Ways to reduce student debt

Higher education is becoming more expensive and the only way for most students to afford it is through education loans. Although student loans offer an interest and principal repayment moratorium, they can become a significant liability in the long run.

One should keep in mind that the student or their parent/guardian is liable to pay interest on the loan for the duration of education. The other aspect to keep in mind is that the EMI starts after one year of course completion or six months from the date of getting a job, whichever is earlier. Generally, students get loans at a lower rate of interest in comparison to regular loans. Keep paying at least the interest component, as on failure of repayment, banks may also include this in your loan amount and charge interest on it.

In order to minimise debt, students can start paying loans while they are studying by doing part-time jobs. This will help repay the loan sooner, with the principal amount reducing during the duration of study itself. It is also important to keep in mind that one has to pay EMIs on time to avoid any late penalties. One can also look at various other options to pay off the loan faster, such as using any bonuses one gets after starting work to repay some portion of the loan in a lump-sum.

There may also be cases where certain employers offer to pay off your bank loan in lieu of a signing on bonus or in return for a bond that you will work there for a certain number of years. This can go a long way toward easing one’s loan burden. But it is advisable to be cautious, since there might be terms and conditions that the employer may impose on you that could be detrimental in the long run. Always check the fine print.

For those who are unable to pay the loan because of low family income and low income from the first job, the government offers a scheme for economically weaker sections (those whose annual income is below ₹4.5 lakh). Under this scheme, the central government gives an interest subsidy while the bank's repayment moratorium exists. Also keep in mind that under Section 80E, one can avail a deduction of interest paid for up to eight continuous years, starting from the year in which interest is first paid.

Don’t reject a good job offer only because the compensation is low. Without income, you cannot even start repaying a loan.

The writer is CEO & Founder, Right Horizons

COMMENT NOW