The common myth about student loans is that they apply to only students who come from underprivileged family backgrounds. While education loans are crucial for meritorious students from not so well-to-do families, it can be a go-to even for families that can afford to pay for their kid’s education.
You might wonder, why go for education loans when you have the money? Well, as understated as they are, education loans can help you inculcate some healthy monetary habits. They can help you compartmentalise your finances quite efficiently. Moreover, they come with a range of benefits.
a) Putting Away Pressure from Other Savings
A household runs on a variety of expenses, which is why, it is so important to break these down. You can categorise your monthly income into expenditure and savings. When you compartmentalise, you can have some level of clarity on how much you would like to put away as savings.
Saving for your child’s education is a brilliant idea but it is not entirely opposed to applying for education loans. This means that savings and loans are not alternative methods of securing your child’s education. In fact, they can go hand in hand in helping you manage your finances most effectively.
For example, by covering all of the expenses related to your kid’s education it can take away all the strain over your savings and investments. You will no longer be required to liquidate your fixed deposits and mutual funds before their maturity period.
b) Financial Disciplining
Having money put away for your child’s education is a great decision on your part but that should not come in the way of your child learning to be self-dependent. In fact, education loans are a great way to teach your kid to manage their own finances.
It is a great start to the art of setting financial goals and meeting them no matter what. This kind of financial discipline can go a long way in teaching them to be responsible beings as they grow up.
c) Creditworthiness & its Rewards
Student loans are a great way to build credit. With the increasing credit score, your child will be qualified for future loans of this nature. It will instil self-belief in them regarding their capacity to be self-sufficient.
With education loans, you get to borrow money at relatively lower interest rates. On top of that, an impressive credit score makes your child more qualified to avail of future credits at low interest rates.
d) Crucial If You Are Planning to Go Abroad
Education loans are particularly useful if the plan is to go out of the country for higher education. Global education takes into account not only tuition fees as an expense but also the cost of living, among other things.
You should also consider that the value of the Indian currency has been depreciating for many years against most foreign currencies like the US Dollar. As such, the cost of sending your child abroad becomes exponentially high when weighed against the cost of sending them to a different city in India for higher education.
Thus, in most cases, your savings will not be adequate to support your kid’s education abroad, unless you have been saving for child’s education from an early age.
If the candidate is worthy enough of the financial support, student loans are not only easy to avail, but also within the capability of students to pay off simultaneously as they receive their degrees from reputed institutions abroad.
e) Tax benefits
Last but not least are the tax benefits that come as an added advantage to availing of education loans. Under Section 80E of the Income Tax Act of India, the interests paid on education loans can be claimed as a deductible.
This means although tax benefits can not be applied to the principal amount of a loan, one can be exempt from paying the interest amount. Once your taxable income has been evaluated, you can avail of this tax benefit on your interest money without any higher caps. Such benefits are usually availed either by the candidate who is pursuing an undergraduate or postgraduate course or by their legal guardian.
Bottom line: Education loans are definitely a good idea because they can ease up not only your child’s educational path but also their prospective career routes. There are various kinds of education loan schemes available in the market. The things that you must consider while making this choice are low-interest rates, tax benefits, credit limits in the case of global education and so on. Weigh your options carefully while choosing the best one for you.