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How Education Loan Works in India: India’s growing ambition in higher education is met by ever-increasing costs, making education loans a lifeline for millions of families and students. Whether aspiring for engineering in IITs or business degrees abroad, knowing how education loans work is essential for a wise financial start.
This blog covers every nuance: types of loans, eligibility, benefits, procedures, interest rates, collateral requirements, documents, repayment, tips for debt management, tax benefits, and FAQs—crafted to lead Google rankings and help readers make smart education choices in 2025.
What Is an Education Loan?
An education loan is a financial instrument offered by banks and NBFCs to cover the cost of tuition, accommodation, exam fees, materials, travel, and more—both for studies in India and abroad. The loan is disbursed directly to the institution, and repayment usually begins after completion of the course, with a moratorium period that gives students breathing space before EMIs start.
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How Education Loan Works in India
Types of Education Loans in India
- Domestic Education Loans: For pursuing studies in India—covering tuition, hostel, exam, library, and related expenses.
- International Education Loans: For students going abroad. These loans often require higher amounts, and banks may ask for collateral or insurance.
- Government Schemes: Subsidized loans, lower interest, special provisions for meritorious and economically weaker students.
- Private Student Loans: More flexibility and higher loan amounts but may have higher interest rates.
Outer Link 1: Indian Government Schemes for Education Loans – National Scholarship Portal
Eligibility Criteria for Education Loans
Eligibility generally requires:
- Indian citizenship
- Admission to a recognized course and institution (in India/abroad)
- Merit-based entrance or qualifying examination
- Co-applicant (parent/guardian) with a regular income
- Satisfactory academic record
Courses Eligible for Student Loans
Loans typically cover:
- Undergraduate and Postgraduate degrees
- Professional courses (Engineering, Medicine, Law, Management)
- Skill-development and vocational studies
- Diploma and Certificate programs (recognized accreditation)
Key Features of Education Loans
- Loan amount can range from ₹50,000 to ₹1 Crore depending on needs and course/institute location.
- Interest rates vary: typically, 4% to 16%.
- Moratorium period generally covers course duration plus an extra 6–12 months.
- Repayment tenure up to 15 years.
- Tax benefits under Section 80E on interest paid for up to 8 years.
- Collateral requirements vary by loan size.
Interest Rates and Repayment Structure
Interest rates depend on bank, institution type, and individual eligibility (including credit score):
| Bank/Institution | Interest Rate | Loan Amount | Repayment Tenure |
|---|---|---|---|
| SBI | 7.55%–10.65% | Up to ₹3 crore (abroad) | Up to 15 years |
| ICICI Bank | 10.25%–13.75% | Up to ₹50 lakh (domestic) | Up to 12 years |
| Axis Bank | 9.58%–12.75% | ₹50,000 to ₹40 lakh | Up to 15 years |
| Canara Bank | 8.10%–11.50% | Varies (domestic and abroad) | Up to 15 years |
RBI Guidelines & Collateral Requirements
- No collateral/security for loans up to ₹4 lakh.
- For ₹4 lakh–₹7.5 lakh: third-party guarantor needed.
- Above ₹7.5 lakh: collateral required (property, FD, gold etc.).
- Some top banks offer collateral-free education loans up to ₹1 crore for select premier institutes.
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Step-by-Step Process: How to Apply for an Education Loan in India
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Research Lenders: Compare interest rates, terms, eligible courses, processing times, and flexibility.
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Check Eligibility: Ensure course and institution are recognized and the co-applicant meets income standards.
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Keep Documents Ready:
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Admission letter, fee structure
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Academic marksheets and certificates
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Identity, age, and address proof (student and co-applicant)
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Income statements, six months bank statement
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Additional paperwork for studying abroad (visa, passport, admission proof, GRE/GMAT scores)
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Fill Out Application: Apply online or offline at the chosen bank/NBFC.
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Verification & Interview: Bank may verify documents, conduct interviews for large loans or overseas applications.
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Loan Sanction & Disbursement: Once approved, loan is sanctioned and funds are disbursed directly to institution(s).
Expenses Covered
Education loans aren’t just for tuition. They can cover:
- Hostel/accommodation fees
- Library and laboratory charges
- Books, laptop, study materials
- Travel expenses (for international studies)
- Examination, thesis, project fees
Repayment, Moratorium Period, and Tax Benefits
- Moratorium period: Covers course duration plus 6–12 months grace period, allowing job search before EMIs kick in.
- Flexible EMIs: Fixed or variable repayment, with option for prepayment to reduce interest.
- Tax benefit Section 80E: Deduction on the interest paid for up to eight years, easing repayment.
- Partial Repayment: Some loans allow payment only of interest during studies, with principal starting after course completion.
Tips for Managing Student Loan Debt
- Pick a credible institution with good placement records.
- Use an education loan EMI calculator to plan repayments.
- Cut expenses and work part-time during the course.
- Consider prepaying when possible to save on interest.
- Stay informed about special schemes and subsidies, such as government interest subsidies for economically weaker sections.
Commonly Asked Questions (FAQs)
1. Who can be a co-applicant?
Usually, parents or siblings with regular income. Some banks also allow spouses or guardians.
2. When does repayment start?
Typically after the moratorium period (course + grace months), but some loans require payment of interest during studies.
3. Can working professionals apply?
Yes, for part-time/certificate courses to upskill. Eligibility varies by lender.
4. What if the student cannot repay?
The co-applicant/guarantor is liable for repayment. Delays attract penalties and impact credit scores.
5. Can loans be taken for diploma and non-degree courses?
Yes, if the course is accredited and recognized by government authorities.
6. What documents are key for studying abroad?
Passport, visa, proof of admission, entrance exam scores, and insurance documents.
Top Banks and NBFCs Offering Education Loans in India
- State Bank of India (SBI)
- ICICI Bank
- Axis Bank
- HDFC Bank
- Bank of Baroda
- Canara Bank
- Kotak Mahindra Bank
- IDBI Bank
- Punjab National Bank
- Aditya Birla Finance
Each bank has specific schemes, eligibility, and rate structures; check bank websites for latest terms and application procedures.
Final Word
Education loans in India are more accessible and flexible than ever. With prudent planning, eligibility awareness, smart documentation, and savvy repayment, students can fulfill their academic dreams without imposing a heavy financial burden on their families. Always read terms and conditions carefully, use official calculators, and seek professional advice for personalized situations.
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