Received educational loan? Here are 3 things to pay attention to

“First, as the student realizes he has debt to pay off, he becomes more responsible.”

“Second, you can get tax benefits for taking out an educational loan.” Interest paid on education loan is allowed as deduction under section 80E of the Income Tax Act, 1961. This deduction is available up to a maximum of 8 years or earlier. Interest is paid, whichever is earlier.

“Thirdly, if parents do not have a separate fund for their children’s education, they need not save for other life goals,” Trivedi said.

Now, while taking an education loan can be beneficial in many cases, said Deepak Krishnan, financial planner at Mangrove Wealth, for any kind of loan, it makes sense to knock fast.

Since, one gets tax benefits from this, people have a tendency to hang on to them for a long time. Also, education loan is around 7 to 8%, meanwhile, you can earn much higher returns if you invest instead (after paying EMIs). “That’s why investors put money in a bull market and continue to borrow,” he said.

Now, as good as this is a bull market strategy, during a bear market, it will not work. “Therefore, I would say that it is prudent to close the loans and be debt free as soon as possible,” Krishnan insisted.

Things you should follow when getting an educational loan:

Start paying early: The student should ensure that the moment the education is over he starts repaying the loan. It may pinch the pocket in the beginning as the job scenario is always subjective but after a few years when the level of income rises, it is better to repay the loan than to repay it.

Make lump sum payments whenever possible: When you receive a lump sum amount, like a bonus, try to pay in a chunk amount. If there are other commitments make sure you keep a part of it for the educational loan.

Try to pay small amount during the moratorium period: Students are not required to make any payment during the moratorium period, i.e. time during the course plus one year after the course, or six months after finding a job, whichever is earlier. However, students should be encouraged to do odd jobs to pay at least the interest amount during the moratorium period. Since, the interest amount is not spent, the burden is reduced later.