When looking for an education loan for higher studies, the education loan interest rates are one of the most important factors to consider. The education loan interest rates can differ between public banks, private banks, and non-banking financial companies (NBFCs). Factors like the loan amount, your credit score, repayment period, and the co-applicant’s income all affect the interest rate. Understanding these rates is crucial for making the right choice.
In this guide, we’ll delve into everything you need to know about education loan interest rates, including a comparison of different lenders, types of interest rates, and helpful tools like interest rate calculators.
Table of Contents
What is an Education Loan Interest Rate?
Education loan interest rates refer to the interest charged by the borrower on the amount of loan availed by the students. It is calculated by considering RLLR (repo-rate linked lending rate) and the spread determined by the lending institution. Various factors affect the interest rate calculation on education loans, thus different banks have different effective interest rates for the borrowers.
Major public and private sector banks like State Bank of India (SBI), Bank of India, ICICI Bank, HDFC Bank, Union Bank of India etc provide the lowest education loan interest rates. They offer competitive rates of interest ranging from 8.50% to 11.45% p.a. The table below shows the interest rates on education loans from different lenders.
Comparison of Education Loan Interest Rates
The table below lists the bank names along with their Education Loan Interest Rates and processing fees.
| Bank Name | Education Loan Interest Rate | Processing Fee |
| Kotak Mahindra Bank | Upto 16% p.a | NIL |
| UCO Bank | 10.85 p.a to 12.10% p.a | NIL |
| IDBI Bank | 8.50% p.a to 11.10% p.a | 1% of the loan amount + taxes (The amount is refundable at the time of disbursement) |
| Federal Bank | 12.75% p.a to 14.25% p.a | INR 3000- 7500 + applicable taxes |
| Bank of India | 9.25% p.a onwards | Study in India- NIL Study in Abroad – INR 5,000 |
| Axis Bank | 13.70% p.a to 15.20% p.a | 2% of the loan amounts plus GST |
| Tamilnad Merchantile Bank | 12.60% p.a to 12.80% p.a | No processing charges for studies in India.1% of the loan amount above INR 7.5 lakhs for studies abroad. |
| Karur Vyasa Bank | 12.05% p.a to 14.55% p.a | NIL |
| ICICI Bank | 9.85% p.a to 14.00% p.a | Upto 2% plus GST on sanction amount |
| HDFC Bank | 9.50% p.a onwards | 1% of the loan amount or INR 1000 (whichever is higher) |
| Indian Overseas Bank | 9.75% p.a onwards | NIL |
| Karnataka Bank | 10.48% p.a onwards | Contact the Bank |
| Canara Bank | 10.65% p.a to 11.35% p.a | NIL |
| Bank of Maharashtra | 9.45% p.a onwards | NIL |
| IDFC First Bank | 10.15% p.a onwards | Upto 1.5% of the loan amount |
| Bank of Baroda | 11.40% p.a onwards | No processing fee is charged for a loan amount Up to INR 7.50 Lakh 1% of the loan amount up to INR 10,000. |
| Union Bank of India | 9.25% p.a to 12.50% p.a | NIL |
| State Bank of India | 11.15% p.a onwards | Nothing is charged on a loan amount below INR 20 Lakh If the loan amount is above INR 20 Lakh: INR 10,000 (plus taxes) |
| Punjab National Bank | 9.45% p.a onwards | 0.35% of the loan amount Minimum- Rs. 2,500/Maximum- Rs. 15,000/ |
Also Read: Want to know about the minimum family income needed to avail of study abroad education loans? Check out all the details in our blog on minimum family income requirements for education loans.
Types of Education Loan Interest Rates
When considering an education loan, understanding the education loan interest rates is crucial. The interest rate can either be fixed or floating, depending on the lending institutions terms.
- Fixed Interest Rate: With a fixed rate, the interest remains the same throughout the entire loan repayment period, offering predictability in monthly payments.
- Floating Interest Rate: A floating rate fluctuates based on changes in the repo rate and other market conditions. This means your monthly payment may vary over time as the education loan interest rates change.
The type of interest rate applied to your education loan depends on the terms set by the lending bank. In India, most private and public sector banks in India providing education loans for studying abroad typically provide floating education loan interest rates.
How Floating Education Loan Interest Rates are Calculated
Floating education loan interest rates are determined by adding a “spread” to the Repo Linked Lending Rate (RLLR), which is set by the Reserve Bank of India (RBI). The spread reflects the bank’s credit risk premium and can vary from one bank to another.
Some banks may use the Marginal Cost of Funds-based Lending Rate (MCLR), which is the minimum rate at which they can lend. This rate, too, can influence the floating education loan interest rates for education loans.
The table below presents some of the popular banks and their interest rate calculation on education loans to study abroad. Going through the same can help you understand all about education loan interest rate calculation-
How is the Education Loan Interest Rate Decided?
The education loan interest rate depends on a range of factors, both personal and institutional. Let’s break down the most significant factors that lenders consider:
- Education Loan Amount
Larger loan amounts may attract higher interest rates, as lenders tend to view large loans as riskier. If you’re borrowing a significant sum for your education, the lender may charge you a higher interest rate to offset the increased risk. - Credit Score
Your credit score plays a critical role in determining your education loan interest rate. A higher credit score indicates that you are financially responsible and have a history of repaying loans on time. As a result, lenders may offer you a lower interest rate. Conversely, a lower credit score could lead to a higher interest rate due to the perceived risk. - Co-applicant’s Income and Credit History
In many cases, education loans require a co-applicant, usually a parent or guardian. The income and credit score of the co-applicant can significantly influence your loan’s interest rate. A strong credit history and high income from the co-applicant may help lower the rate. - Repayment Tenure
The repayment period is the time frame in which you agree to repay the loan. Generally, loans with longer repayment terms may have higher interest rates because of the extended exposure to risk. Shorter loan terms, on the other hand, might come with lower interest rates. - Type of Lender
Different lenders (public banks, private banks, NBFCs) offer different education loan interest rates. Public sector banks often provide lower interest rates than private banks and NBFCs. However, private lenders may offer more flexible loan terms, which could be beneficial depending on your situation.
How to Calculate EMIs on Education Loans?
The three factors that affect EMIs on education loans are the interest rate on the loan, repayment tenure and loan amount. The formula that is used by banks to calculate EMIs on education loans is mentioned below:
EMI Amount = [P x R x (1+R)N]/[(1+R)N-1]
Here P = Principal Amount, R = Rate of Interest and N = Number of Years for Repayment (calculated in months)
Also Read: Though student loans can fund your education, maintaining them can occasionally feel burdensome. Check out our blog on Pro Tips for Managing Student Loans that you must consider and pursue hassle-free studies.
How to Find the Best Education Loan Interest Rate
With so many options available, finding the best education loan interest rate can be overwhelming. However, there are several steps you can take to secure the most favorable rate for your circumstances:
- Compare Offers
Take the time to compare interest rates from different lenders, including public and private banks, NBFCs, and online lenders. Use online comparison tools to evaluate rates, terms, and other factors that can impact the total cost of your loan. - Negotiate Terms
Don’t be afraid to negotiate the interest rate or repayment terms with lenders. If you have a good credit score or a co-applicant with a strong financial profile, you may be able to secure a lower interest rate. - Look for Special Schemes
Many banks and financial institutions offer special education loan interest rates for certain categories of students, such as those pursuing studies in specific fields or from certain universities. Look for such schemes that might offer lower rates or better terms. - Check for Processing Fees
While the education loan interest rate is crucial, don’t forget to check for any processing fees or hidden charges that might add to the total cost of the loan. Ensure that the loan terms are transparent and that you fully understand the costs involved.
Factors Affecting Education Loan Interest Rates in Different Countries
Education loan interest rates can also vary depending on the country where you plan to study. In some countries, government-backed education loans may offer more favorable rates, while in others, private lenders dominate the market.
For example, in the United States, federal student loans typically offer lower interest rates compared to private loans, and the rates are fixed. In India, public sector banks tend to offer lower interest rates on education loans, while private banks and NBFCs charge higher rates.
Discount on Interest Rates Offered by the Banks
Many public and private sector banks provide discounts on interest rates when lending education loans. One of the major discounts provided by most Indian banks is the interest concession of 0.5% to girl students. Popular banks like SBI, Central Bank of India, Indian Overseas Bank, IDBI Bank, Bank of Baroda, and many more follow the same.
Banks also offer discounts on interest rates to borrowers who have an excellent CIBIL score. For example, SBI gave a concession of 55 bps to borrowers with CIBIL scores of 750–800. The effective interest rate became 8.60% instead of 9.15%. Some banks also offer a concession on education loan interest rates to the wards of bank personnel.
Income Tax Benefits on Education Loan Interest Rates
Did you know that borrowers can claim income tax rebates on education loans. It means that the interest paid on the education loan can be claimed for deductions. Mentioned below are some of the things that you should keep in mind while applying for a student loan that can help you get a concession in an education loan:
- If you have a good credit score then you can get a concession on the principal amount.
- Under section 80E borrowers are eligible for tax concessions. Borrowers need to provide interest certificates during tax filing to claim for the same. For example- if you have availed education loan from ICICI Bank, an ICICI interest certificate for the financial period can help you claim the benefits of the same.
- If you will pay the interest amount during the moratorium period then also you can get a concession on the principal amount.
- Central Government schemes like CGFSEL and Dr Ambedkar’s central scheme on education loans can help you get interest subsidy on the education loans.
Also Read: Know about the most inclusive LGBTQ+ scholarships all around the world. Explore various options that can be availed in the US, Australia, New Zealand, the UK and Canada
FAQs
Education Loan Interest Rates are the cost of the loaned amount in terms of %. The % of interest is calculated on the total education loan issued. It can be variable or fixed depending upon the policies of the loan issuer.
Popular banks like IDBI Bank, Bank of India, ICICI Bank, HDFC Bank, Union Bank of India, and SBI provide the lowest education loan interest rates. They offer competitive rates of interest ranging from 8.50% to 11.45% p.a.
One of the major discounts provided by most Indian banks is the interest concession of 0.5% to girl students. Popular banks like SBI, Central Bank of India, Indian Overseas Bank, IDBI Bank, Bank of Baroda, and many more follow the same. Some banks also offer a concession on education loan interest rates to the wards of bank personnel.
When borrowers take collateral-free education loans, the banks charge higher interest interest as the risks associated with such loans are high.
Yes, banks do cover 100% education-related expenses. However, there is a certain limit under which banks provide full coverage of expenses.
A candidate who has a good academic record and an admission letter from a university is generally eligible for an education loan. For detailed eligibility criteria go through the information above in the blog.
Without any proof of parental income, the most suitable alternative is to have a financial co-applicant.
The education loan interest rates varies from 4% to 16% depending upon the bank or loan issuer. The interest rate is dependent on various factors such as inflation, credit risk, policies, the period for which the loan is issued, etc.
We hope this blog helped you clear your doubts related to education loan interest rates, factors to consider, eligibility criteria and so much more!
To know more about education loans, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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