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A loan is a form of credit in which a party receives a sum of money in exchange for future repayment of the value or principal amount. In many instances, the lender adds interest or finance charges to the principal balance, which the borrower must also repay.
Loans may be for a fixed, one-time amount or as an open-ended line of credit up to a specified limit. There are numerous types of loans, such as secured, unsecured, commercial, and personal loans.

As any recent college student (or parent of a student) can attest, obtaining a degree today requires a much greater financial investment than it did two generations ago. According to the College Board, over the past three decades, the average cost of attending a private four-year institution has increased to more than three times the cost of attending a public four-year institution, and it has more than doubled at public four-year schools.

How You Should Pay Your Student Loan

  1. Take advantage of the Grace Period
    Private student loans may or may not include a grace period, and its duration depends on the lender. The grace period is the period during which you are not required to make loan payments.
    The grace period for federal student loans is typically the first six months after graduation. Keep in mind that interest is still charged on private and unsubsidized federal loans during the grace period and will be capitalized and added to the total amount owed after the grace period expires.
    The grace period can be utilized to your advantage by making advance payments on your loans. Paying down a portion of the principal reduces future interest charges. At the very least, make monthly interest-only payments during the grace period to reduce your debt.
  2. Refinancing Educational Loans
    Consolidation and refinancing are two ways to simplify the repayment of student loans. With debt consolidation (or student loan consolidation), you combine multiple loans at an interest rate that is reflective of the average interest rate paid on all of your loans. It is possible to consolidate multiple federal student loans (and monthly loan payments) into one.
  3. Pay Extra and Maintain Consistency
    Paying only the minimum amount due on your student loan can impede your ability to pay it off quickly. The founder of the personal finance blog Money Life Wax, Joshua Hastings, was able to pay off $180,000 in student loans in three years by taking a focused approach that included paying extra on his loans each month.

What are the advantages of obtaining a student loan?

  1. Reduce Interest Rates
    The interest rates on personal loans for financing international education are typically higher than those on education loans. The rates of interest on student loans are lower. Additionally, government banks offer a 0.5% discount to all female students.
  1. Ban on vacation pay after course completion
    This is one of the major benefits of education loans. Unlike personal loans, for which the borrower is expected to begin making EMI payments in the following months, education loan programs feature a moratorium period.
    The moratorium period is the time until which the PI payments do not begin or the student is exempt from making payments to the lender. In general, the moratorium period includes the duration of the course plus six months (and can be extended to twelve months) so that students can focus on their studies.
  2. A vast array of expenditures are covered
    Education loans for study abroad cover nearly all of the costs a student may incur to complete their education. It includes tuition fees, transportation (tickets), housing rent, university fees, food expenses, living expenses, a laptop computer, and any other necessary equipment.
  1. Subvention for education loan interest
    The Government of India has implemented several education loan interest subsidy programs for the benefit of loan applicants from economically disadvantaged segments of Indian society.
    Among the benefits of these subsidy programs is the waiver of education loan interest during the moratorium period. However, after the moratorium period, these students must begin repaying their EMIs on their own.
  2. Tax Advantage Section 80E
    Section 80E of the Income Tax Act of 1961 allows either the loan applicant or co-applicant to claim the education loan tax exemption. Simply put, the loan applicant or co-applicant may claim a portion of the interest paid on their education loan as a deduction from their total income.

Avoid making these mistakes prior to and after obtaining a Student Loan

  1. Providing False Information on Your Application
    Lying on your application for a student loan is the first mistake you can make. If you are caught lying on your financial aid application, you will not only lose your loan and be subject to fines, but you may also be charged with fraud and sent to prison, where you will receive a free education, but probably not the prestigious degree you desired.
  2. Spending Money on Wants Rather Than Needs
    Using loan funds to finance an education that will last a lifetime is beneficial debt. Using loan funds to purchase the newest mobile phone or 4K Ultra HD television, which will be obsolete a decade before the loan is paid off, is a very bad debt decision.
    The occasional indulgence is acceptable. You are only human, but mortgaging your future to pay for fleeting pleasures of the present is poor financial management. Either you do not understand the distinction between needs and wants, or you do not want to make those difficult decisions.
  1. Selecting the Incorrect Repayment Plan
    It is tempting to select the repayment plan with the smallest monthly payment. However, the payment plan with the lowest monthly payment also has the longest repayment term, which will increase the total amount of interest paid. Plans based on income or “Pay As You Earn” are appealing. Who wouldn’t want 25 years instead of a decade to pay off a debt? however, they will cost you more overall. Essentially, you should pay the highest monthly amount you can afford.
  2. Neglecting to Refinance
    If there has been a significant decrease in interest rates, you should consider refinancing your loan. What was once a competitive rate may now be on the expensive side. Alternately, if you have multiple loans, consolidating them can reduce your monthly payment and interest costs.
    Clearly, interest rates and loan terms can vary significantly between lenders. Be sure to compare and crunch the numbers thoroughly to ensure that you are indeed receiving a better deal. Remember that if you refinance a federal student loan, you are exchanging it for a private loan. This indicates that you are leaving the federal loan program, as well as its income-based and loan forgiveness options. However, these plans may not be feasible for you.
  3. Overdue Payments
    Numerous students have skipped a payment with the intention of paying double the following month. That’s a big no-no. Every missed or late payment will have a negative impact on your credit score, regardless of whether you make up the payment. And it can remain on your credit report for years, negatively impacting your ability to obtain future loans.

Students must now understand the benefits of education loans and how to avoid depleting their savings. Proactively addressing your student loans is essential for paying them off sooner rather than later. There are numerous ways to better manage your debt, but the worst thing you can do is nothing.

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