Education Loan Vs Education Plan
An education loan is money that parents borrow from a bank to pay for their child’s education. It helps cover fees, books, and living costs. The bank gives the money in one go, but it must be paid back with interest. The loan must be paid once the course is over. This may create pressure on the child, especially if they don’t get a job quickly.1
An education plan works differently—it combines savings with insurance. A parent sets aside a small amount regularly, and over time, this grows into a substantial fund. When the child reaches college age, the money is ready—there’s nothing to repay. Even if the parents(life assured) are no more, the plan ensures the child still receives the promised amount. It’s a thoughtful way to secure your child’s future, no matter what.
Loans are fast, but they must be repaid. With education plans, Parents can take out part of the money in case of an emergency.
When it comes to tax, both offer some help. Parents can get tax benefits for paying loan interest (under Section 80E) or life insurance plan premiums (under Section 80C) according to the Income Tax Act, 1961.3 This can help save money during tax filing.
Which Option Will a Parent Choose?
The right choice between an education loan and an education plan depends on a family's unique financial situation.
If funds are needed immediately, an education loan can provide the necessary support. However, repayment obligations begin later, and families should plan for this.
On the other hand, an education plan is a financial product designed to help parents save gradually for their child’s future education needs. These plans often combine savings with life insurance coverage. In the event of the life assured’s death or disability, some plans may offer a lump sum or waive future premiums while continuing to support the savings goal. This can help ensure the child's education continues without interruption.
Both options serve different purposes; one provides immediate financial support, while the other focuses on long-term planning. Understanding the features and responsibilities of each can help families make informed decisions based on their circumstances.
Ultimately, either option can be fine. The decision will depend on how quickly the money is needed, how much risk a family is willing to take, and how they would like to assist their child. Parents need to make the choice that best suits them.
Conclusion
Choosing between an education loan vs education plan is an important decision for every parent. A loan gives you money fast that you have to repay later. A plan takes time to grow but gives peace, safety, and freedom. When parents understand the difference between education loan and education plan, they can make better choices for their child’s future.
Saving gradually over time for a child’s education can help build a dedicated fund, easing future financial pressure. It can reduce the risk of sudden financial strain and support long-term planning. In contrast, an education loan can offer immediate financial assistance when needed, with a promise to be repaid with interest. Choosing between the two depends on the family's financial goals, current circumstances, and ability to manage future obligations.
FAQs
Is it better to take a loan for education?
It depends on the need. If money is needed right away, a loan may help. For long-term planning, an education plan may be better. It is important to understand the requirements and your financial objectives while choosing any financial product.
Which loan is best for education?
The best loan depends on interest rate, time to repay, and the bank’s terms. Always compare before choosing.
What happens if an education loan is not paid?
If the loan is not paid, the bank may ask for money in other ways like mortgage or gold. It can cause stress and problems for the family.
Which is the best education plan in India?
There are many good education-based life insurance plans. The best one depends on budget, features, and your financial objective..
Can education plans offer financial protection in case of unforeseen events?
Yes. Most life insurance education plans give money even if something unfortunate happens to the parent. This keeps the child’s education safe by ensuring the policy continues or pays out a lump sum, so the child’s schooling expenses are covered without financial disruption .2
Reference:
- https://cleartax.in/s/education-loan
- https://www.etmoney.com/learn/personal-finance/everything-you-need-to-know-about-child-education-plans/