In India, education is considered the best gift parents can give their children. But with rising costs, how do you ensure your child gets the education they deserve? Should you rely on an education loan when the time comes, or start saving early? Let’s break it down in simple terms so you can make the best decision for your family.
Education Loans: A Helping Hand When Needed
Easy Availability
Education loans have made it possible for middle-class families to afford higher studies. Banks and financial institutions offer various education loan options, such as:
- Loans up to ₹4 lakhs without collateral
- Higher loans (up to ₹75 lakhs for studying abroad) with property collateral
- Interest rates between 8.5% and 14%
- Repayment starts only after course completion or when the student gets a job
Tax Benefits
A major advantage of education loans is tax benefits:-
- The interest you pay on an education loan is eligible for a tax deduction under Section 80E
- There is no limit on how much interest you can claim
- It is available only for 8 years starting from the year in which you start repaying the loan or until the interest is fully repaid whichever is earlier.
Merit-Based Scholarships
In India, top-ranking students often receive fee discounts or scholarships in exams like JEE, NEET, and CAT. This can reduce the amount of loan required.
Saving for Education: A Secure Path
Smart Ways to Save
The Indian government offers several savings schemes that can help build an education fund over time:
- Sukanya Samriddhi Yojana (SSY): If you have a daughter, this scheme gives a high interest rate (currently 8.2%) and tax benefits.
- Public Provident Fund (PPF): A safe option with a long-term lock-in period and tax-free returns.
- Mutual Funds (SIPs): Investing small amounts regularly in equity mutual funds can grow into a large amount over 10-15 years.
Beating Inflation
Education costs in India rise by 10-12% every year. What costs ₹10 lakhs today could cost ₹50 lakhs in 15 years. By saving early, you can be prepared for these increasing expenses.
A Balanced Approach: The Best of Both Worlds
Many Indian families take a mixed approach:
- Start savings early – Use SSY (for girls), PPF, and SIPs to build an education fund.
- Use fixed deposits – A safe way to keep money for short-term education needs.
- Take help from extended family – In Indian families, grandparents often contribute to education funds.
- Prepare for entrance exams – A good rank can reduce education costs through scholarships.
- Use education loans only if needed – Even if you have savings, a small loan can help manage cash flow.
How to Decide What’s Best for You?
Key Factors to Consider:
- Do you have other financial priorities like buying a house?
- Are you also supporting elderly parents?
- Have you secured health insurance to avoid using education funds for emergencies?
- What kind of college will your child attend? Government colleges are cheaper than private institutions.
- What career is your child interested in? Some careers justify larger education investments.
The Final Takeaway
In India, a mix of early savings and strategic education loans works best for most families. The goal is to plan wisely so that when the time comes, money isn’t a barrier to your child’s dreams. Start saving early, explore all options, and make a choice that suits your family’s needs.
So, what steps are you taking today to secure your child’s future?
