The season of new admission arrives! The month of June is well known for the start of the new academic year. But not every student gets this opportunity to pursue the course which they desire for due to lack of financial support. The increasing financial structure of the higher education led to the rise in the education loan. Education loan not only helps the student to pursue course of their desire but also supports the entire expenses required for the course completion.

We look at some of the aspects which should be considered before opting for a student loan;

Ably determine the loan amount

Identifying the pay structure of the course which you are applying for is important, to ensure the availability of finances during the admission process. Studying away from the home town adds up the incidental expenses may that be with regards to housing, transportation and other day-to-day expenses. Every single expense should be covered under the education loan. Based on these factors, the amount which you are going to pitch in and the amount which you want the bank to lend it to you should be clearly determined.

Let us understand this by the following example:

Factors to be considered for repayment:

1. Make sure the course helps in repayment

Understanding the course in terms of the career growth and job opportunities is necessary for making a rough estimate regarding the loan repayment. The EMI on loan starts getting deducted as soon as the candidate secures a job. This will lead to have a clear picture about the package and the time frame required to repay the student loan.

2. Consider the ‘average salary’ and not the top most package

Before applying for an education loan, the average salary package is to be considered to get the best possible interest rate. If the highest package is considered in terms of deciding on the interest rate, then it might reverse back at you when it comes to the actual package amount of the candidate.

3. EMI doesn’t strain you

EMI doesn’t really put a hole to your pocket. A stagnant amount is deducted at regular intervals from your bank account. Therefore, deciding on the EMI interest rate is very much important. 

Shop around for the interest rate

Surf the internet to fetch the best possible interest rates available on student loan. We suggest that, the EMI deducted should not be more that 30% of your salary. Let’s understand this better with an example;

Ensure you utilize the tax benefits

Government takes a special initiative when it comes to education loans. To ensure education for all, government provides with certain benefits regarding the education loans:

1. Interest paid on student loan is allowed as a deduction from the total income U/S 80E while repayment. But there is no tax benefit for the principal part of the EMI.

2. The time limit regarding the deductions of the interest on loan is of 8 years, starting from the year in which the repayment of student loan begins. If the entire payments are done in 5 years itself, then tax deduction will be allowed for 5 years and not 8 years.

Don’t misuse the moratorium

A moratorium period is a time during the loan term when the borrower is not required to make any repayment up to 12 months after the course ends.

Candidate’s failing to grab a job opportunity posts the course completion avail this option. The EMI payment starts off only after the candidate secures a job and one must start repaying the student loans to load off the interest burden in future. This also acts as a point which will push the candidate to achieve good scores.