim Section 80E deduction on interest paid for an education loan even if you are living in the UK, provided you are an Indian citizen and the loan is for higher studies. The deduction is available for up to 8 years. Source: Income Tax Department, India.

LAST REVIEWED 2 SEPTEMBER 2026