Finance

# Education loan interest – how is it calculated?

There are two ways to calculate your education loan’s interest. You can either figure it out manually with a formula or use an education loan EMI calculator. Let us analyze both options and understand how to calculate an education loan’s interest rate in detail. Article Summary

## Manual calculation of education loan interest rate

The following formula can be used to calculate the interest of an education loan online manually:

EMI = [P x R x N (1+R) ^ n] / [(1+R) ^ (n-1)]

Here, EMI is the equated monthly installment, P is the principal loan amount, R is the interest rate, and n is the loan tenure in the number of months. In addition to manually calculating the interest on an education loan, one can also estimate it via Microsoft Excel.

To calculate the interest rate of an education loan, use the following formula:

PMT (rate, NPER, PV)

Here, NPER is the number of periods, the rate is the interest rate, and PV is the present value of the education loan. Let us understand this method with an example. Suppose an individual takes a loan of ₹4 lakh at an interest rate of 8% per annum for a loan tenure of three years.

## Using an education loan EMI calculator

An education loan calculator helps a student calculate their student education loan’s future EMI (Equated Monthly Instalment), thus, helping them plan for their education loan repayment.

## Fields that need input in an education loan EMI calculator

While consulting an education loan EMI calculator, the following fields must be filled in:

• Loan amount: This is the total amount you wish to borrow through the education loan to finance your studies.
• Interest rate: The education loan’s interest must also be entered into the calculator. You can choose between 8% and 15% using IDFC FIRST Bank’s calculator.
• Duration of the course: Since the chosen method is factored in when approving your education loan request, you must enter the course’s time in years.
• Tenure: You also need to enter the student loan term in years. IDFC FIRST Bank’s calculator helps you enter any number between 1 and 12 years.
• Mode of payment: Finally, you need to enter the payment method. One of three options can be selected:
• EMI – Start paying immediately
• SI – Pay only simple interest while you study
• Moratorium – Do not pay anything while you study

## Benefits of using an education loan calculator

Before understanding how to use an education loan calculator, let us know the benefits of using it:

• Precise calculation of EMI: A student education loan EMI calculator such as IDFC FIRST Bank can help you know your exact EMI once your repayment cycle starts.
• Helps you be far-sighted in terms of repayment: By knowing your EMI in advance, you can plan your expenses much better.
• Easy to use: A student education loan EMI calculator is easy to use since it works well on mobile phones and laptops.

## Education loan tax benefit

Education loans can also benefit students and help them save on taxes. Section 80E of the Income Tax Act allows a deduction of the loan’s interest paid through an EMI education loan. However, there is no tax benefit for the principal part of the EMI.