Education costs in India are skyrocketing: Here's how to pay
What's the story
As the cost of education skyrockets in India, families are searching for the best financial strategies to fund higher education. Two of the most popular choices are education loans and Public Provident Fund (PPF) saving plans. This article delves into these options, shedding light on their advantages and drawbacks to help parents and students navigate this crucial decision.
Loans 101
Understanding education loans
Education loans provide quick financial solutions, covering everything from tuition fees and books to living expenses. Indian banks generally offer loans with interest rates between 8% and 15%, depending on the bank and course. Repayment begins one year after completing the course or six months after getting a job, giving graduates some leeway. However, the accumulating interest can be a significant burden.
PPF insights
The PPF saving strategy
The Public Provident Fund (PPF) is a government of India's long-term saving scheme. It provides an interest rate of approximately 7% to 8%, and comes with a lock-in period of 15 years. Parents can open a PPF account in their child's name at an early age, so a significant corpus for higher studies is ready. Withdrawals from PPF are exempted from tax, making it one of the best saving options.
Flexibility check
Comparing flexibility and accessibility
While education loans provide immediate financial relief and payment flexibility after graduation, they involve a tedious documentation process and require collateral for significant amounts. On the other hand, PPF offers flexible deposit options, allowing contributions between ₹500 and ₹1.5 lakh per year. However, its long-term commitment does not offer the immediate financial relief provided by loans, making it less ideal for addressing immediate education costs.
Tax talk
Tax implications worth considering
Interest paid on education loans in India is deductible from your income, providing a tax benefit under Section 80E of the Income Tax Act. You can claim this deduction for up to eight years or until the interest is paid off, whichever comes first. Conversely, while PPF investments qualify for deductions under Section 80C (up to ₹1.5 lakh annually), the returns are tax-exempt.
Decision drivers
Making an informed choice
The choice between an education loan and saving through PPF would depend on multiple factors such as your financial stability, risk appetite, and the time horizon before you would need the funds for higher education. If it is immediate, an education loan would be more feasible, but if you start early, you can build a significant corpus through PPF without the burden of debt.