We value our education. With the changing times and tides, it is a general belief that higher education with specialization can help us find the right career path. This is actually not just a belief. For so many of it is a reality.
We value our education because we know that it can help in our future endeavours. These days education comes at a steep price. There are those who work towards it or have saved for it. However, there are times when you know you have to study now so that you can pursue your future as per your life plan. What would you do if you have not saved for this?
Well, you can open up your financial nest and take a piece out of your saving or you can apply for a student loan.
Banks and NBFCs such as Tata Capital offer education loans so as to enable millions of people like you to acquire a higher education degree and make your future secure.
Planning for education loan
The first step to taking an education loan is to plan for it. You need to understand the circumstances under which Tata Capital or any other NBFC extends education loans. Typically, Tata Capital considers educational loan under its personal loan umbrella. Most importantly, you must remember that you have to repay the loan. Therefore, you must take the personal loan for education only to the extent that you need the loan and not a Rupee more. In order to help you repay the loan comfortably, the authorities permit you to repay the loan after completion of studies. The repayment process includes
- Repayment holiday during the period of study
- Repayment to start 1 year after completion of studies or after 6 months if employed
- During the period of study calculation of interest rate is on simple interest basis
- Post completion, interest accrued during the period of study plus loan availed becomes the principal payable
- This amount becomes the new education loan payable through EMI options with tenure of 7 years. You can get an extension in special cases. Remember, this new loan attracts the interest of MCLR plus load (typically 1%) calculated on compound interest basis
- Different repayment options
Planning for repayment
Once you have availed the loan, it is advisable for you to repay the loan as quickly as possible following the tips are given below,
- The first thing to do to reduce the burden of repaying education loan is to pay off the simple interest during the period of study as and when it becomes payable. With this, you will not add the accrued simple interest amount to the loan amount. For instance, if the simple interest rate is10% and the period of study is 4 years, then on an education loan of Rs 5 lakh, the simple interest every year is Rs 0.5 lakh and thus for 4 years, the accrued interest would be Rs 2 lakh. If you don’t pay the simple interest, then the new education loan amount would be Rs 7 lakh. Thus, you would unnecessarily pay interest on the accrued simple interest for the tenure of the loan and that too at compound interest.
- The moratorium period of 6 months is there as a cushion in the event you don’t get a job immediately after studies. However, in today’s campus recruitment scenario you are likely to land a job well before you complete your studies. You also will know your emoluments. So, it makes immense sense to think a little ahead and seek the recast of the education loan as soon as you complete the studies. Further, you can plan to keep the tenure much smaller so that you can repay the loan much earlier.
- If you can earn while you are studying it is that much better and you can use the earned money to pay the simple interest or even some portion of the principal.
- If you can manage to live frugally you can use the saved money to repay the personal loan for education.
- Indians have a penchant for showering gifts on their young relatives and you too must be a beneficiary of such munificence. Use any cash gifts to reduce your education loan burden without splurging the gifted money. You could also use any windfall amounts you may receive such as the maturity of a life insurance policy taken by your parents on your behalf when you were a minor.
- If you are already a taxpayer then it makes sense to use the tax provisions available under the education loan to reduce your tax burden. You can use the saved amount to reduce your education loan burden.
These are some of the ways in which you can plan the repayment of your education loan. You must remember that as you grow in your career your needs would grow and perhaps owning a home would be a desired objective. In such an event, your home loan eligibility will depend on your other loans. So it is advantageous for you to get the repayment of your education loan out of the way as soon as possible.