Prepay your education loan or invest early? Here's what experts advise

Experts explain when it's wiser to cut debt quickly and when early investing builds more wealth

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As education loan costs rise and young earners begin their careers with tighter cash flows, many grapple with a key question, should they repay debt faster or start investing early for long-term wealth? Experts say the answer depends on loan rates, income stability and how disciplined the borrower is with savings.

 

When prepayment makes more sense

A useful starting point is the interest rate, according to Hrishikesh Palve, director-products at Anand Rathi Wealth. Education loans generally range from 8-13 per cent. When interest falls between 8 and 10 per cent, and the borrower can earn higher post-tax returns through investments, continuing the loan, especially during the Section 80E deduction period, can be more efficient. But loans above 10 per cent change the equation. Palve explains that borrowers paying 11-13 per cent, particularly to private lenders, should prioritise prepayment because the burden rises sharply over time.

 

Kundan Shahi, founder of Zavo (a loan repayment platform), notes an additional regulatory tailwind. The Reserve Bank of India has barred foreclosure charges on floating-rate loans for individuals starting from January 2026. “This makes prepayment even more attractive for borrowers holding high-cost loans,” he says.

 

How to compare investment returns with loan costs

The decision often comes down to guaranteed versus uncertain outcomes. “If your loan costs 10 per cent and your realistic investment return is similar, repaying the loan often makes more sense because it is a guaranteed saving,” says Shahi. 

Palve illustrates a common scenario. A 24-year-old with a Rs 10 lakh loan at 10 per cent and a stable income. If this borrower invests Rs 5,000 a month in an equity fund delivering around 10 per cent post-tax returns, the investment may marginally outperform the effective loan rate.

 

But Palve shows how tweaking EMIs can reshape outcomes. Voluntarily increasing an EMI from Rs 15,000 to Rs 20,000 can reduce the tenure from eight years to under six and free up money to invest earlier, significantly improving long-term wealth.

 

Sameer Mathur, managing director and founder of Roinet Solution, adds that borrowers should always compare the post-tax cost of the loan with long-term expected returns. In situations where investments cannot realistically beat the loan cost, prepayment becomes the prudent choice.

 

Common mistakes young earners make

Experts warn that behavioural errors often matter more than maths. Palve highlights lifestyle creep, where higher income

 

leads to new EMIs rather than savings. Both Palve and Mathur caution against chasing high-risk products such as crypto or speculative stocks in the hope of clearing loans faster.

 

Shahi notes that skipping insurance is another major risk. “Insurance is a crucial safety net. Without it, your finances stay exposed to unexpected crises,” he says.

 

What freelancers should do

For borrowers with irregular income, liquidity takes priority. Palve recommends building a 6-12 month emergency buffer and avoiding high EMIs. Freelancers can channel surplus from high-earning months into one-time prepayments. Shahi suggests using bonuses or windfalls to reduce debt while maintaining manageable SIPs. Mathur advises building a safety cushion first, then tackling high-interest loans before scaling investments.

 

The overarching message from experts

Balancing loan repayment with early investing is not a one-size-fits-all decision. The best strategy depends on interest cost, financial discipline and the stability of income.