Published: Mar 14, 2022, 8:52pm
An education loan helps overcome the financial gap between a student and their dream college. However, this handy medium that helps you pay college fees also needs paying off. In fact, paying off an education loan helps you reduce your debt-to-income ratio, gives you financial freedom, boosts your credit score, and helps you save more while also pursuing other financial goals.
Paying off any kind of borrowed credit is easier done when you go about it systematically and by wisely utilizing every option there is to better your repayment. Easier repayment involves having a plan in place, and making sure you’re servicing your loan efficiently. Here’s how you can do that.
Hating the fine print won’t take it out of the equation. Borrowing credit holds you responsible for a number of things and the fine print emphasizes exactly that. It is important to know whether you need to start paying your EMIs immediately after the course or a few months after securing a job.
Whether you are a parent, guardian or student, it is important to find out what your loan interest rate will be and for how long, if you can attract any fees or penalties, how long your tenure will be, the terms attached to your collateral if you’re offering one, what the loan credit covers and what it doesn’t, so much more.
Reading the terms and conditions is work, but it is the kind of work that you will be thankful you did, in the future. Ideally, reading through the paperwork should be done before signing the loan agreement. This ensures that you’re well aware of the responsibility of repayment that you are taking up toward the bank by signing the loan application documents.
While the repayment of an education loan doesn’t start as soon as that of other loans, it will be a lot easier to manage if you get a head start on it by planning out your repayment. Consider what your source of income may be to put towards your EMIs, how you plan to earn that income regularly to make timely payments, how you will manage to make prepayments that boost your credit score and don’t accumulate fees, and how you would go about foreclosure – if you ever have the chance.
Being prepared to repay your loan helps you instill financial discipline and makes you confident in your repaying abilities, giving you less to worry about and taking a load off your mind. If you are a parent, it would be wise to sit down with your child and use this as an opportunity to help them learn how to plan and manage their finances too. This will prepare them for the future and also help them value all the financial hoops you’ve jumped through to send them to their dream university.
Students would do well to proactively plan repayment along with their parents, as it is the student’s responsibility to repay the loan that they have borrowed for the purpose of completing their education.
The internet stands witness to the number of students making reels and posts on how to save money as a student abroad. One needn’t look too far to find such information and it seems social media can really help a student get virtually acquainted with all they need to familiarize themselves with when they embark on their education journey, especially if it is in another state or country.
The number of opportunities to earn stipends and small incomes while studying is on a steady increase. As more companies and brands open up, more possibilities of internships arise alongside the existing part-time job opportunities available to students like that of being a teacher’s assistant. Additionally, students are given multiple benefits in the form of discounts, meal plans, scholarships, and more that could help save and budget to a great extent especially while studying abroad.
University life offers so much to experience, so much that comes at a cost that requires paying off. It can be rather helpful to save towards the repayment of the loan, even before you need to start paying EMIs. Knowing you have a corpus of funds to fall back on or use for repayment while you secure a job or change jobs can be a huge relief and can also help you make timely payments as you go through these different post-graduation life phases and events.
While students find ways to budget their expenses and cut costs by buying second-hand school equipment or books, it is important to go a step further and set money aside in a specific account for just repayment and maybe even extra EMIs. This ensures you prioritize your debt payments over other financial obligations that may not be as important as paying off your loan.
Education loans allow for tax deductions under Section 80E of the Income Tax Act. While the amount you claim is as per the total interest you pay on your loan in a year, there isn’t an upper limit on the amount you can claim as a deduction. And, these deductions can be claimed by anyone paying the loan, a parent, guardian, or spouse of the student.
While this offers for savings by offering the benefit of tax deductions to the very categories of persons that take on an education loan, keep in mind that the deductions can only be claimed by the loan applicant that is repaying the loan.
Finally, if you find a loan transfer opportunity that can cut down on how much you will pay in the form of interest as part of your repayment, consider a balance transfer. Knowing of every opportunity you can have at hand to leverage during repayment is imperative.
Additionally, saving on interest can mean smaller and more affordable EMIs that are paid with more ease. However, before you jump to a lower interest rate, also consider any and all costs and fees involved to have your loan transferred from one lender to another. If the cost of transferring your loan to a new lender makes up for the difference in the interest rate, it may be wiser not to move your balance transfer after all.
You may also consider a balance transfer if you find yourself in need for more time to repay an education loan. A balance transfer could help you clear pending dues and start repayment with the new lender a little later, after a short grace period or flexi period, if it is a loan feature offered by your new lender. However, remember this moves your pending outstanding loan to another bank or lender. And in order to do this, you need to find another lending institution that will be willing to have the loan transferred to them. Further, if your credit score is damaged by the time you do this, the new lender may charge a higher interest rate for you to have the loan transferred to their account.
Finally, remember to consider the cost of the balance transfer again. It could help you save but it could also add to your expense if you do not take all the aspects of the transfer into consideration before you request a transfer.
Remember to take into account all outcomes and opportunities while planning the repayment of your education loan so as to make it easier both financially and mentally. If you haven’t gotten a credit sanction yet and are still planning or judging the possibility of repayment, it may be also helpful to invest to grow your existing corpus of savings to reduce the amount of credit you need, which in turn may reduce your tenure or interest rate on your loon too.
Published: Mar 14, 2022, 8:52pm