Have always wondered whether to pay off student loans earliest or over 10 years or so ?
I’m planning to do MBA and would be giving my CAT this year and don’t want to use my mom’s money. However my family is pressurizing me to not take loans as we never know what will happen!
Could you please share the downsides of taking loan (assuming you’ve taken one yourself)?
Student loan rates are probably the lowest and it is a good option. As for downsides, currently the RBI repo rates have dropped because of which I was expecting my loan rate also to drop, but my bank is having a lot of issues in enabling this. Thus, I’m losing a lot of interest. Banks can sometimes be unreasonable, that’s definitely a con. Otherwise, loan is a convenient option for an MBA.
Hi @Sruthi_A , Yes student loans have one the lowest rates, (further lower if from some select institutions).
I presume you get a tax deduction of upto 1.5 L on interest repaid till 8 years. Within limits, effective interest becomes 0.7 or .8 of actuals depending on the income bracket you are in.
However, it really depends on how one uses the surplus - invest and generate more than the interest due or pay the principal and avoid the interest
@sneh.baxi can the Jupiter ROBO Advisor for investing solve such dilemmas
Thanks @Krishnan, infact thats the dilemma I have… But I was wondering what is that sweet spot in terms of number of years. Assuming I invest and get higher returns than my interest rate, after how many years would it stop reaping benefits? Is it 8 ?
Hi @Sruthi_A , under the current Tax regime, you can avail tax benefits for interest on education loan for a period of 8 years. While this may change, but going by this it may not be worthwhile to continue after 8 years as the tax benefits cease.
Assuming you generate super-normal returns on your surplus, much higher than your loan interest rate, you can jolly well continue using the surplus for generating income rather than repayment.
Also, point to note is, in most of the loans, the EMIs are skewed heavily towards the interest in the first 5 years (almost 90%). If you are to save interest, this first few years would be the key.