Taking a student loan and pursuing the desired higher education has become a trend these days. The percentage of students taking a loan to pursue their higher studies has been increasing in India. A student loan helps an individual to pursue a course of their choice and secure higher education, which is then backed with job opportunities that makes individual to earn more money. 

Securing a student loan is easy because of less paper work. Also, no margin is levied for education loan availed up to Rs 4 lakhs. However, not everyone tends to get recruited in a well paying company. Here are few tips on how to pay off education loan in a systematic manner and as soon as possible.

Know your loan:

As a first step to pay off your education loan, understand your education loan and make plans accordingly. Know how much you have to pay as EMI every month in order to repay the loan amount, also know the time period for repayment of the loan. After having all these information, plan your expenses and savings accordingly. Then prepare a budget which takes into account all your expenses and income streams.
The budget will help you to know where your money is being spent and how much is been saved. A student should also keep track record of all expenses during the study period, and should try to avoid spending the too much money on other things such as movies, eating out, etc.

Choose a type of repayment terms:

One should always try and choose a repayment term which is suitable for him/her.

> Only interest payment during the education tenure: This is one of the methods, wherein while the student is studying he/she is required to pay the interest every year and interest is calculated at simple rate. Such option can be taken if one's parent is ready to support the same as it will reduce the burden on the student after graduating since a considerable part of the accumulated interest has been repaid during the education period.

> Post completion of education: Another option is to start repaying the loan after the completion of the education. EMI will start after 1 year of the course completion or after 6 months from the date of getting the job whichever is earlier.

Try to lessen your loan burden:

Generally students get loans at a lower rate as compared to the regular loans available. Keep paying at least the interest components, as failure of repayment can be construed as an additional loan and interest can be charged on this. Making payments when you are still studying can lessen your education loan burden, and will help you to save money overall. For example, students taking up internships or part time jobs can pay off some part of their education loan.

Try to reduce your repayment time period by paying less interest:

If you get placed in a well paying job, then you can reduce your loan repayment time period (e.g. from 5 years to 3 years). Reducing one's loan repayment period will lead to higher EMI's but lower overall interest payments. This is because you pay more of the principal amount rather than paying more amount only for the interest. Or if one receives any quarterly or yearly bonus, the same can be used for partial pre closure of loan.

Look for tax benefits:

Always remember to take all possible deductions available in the Income Tax Act. Such deductions give tax relief helping one to save cash and repay loans. For example: As per section 80E of the Income Tax Act, the interest component on repayment of education loans is eligible for deduction from one's total income.

What if you don't get a job?

If for any reason you are unable to land a job post your degree, you can explain this to your banker, who may (as a one-time case) help you by reducing the EMIs (i.e. increasing the loan tenure) or postpone the principal repayment on a temporary basis. This will help you stay on your feet, but once you find a job, you need to pay back the loan amount along with the interest due to the banker. It is advisable to note that postponing your payment makes your total balance grow larger (due to the interest component), so try to avoid postponing your payments.

Summary:

> Before taking a student loan one has to consider the EMI's, collaterals and interest rates.

> Choose your convenient loan payment term, viz: Only interest payment during the education tenure, Post completion of education.

> Do not forget to pay back your EMI on timely basis.

> Earn through side incomes while you learn. This helps in reducing one's burden post-graduation.

> If you got placed in high pay job, you can reduce your repayment period by paying more on principal rather than interest.

(Contributed by Anil Rego, CEO & founder, Right Horizons)