Taking an education loan to pay for higher studies or professional courses helps earn more by landing a better job. On the flip side, repaying these loans totally kills our mojo before even settling into our career! Here’s the financial diva’s itinerary to repay education debt without regret.
Indian educational institutions have worked towards offering world-class advanced learning closer home. But the infrastructure they offer comes at a significantly higher cost even if much less than what one would have to pay at a university in the US, Europe or Australia.Whether you intend to pursue a post graduate course within the country or abroad, this means either forgetting about the option completely and learning on the job, or to apply for a loan to pay for tuition. The prospect of borrowing a loan is still fraught with gloom especially among worrying parents. But there is a wiser route to repaying your education loan without going completely broke each month:
NO MORE THAN HALF
There’s a golden rule for everything, and repaying your loan is no exception. Spend no more than half of your take-home salary on EMIs. Unless you hail from one of the metropolitans, your dream role will likely be away from home.Personal bills will eat into a significant part of your monthly earnings. It doesn’t help to have pay down an education loan if you’re paying other bills on a credit card or borrowing money for day-to-day expenses.
START REPAYMENTS ON TIME
With most study loans in India, you needn’t worry about repayment EMIs until a year from the time of course completion or six months after you start working, whichever comes first. Make sure you will find employment that will help you start paying back asap to avoid penalties and late fees added to your loan amount.
MAXIMISE THE TAX BENEFITS
The greatest ‘expense’ that hurts every first-time professional is tax. Here’s some good news:section 80E of the Income Tax Act allows interest on education loans to be treated as a deduction for eight years. If the tax benefit is higher than the interest you’d save on prepayments, take it easy, avoid paying extra.
DON’T GET CARRIED AWAY
Pre-paying the loan to clear off the debt quickly may seem like your best bet, but that might not be the case. The other thing about adulting is to invest – actually growing your wealth to chase all your dreams. You could earn potentially higher returns by investing the money you don’t need to spend on your monthly expenses. Take our word for it, offsetting the interest cost with a high-return investment like mutual funds.
PROTECT YOURSELF FIRST
Banks are low on TQ (that’s trust quotient, because we love our abbreviations!), especially when it comes to lending money. Even more importantly – to a kid still learning the ropes of adulthood.They want a guarantee that the money they’re lending you will be repaid. One of the ways they know this is that you have an insurance plan. Get one if you don’t, before you apply for an education loan. Don’t forget to buy additional health and term insurance to safeguard yourself,your family, and your assets. Investments and savings must remain priority even during your education loan repayment period, especially higher-yielding short-term investments.
These will help your money grow, and may even make it possible to clear your loan completely much earlier than you thought possible!
Smart Money February 23, 2024
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