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Focus on Saving Emergency Funds While You Repay Your Education Loan EMIs

Pranjal Singhal Pranjal Singhal
Content Curator

Focus on Saving Emergency Funds While You Repay Your Education Loan EMIs

Education loan disbursal is increasing in India as the cost of higher education is rising. An average Indian education loan applicant avails education loan of INR 8.95 lakh to fund their higher education degree. While students and families do various calculations before availing an education loan, they often miss on doing a proper calculation about the repayment after the course completion.

Education loans bring additional charges in the form of interest amount just like any other loan. So, it becomes important for students to make better plans to repay those hefty EMIs. Education loans provide a special provision to students to repay their loan after the completion of their course plus an extended period. SBI Education Loan gives students a moratorium period of the course duration+1 year. This is done to provide students an adequate time to get a job.

Moratorium Period

Moratorium period is the special period during education loan term when a borrower is not required to make any repayment. This feature is specially included in education loans as students can pay only after completing education and getting a job. Banks understand that it might take students some time to get a job. Moratorium period is generally kept at 1 year more than the duration of education.

What’s the Best Thing to Do? 

Often, after completing their course and getting a job, students try to repay as much as possible mostly in order to get rid of the tedious student loan. However, this criterion alone is not enough to ease your debt period. Education loans with higher interest rate do act as a burden, still, students need to ensure that they also do some savings apart from just repaying the entire amount in monthly EMIs.

Depositing the entire salary in loan account leaves you with no money for emergency situation. Thus, what students need to do is invest in an emergency fund. Setting aside a small amount every month will ensure that you have something for yourself when the need arises.

You never know when you get to face an unforeseen situation like additional expenses, penalties or the worst case of losing your job. In such a case, your education loan will continue but your salary won’t. So, you need to ensure you always have something for backup. Whether your unemployment phase is big or small, you do need to have some amount with yourself to fund your daily expenses in the meanwhile.

How to Create an Emergency Fund? 

1. Start Early 

The best practice is to start your savings while you are in college. The banks and NBFCs provide you with enough moratorium period so that you can easily continue with your studies without worrying about your repayments. Investing time in making savings turns out to be a good plan at this time.

2. Calculate Your Savings 

Your emergency funds should be enough to fulfil your needs during the time you actually need them. Experts suggest that your emergency fund should have enough money so that you can survive for 3-6 months on them including your monthly EMIs.

3. Save on Tax 

Another important feature of education loans is that the interest you deposit is eligible for tax exemptions. As per Section 80(E) of the Income Tax Act, 1961, interest submitted on education loans is eligible for tax deductions. Isn’t it smart to save this extra money into your pockets?

So when the time comes, make sure you carefully plan upon your EMIs, which should neither be too low nor too high. The amount you save for yourself should be enough to help you survive in case of any emergency.