Is it worth taking a loan for masters? [Guide for 2024]

The idea that student loans are exclusively available to students from disadvantaged backgrounds is a prevalent one. For families of various economic levels, including those who can afford to pay for their children's education, education loans can be a useful financial instrument.

The Advantages of Student Loans for Every Family

Student loans, also referred to as education loans, are more than just a lifeline for students from lower-class backgrounds. For families that can afford to pay for their child's education, they can also be a wise financial move.

a) Reducing Pressure on Other Savings

Managing a household involves juggling various expenses. By compartmentalizing your income into expenditures and savings, you gain clarity on how much to save. While saving for your child’s education is a wise decision, it doesn’t negate the benefits of taking an education loan. These loans allow you to finance your child’s education without straining your savings and investments. You won’t need to liquidate your fixed deposits or mutual funds prematurely, preserving their growth potential.

b) Encouraging Financial Discipline

Saving for your child’s education is commendable, but it shouldn’t prevent them from learning financial independence. Education loans teach students to manage their finances, setting and achieving financial goals. This discipline fosters responsibility and prepares them for financial independence.

c) Building Creditworthiness

Student loans are an excellent way to build credit. As your child repays their loan, their credit score improves, qualifying them for future loans with lower interest rates. This process instills self-belief in their financial capabilities, enhancing their financial future.

d) Essential for Studying Abroad

Education loans are particularly beneficial for students planning to study abroad. International education involves substantial expenses beyond tuition fees, such as living costs. Given the depreciation of the Indian Rupee against major foreign currencies, the cost of studying abroad can be significantly higher than studying in another Indian city. Savings alone may not suffice unless you’ve been saving for years. Education loans make it feasible to support your child’s education abroad, and students can repay the loans as they start their careers.

e) Tax Benefits

One of the significant advantages of education loans is the tax benefits. Under Section 80E of the Income Tax Act of India, the interest paid on education loans is tax-deductible. While the principal amount is not eligible for tax benefits, the interest component is. This deduction can be claimed without any upper limit, benefiting either the student or their legal guardian pursuing higher education.

f) Low Interest Rates

Education loan interest rates are often lower than other types of loans, making them a cost-effective way to finance higher education. These lower rates can ease the repayment process, reducing the overall financial burden on students and their families.

g) Enhancing Financial Literacy

Taking an education loan can be an educational experience in itself. It can teach students about interest rates, loan terms, and financial responsibility. This hands-on experience with financial products can enhance their financial literacy, preparing them for future financial decisions.

FAQs About Student Loans

1. What is the difference between a student loan and an education loan?

• Both terms are often used interchangeably, but education loans can cover a broader range of educational expenses.

2. What are the typical student loan interest rates?

• Student loan interest rates in India typically range from 8% to 15%.

3. Can I claim tax benefits on both the principal and the interest of an education loan?

• No, only the interest paid on an education loan is tax-deductible under Section 80E of the Income Tax Act.

4. How does taking an education loan build creditworthiness?

• Timely repayment of an education loan improves credit history and score.

5. Are there any special benefits for students taking loans to study abroad?

• Yes, education loans for studying abroad often cover a broader range of expenses and offer flexible repayment options.

Conclusion

Education loans, with their manageable student loan interest rates and numerous benefits, are a valuable tool for all families, not just those from underprivileged backgrounds. They provide financial discipline, reduce pressure on savings, build creditworthiness, support international education, and offer tax benefits. By leveraging education loans, families can ensure a brighter, financially stable future for their children.

Get a Personal Loan that fits your needs. Apply for loans from Rs 1000 to Rs 15 Lakhs with competitive rates. 

Check Your Eligibility Now 

Find the Perfect Credit Card for your spending habits. Explore top credit cards and maximize your rewards. 

See your matches. 

Author- Ayush Naik 

Ayush Naik is an expert in personal finance with an MBA in Finance. With over five years of experience working alongside stock market traders, Ayush has a deep understanding of market dynamics and investment strategies. His practical insights and analytical skills have helped many individuals navigate the complexities of financial planning and investment. Ayush’s professional background and commitment to educating others make him a valuable contributor to our personal finance blog.