Overwhelmed by student loans? 5 ways to stay on track
What's the story
Many Indians struggle with the burden of student loan debt. Amid skyrocketing education costs, an increasing number of students are resorting to loans to finance their education. This article will share actionable tips on how to manage your student loan debt like a pro, so you can maintain your financial health and enjoy peace of mind.
Know your loan
Understand your loan terms clearly
It is crucial to comprehend the terms of your loan, including the interest rates, the repayment schedule, and any grace periods. This understanding helps in planning your finances and avoids unexpected surprises during the repayment phase. For instance, certain loans provide a grace period after you graduate, before you need to begin making payments. This gives you an opportunity to find a job and achieve financial stability.
Prepay and save
Opt for prepayment when possible
By making prepayments on your student loan, you can save a substantial amount of money on interest payments over the long run. Even small extra payments can help in chipping away at the principal amount more quickly. This not only reduces the loan's lifespan but also conserves cash that would have been spent on interest.
Refinance wisely
Consider loan refinancing options
Refinancing your student loan at a lower interest rate can significantly cut your monthly payments and the overall cost of the loan. However, it's crucial to thoroughly evaluate the terms of refinancing and ensure that it genuinely benefits you in the long run. Shopping around and comparing offers from various lenders is the secret to securing the best deal.
Income-Based Repayment
Leverage income-driven repayment plans
For borrowers experiencing financial hardship, switching to an income-driven repayment plan can be a lifesaver. These plans cap your monthly payments at a percentage of your discretionary income (the difference between your income and a certain percentage of the poverty guideline, based on your family size). While this can potentially lengthen the repayment period, it helps avoid defaults and alleviates immediate financial burden.
Tax advantage
Utilize tax benefits on education loans
In India, borrowers can claim tax benefits under Section 80E of the Income Tax Act on the interest paid on education loans. This deduction is available for eight years starting from the year you start repaying, or until the interest is fully repaid, whichever is earlier. Taking advantage of this benefit can lead to substantial savings over time.