How to Manage College Education Loans?

Education loans are one of the most popular forms of loans in India, right next to home loans. They are also considered as “priority loans”, as the government wants the lenders to offer an education loan to every student that meets the criteria.

Despite the popularity, education loan can be tough to manage. For starters, a large number of students don’t have any prior experience with credit management. Plus, if they are not able to get a job during the moratorium period, then the repayment pressure can increase even more.

The following are some tips on how a student can handle the repayment of their education loan and clear the debt as soon as possible:

1. Starting in Moratorium Period Itself

   Even though a borrower doesn’t have to start paying EMIs until the moratorium period aka “grace period” is over, the loan starts collecting interest when this period begins. So, if a student is able to get a job during this period, they shouldn’t wait until it’s over to make payments. They can still pay the interest even though they don’t have to pay EMIs.

   The longer a student waits to start with the repayment, the higher interest amount they have to pay, as it continues to grow over time.

2. The Truth About Prepayment

   For a student, nothing beats the good news of getting a high-paying job. With this, it may seem like a good idea to repay the loan earlier. However, this “prepayment” comes with a cost.

   From the perspective of the lenders, the longer a person takes to repay the loan, the better. This is because long period equals higher interest. This is the reason why most of the lenders impose a heavy prepayment fee. So, if a student wants to prepay a loan, they should crunch the numbers first to see whether the money saved on the interest with prepayment outweighs the prepayment fine.

3. Tax Benefit

   Section 80C of the Income Tax Act allows the students to deduct the interest paid on their education loans from their taxable income. What’s more- there is no upper limit on the same.