How tax deductions make education loans attractive

Section 80E of Income Tax Act allows you to claim tax deduction on interest for up to 8 years

- Aprajita Sharma

Higher education is a costly affair, especially if your child decides to pursue a professional course or opts to study abroad. It is also one of the key financial goals of most parents, many of who start investing for this soon after the births of their children. Such investments, made either in real estate, stocks, mutual funds or fixed deposits, are usually liquidated at the time of college admissions.

To be sure, students can avail of an education loan which they can repay later on getting a job. Yet, many parents tend to self-finance this major expense from their investments accumulated thus far, rather than burdening their children with loans. Experts, however, caution against this trend and say that education loans help from a returns and taxation point of view.

“If you can deploy your savings astutely, your corpus can give you better returns than the total interest outgo on an education loan. Moreover, the annual interest payment makes you eligible for tax deduction," says Anurag Jain, co-founder and partner at ByTheBook Consulting LLP.

That is exactly what Delhi-based Ankit Mehra (38) did. He was 28 years old when he decided to pursue an MBA from IESE Business School, Barcelona, in August 2013 and needed more than ₹50 lakh for his studies. Mehra had a rich stock portfolio, besides a property in Delhi-NCR that he could have sold off to pay for his studies. “I opted for an education loan because I felt that my corpus would fetch me returns that would negate what I had to pay as the interest on the education loan," says Mehra, who is now co-founder and CEO of GyanDhan, an education financing marketplace.