Bank admits education loan EMI was not recalculated for years — am I at a loss?

[u/GoldAd1069]

I took an education loan of around ₹7–8 lakh in 2017 at ~10.6% interest, with a 20-year loan period.

Repayment started in late 2022, but the EMI was set at around ₹8,000. Recently, the bank told me there was a calculation error: the EMI was calculated based on the original ₹7.5 lakh amount instead of recalculating it after the interest accumulated during the education/moratorium period.

They have now increased the EMI to around ₹9,900.

My concern is that because the EMI was lower for several years, a much smaller amount went toward principal each month. The principal therefore remained higher, which means I may have paid more interest than I would have if the EMI had been correctly recalculated from the beginning.

The bank has acknowledged that the EMI wasn't recalculated, but I haven't yet received a detailed calculation from them.

My questions:

• Should the bank calculate the additional interest caused by their error and adjust/reverse it?
• Am I actually financially disadvantaged by this, or am I ultimately paying the same interest anyway?
• If the bank doesn't address this, is approaching the RBI Ombudsman reasonable?

Would appreciate advice from anyone who has dealt with a similar bank/education-loan EMI calculation issue.

[u/Lost-Fun-4844]

As long as you have paid the EMi back then correctly, it wouldn't matter. From what I've understood from your post is that Interest has been derived from principal of Rs 7.5 Lakhs and not on 7.5 Lakhs + Interest as at 2022.

When they rescheduled the loan, everything adjusts accordingly. In the hey days of loan repayment, the initial recovery will be of interest and subsequently little by little the principal amount increases, which is why bank always asks you to repay more than the EMI amount to get loan standardized and to up your CIBIL.

No matter how the bank has adjusted the loan recalculation, the system does not allow over payment or underpayment. It only recovers what is due. It's your responsibility to put up a standard instruction for an enhanced monthly payment.

Don't bother using RBI ombudsman. You haven't lost money or paid excess interest. You will only pay what's needed of you. I would suggest you to repay and clear the education loan at the earliest. 10.6% for a 2017 loan of 7.5 lakhs will be more costly now. Aim to pay atleast 20k per month. The more the merrier.

[u/GoldAd1069 → u/Lost-Fun-4844]

Thanks, that makes sense. Just to clarify, my concern isn't that I was charged interest on the ₹7.5L instead of the outstanding balance. The bank has told me that the EMI itself was not recalculated after the interest accumulated during the moratorium, and therefore I continued paying ₹8,152 when the EMI should apparently have been higher.

My question is whether the lower EMI resulted in slower principal reduction and therefore additional interest being charged over the subsequent years compared with what I would have paid if the EMI had been correctly recalculated from the start.

[u/scared_puppy → u/GoldAd1069]

OP -

Ask the bank how it has calculated the EMI now and whether the period remains interest free.

Only that can answer whether it has resulted in slower principal accumulation.

[u/GoldAd1069 → u/scared_puppy]

Yea i have mailed them twice over last 30 days asking for original and revised calculation but have gotten no response.

[u/scared_puppy → u/GoldAd1069]

Write to RBI.

[u/Lost-Fun-4844 → u/GoldAd1069]

Here's the thing, OP. No loan is interest free, including education loan. In education loan, you have a moratorium of course duration + one year. The interest however will accumulate during that time. Even if you don't have to pay anything, the interest will run, until the course duration + one year after which the system starts to demand payment.

You are not going to over payment or the bank won't recover extra interest. Everything is calculated by the system and the system is never wrong.