{ "media_type": "text", "post_content": "Hi All,\n\nI'm a fresh MBA graduate with loads of education loan. Joined ACN. Now, I'm torn between two options.\n\nRepaying the loan ASAP and getting free of tying up part of my income towards EMIs OR\nStretching out my repayments to maximize tax savings (while investing those savings in index fund SIPs)\n\nSo fishes, which choice would you pick, and why?", "post_id": "60fb22fa664b8c002a000843", "reply_count": 7, "vote_count": 1, "bowl_id": "5f0372b0eecc0b001af4c310", "bowl_name": "Consulting India" }

Hi All, I'm a fresh MBA graduate with loads of education loan. Joined ACN. Now, I'm torn between two options. Repaying the loan ASAP and getting free of tying up part of my income towards EMIs OR Stretching out my repayments to maximize tax savings (while investing those savings in index fund SIPs) So fishes, which choice would you pick, and why?

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PEA1, I agree with your point. A rational person would actually do this. But, would a reasonable person do it? Right now, we're young, with no responsibility of a spouse or a child. We can afford to live a lower standard of living and get debt free. Going ahead, there maybe other commitments to our income, maybe a home loan, a marriage, vehicle, etc. At such times, having a constant demand on our income wouldn't leave much margin of safety. Just the other side of the coin I was considering. Would like your thoughts on it

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That totally depends on when you plan to get married, have kids etc. If you can plan your family life well, I’m sure you can pull off the second way too. And honestly, no harm in paying off the debt early either. Yes you’ll have to lead a spartan lifestyle, but will you recover from x years of investment/interest lost which you’d gain via the second route?

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Just wanted to know, whats the loan about? MBA?

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I’d choose the second option. That’s the fundamental of “leverage”. Make income which pays off your debt automatically. We do this in Private Equity in almost every deal.

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MBA and then into ACN. Congratulations. You may be then from one of good b-schools. Use Excel. Do basic calculations. Consult your finance colleagues or faculties. However, linkedin is full of such posts where they show which approach should we take ( considering inflation, taxes, future investments etc.). Mostly they lead to conclusion, post calculations for different scenarios, to NOT pay immediately. Pay it back wisely over time. I would still suggest to use Excel, do basic mathematics because only you know best your life goals.

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First 6months, just pay pay pay... Then reduce the emis. You will save a hell lot in interests

Assumption - you would go for a home loan if clearing the edu loan. Interest rate: Paying the edu loan early will help you plan for home loan (if you prefer owing over renting a house). Home loan interest < edu loan. Asset accumulation: Paying interest on a home loan would accrue you the asset value at the end of tenure. Taxation: only the interest in lieu of the edu loan is exempted vs principal and interest exemptions on your home loan. One of my friends (from premier B-school) repaid his edu loan within the first year leading a spartan life. He was financially free of loan soon and I feel this is an intangible that we usually overlook.

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