Should I fully repay Education Loan - Tax Benefit?

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  1. Impratap

    Impratap New Member

    Hello Members, Need your help in deciding the better option for saving more.

    An individual have taken an education loan for his PG course. The loan is ~16L, at floating rate, presently at 10.25%, EMI being 26500 for 7 year repayment period. The person's taxable income falls in 20% category.

    At present, he is saving ~35K per month for this loan repayment purpose. For repaying the education loan, there are see two options:

    1. Pay the education loan fast, paying all 35 K into the EMIs and thus saving the total interest paid.
    2. Pay the minimum EMI, that is 26500, and invest rest of the money(~9500) in other assets ( usual 12-15% returns, post tax)

    In both cases, the education loan inerest paid benefit ( section 80E) is availed. Which one is better strategy, or would you suggest maybe a third option. Also, the person maybe moving in 30% bracket [ :) ] in next 2 years so paying more tax [ :( ]
     
  2. gaurav_kumar

    gaurav_kumar Well-Known Member

    If you can earn post tax return of 12-15%, it is better to invest the funds in such sources as you would be able to earn a better return than the interest you are paying.

    However, in case your post tax return is less than the effective interest rate (after tax benefit), it is better to pay off the loan.
     
    Impratap likes this.
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