An education loan is a great means to end a dream college! It can enable you or your child to attend their dream university or course. Kickstart their careers.
While it is a great medium for securing your end goal it requires planning and systematic payoffs. Paying off your education loan on time can raise your credit score, save better and work towards different financial goals.
Paying off a loan is a process and here are some tips on how to pay off your education loan:
1. Read the fine print
No one likes to read the paperwork involved in securing a loan but it’s highly important. This fine print can tell you when you have to start paying back right after the course or after securing a job.
Knowing when you have to start paying the EMIs can help you budget and prioritize your expenses.
Fine print discusses your loan interest rate, duration, penalties, and tenure period. It can tell you whether you need to attach collateral, benefits, and the payment plan. Before signing up for a loan understand the conditions and prepare yourself to repay it.
2. Plan for repayment
Once you know the terms and conditions of your loan agreement, you can start formulating a repayment plan. Education loans require you to start paying after completing the course or securing a job, but planning should not wait that long.
Once you know the amount you have to pay back monthly, start thinking about you will manage it. Find out how much you need to save in order to make timely payments. Consider lifestyle changes and even cutbacks to ensure your financial freedom is not compromised.
Having a proactive repayment plan can bring financial discipline, help you prepare for future financial goals, and budget your expenses with ease.
3. Consider part-time jobs
If you want to pay off your education loan faster or save up extra for the future then part-time jobs, passive sources of income, paid- internships, freelancing, or making reels can help.
The world is teeming with opportunities where you can earn extra, save for future repayments, and hopefully, get paid off your education loan faster.
You can also save up through discounts, budgeting well, looking for shared apartments, going for homecooked meals, seeking scholarships and stipends to help sustain your everyday expenses, or saving for the future.
4. Budgeting and saving are important
A monthly Netflix subscription costs around Rs.800, which is Rs.9,600 for the entire year. Without budgeting, you won’t realize how much you are spending and where this money is going.
Rather than spending without care plan your expenses, and set aside a portion of your savings for investing. This fund of savings can reduce the stress and burden of repaying the loan when you are looking for a job after graduation.
5. Know tax deductions
Education loans allow for tax deductions under Section 80E of the Income Tax Act. Deductions can be claimed by the person who is repaying the loan – a parent, guardian, or spouse of the student. Talk to your financial advisor and get the full benefit of tax deductions on your education loan.
6. Loan transfer at a lower interest rate
A loan transfer can cut down the cost then go for it. This can help you save on the generated interest and make more affordable EMIs.
Before opting for a lower interest rate, read the fine print and find out the extra costs and fees to have your loan transferred from one lender to another. Only opt for the transfer if it makes up for the difference.
Taking an education loan is a huge responsibility and its repayment requires heavy financial planning. By following these tips, you can easily plan your repayment installments and make your life easier and stress-free!
FAQs
What is the best way to repay an education loan?
Ans. The best way to repay an education loan is to make timely and consistent payments. Create a budget, consider income-driven plans if applicable, and explore options like refinancing or loan forgiveness programs.
Can I pay off my education loan early?
Ans. Yes, you can typically pay off your education loan early. Check your loan terms for any prepayment penalties, and if there are none, making early payments can save you interest.
What is the smartest way to pay student loans?
Ans. The smartest way to pay student loans is to prioritize them in your budget, pay more than the minimum, when possible, explore refinancing options, and take advantage of loan forgiveness programs if eligible.
