How to Reduce Education Loan Repayment Cost

Education Loan is increasingly becoming a popular financial solution among Indian students, thanks to growing opportunities coupled with low interest rates and exciting offers from banks. However, while it is now easier to get a loan for higher studies, many parents and their children often struggle when it comes to repaying the loan. Read this blog post to know a few effective ways of reducing the cost of education loan repayment, i.e., tips that can help make Education Loans more affordable.

Prefer loans with collateral

While most banks allow you to avail Education Loans without collateral, opting for a secured loan with collateral (home or any other asset) can turn out to be a cheaper option. If you own a residential property or have investments in Fixed Deposits (FDs) or shares, it is better to go for a loan with collateral. It not only increases your prospects of getting a loan from the bank, but you can also benefit from a better interest rate, as secured loans typically have lower rates. A lower interest rate can reduce the overall cost of education loan repayment.

Pay full EMI during the moratorium period

Most people know that Education Loan repayment only begins when the student completes the course. But do you know that there is also a moratorium period (generally of 6 months) after course completion? In this period, you can pay only the interest component of the loan. However, if you are looking to repay the loan as quickly as possible, you can consider the option of paying full EMIs (i.e., principal + interest) during this moratorium period. This will ensure that the total loan amount starts reducing right from your first EMI. This can help you save a significant amount in interest payments.

Opt for a shorter tenure

Unsecured Education Loans are generally available for a duration of up to 8 years and secured loans for up to 10 years. While a longer tenure can help reduce your monthly EMI amount, it significantly increases the total interest you pay on the loan. Thus, it is often recommended that you should go for as short a tenure as possible. However, make sure that you don’t commit to paying an EMI amount that you will not be able to afford. You can use an Education Loan Calculator to get a better idea of how the loan tenure can impact the overall loan repayment.

Take advantage of tax benefit under Section 80(E)

When you avail a loan for education, the interest you pay towards the loan is eligible for tax deduction under Section 80(E) of the Income Tax Act. The best part is that there is no limit on the deduction. You are allowed to get a deduction of the entire interest amount you have paid against an Education Loan in a financial year. This benefit is available for Education Loans taken for yourself, your spouse, your children and even for the legal guardians of the student.

Interest subsidy for eligible borrowers from the EWS category

To encourage higher education, the HRD Ministry has launched an interest subsidy scheme for borrowers from the Economically Weaker Section (EWS) category. If your household annual income is less than ₹ 4.5 lakh, you might be eligible for this interest subsidy for loans availed for education.

Conclusion

Building a bright career is possible with an Education Loan. Apply for an Education Loan online to fund the higher studies of your child and make use of the above tips to save on Education Loan repayment.

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