Quality education has become a cornerstone of success. However, the cost of pursuing higher education, especially at renowned institutions, can be substantial. This is where an education loan comes into play—a financial tool that empowers students to achieve their academic dreams without worrying about immediate financial constraints. If you’re new to the concept of education loans or considering applying for one, this blog is for you. Let’s break down what an education loan is, its benefits, and how it works.
Table of contents
What is an Education Loan?
An education loan is a type of financial aid provided by banks, financial institutions, or government programs to help students cover the cost of their education. This loan typically includes tuition fees, accommodation expenses, study materials, and sometimes even travel costs for studying abroad.
The primary purpose of an education loan is to bridge the gap between your aspirations and financial limitations. Unlike other types of loans, it often comes with student-friendly features like lower interest rates, flexible repayment options, and a moratorium period.
Also Read: Planning to pursue MBBS? Check out the details on education loans for MBBS from Russia.
When applying for an education loan, students and their parents need to understand certain key terms that banks use. Knowing what terms like “interest rate,” “moratorium period,” and “collateral” mean, you can make better-informed decisions about taking out a loan for studying abroad.
Principal Loan Amount
The original amount of money borrowed from the bank, before any interest is added. This is the loan amount that the bank gives you for your education, which you will have to pay back, along with interest, over time. For example, if you borrow INR 15 Lakhs, that is the principal loan amount.
Interest Rate
The percentage of the loan amount that the bank charges you as the cost of borrowing money. This is the extra amount you pay in addition to the loan amount. The interest rate is calculated annually and can either be fixed (remains the same throughout the loan) or floating (changes over time depending on market rates).
Moratorium Period (Repayment Holiday)
The period during which the borrower is not required to make repayments on the loan, usually during study and for a few months after completing the course. During this period, you don’t need to pay anything on the loan. The bank will give you time to complete your studies and find a job. For example, if you study for 2 years, the moratorium period could last for 2 years plus an additional 6 months after your course ends.
Repayment Period
The time given to repay the loan in full after the moratorium period ends. This is the period (usually up to 15 years) in which you need to pay back the loan in monthly instalments (EMIs). The longer the repayment period, the smaller your monthly payments, but you will end up paying more interest over time.
Collateral
An asset (like property, a car, or a fixed deposit) that a borrower offers to the bank as security in case they are unable to repay the loan. If the loan amount is more than INR 7.5 Lakhs, the bank may ask for something valuable (like your home or a family property) to be kept as collateral. This gives the bank assurance that they can recover the loan if you can’t pay it back.
Co-applicant
A person (typically a parent or guardian) who agrees to take responsibility for repaying the loan if the primary borrower (the student) is unable to do so. Most banks require a co-applicant, usually a parent, as the bank will want a secondary person to repay the loan if the student cannot. The co-applicant’s financial profile is also checked, as they may need to repay the loan if they fail to do so.
Processing Fee
A non-refundable fee is charged by the bank for processing the loan application. The bank charges a small fee (usually between INR 500 and INR 1,000) for checking and processing your application. This fee is generally deducted from the loan amount, and it’s not refundable even if your loan application is rejected.
Disbursement
The release of the loan amount to the student or the institution in stages. Once the loan is approved, the bank will release the loan in parts (disbursements). Usually, the bank sends the money directly to the college or university to cover tuition fees, while other expenses like travel and living costs are given to the student.
EMI (Equated Monthly Installment)
The fixed monthly payment that the borrower needs to make to repay the loan, including both principal and interest. After the moratorium period, you need to start repaying the loan in EMIs. For example, if your loan is INR 10 Lakhs, the EMI could be INR 12,000 per month for 10 years, which includes both the loan amount and interest.
Also Read: Check here all the details about how to remove NPA from education loans. Know the effective steps to repay your education loan properly.
Types of Education Loan in India
Education loans in India help students pursue higher studies in India and abroad. Broadly speaking, there are two primary types of education loans: secured and unsecured education loans. Each type has its own set of features, benefits, and eligibility requirements. Understanding these differences will help students make an informed decision.
Secured Education Loans
Secured education loans require the borrower to provide collateral as a guarantee to the bank or financial institution. This could be in the form of property, fixed deposits, or any other valuable asset. The collateral is used to protect the lender in case the borrower is unable to repay the loan.
To qualify for a secured loan, the borrower (usually the parent or guardian) must own the collateral asset, and the value of the collateral must meet or exceed the loan requirement. Check out the key features of secured education loans-
- Collateral can include residential property, agricultural land, fixed deposits, or any other tangible asset with a market value.
- Secured loans typically offer higher loan amounts compared to unsecured loans. The loan amount can range from INR 7.5 lakh (for domestic studies) to INR 1.5 crore (for overseas studies).
- The interest rates on secured education loans are generally lower than those of unsecured loans. They range between 8% to 12% per annum, depending on the lender, the course, and the type of collateral provided.
- Secured loans usually come with a longer repayment tenure of up to 15 years, and the repayment typically starts after the completion of the course or once the student secures a job.
- Like most education loans, secured loans also come with a moratorium period, which is usually 6 months to 1 year after the course completion. This period allows students to find a job before they start repaying the loan.
Advantages of Secured Loans:
- Since the loan is backed by collateral, banks are willing to offer larger amounts.
- The interest rate is usually lower compared to unsecured loans.
- Banks are generally more flexible with the repayment tenure, making it easier for the borrower to manage.
Disadvantages of Secured Loans:
- If the borrower is unable to repay the loan, the lender has the right to seize the collateral asset, which could be a house or land.
- Not everyone has assets that can be pledged as collateral, which may limit access to these loans.
Unsecured Education Loans
Unsecured education loans, as the name suggests, do not require the borrower to pledge any asset or collateral. Instead, the loan is granted based on the creditworthiness of the borrower (usually the student’s parent or guardian), their income, academic record, and the institution they are attending.
Eligibility is determined based on the academic record of the student, the reputation of the educational institution, the creditworthiness of the co-applicant (usually a parent or guardian), and the repayment capacity of the family. Check out the features of education loans without collateral–
- Unsecured loans do not require any asset or property to be pledged as collateral.
- These loans typically cover a smaller loan amount compared to secured loans. For domestic studies, the loan amount usually ranges from INR 1 lakh to INR 20 lakh. For overseas education, unsecured loans may range from INR 20 lakh to INR 40 lakh.
- The interest rates for unsecured loans are higher than secured loans and generally range from 10% to 16% per annum, depending on the lender and the loan amount.
- The repayment tenure for unsecured loans is generally shorter compared to secured loans, typically ranging from 5 to 10 years. The moratorium period can be the same as secured loans (6 months to 1 year after course completion).
Advantages of Unsecured Loans:
- The most obvious advantage is that there is no need to risk any asset or property. This is beneficial for students who do not have valuable assets to pledge.
- Unsecured loans are typically processed faster than secured loans because there is no need for asset valuation or paperwork related to collateral.
- The documentation process is simpler, and approval times are generally shorter.
Disadvantages of Unsecured Loans:
- As there is no collateral, banks charge higher interest rates to offset the risk.
- Unsecured loans have lower loan limits compared to secured loans. This could make it challenging to cover the entire cost of education, especially for expensive overseas programs.
- Banks often look for a stable income and a good credit history from the co-applicant (parent or guardian), and students may need to provide additional documentation to prove their academic credentials.
Also Read: Know how exchange rate volatility affects student loans for international students. Check out the ways to deal with and manage finances wisely.
Key Differences Between Secured and Unsecured Education Loans
Check out this table to understand the major differences between secured and unsecured education loans.
| Feature | Secured Education Loan | Unsecured Education Loan |
| Collateral Requirement | Requires collateral (e.g., property, fixed deposits) | No collateral required |
| Loan Amount | Higher loan amounts (INR 7.5 lakh to INR 1.5 crore for abroad) | Smaller loan amounts (INR 1 lakh to INR 40 lakh for abroad) |
| Interest Rates | Lower interest rates (8% to 12% per annum) | Higher interest rates (10% to 16% per annum) |
| Repayment Tenure | Longer repayment tenure (5 to 15 years) | Shorter repayment tenure (5 to 10 years) |
| Eligibility | Based on the value of the collateral and co-applicants income | Based on the student’s academic record and co-applicants creditworthiness |
Government-sponsored Education Loans
Government-sponsored education loans in India are a key financial support system for students who wish to pursue higher education but are unable to afford the costs. Public-sector banks in India, such as the State Bank of India (SBI), Bank of Baroda, and others, offer education loans with various features and benefits under government schemes. These loans help students by covering tuition fees, accommodation costs, and other related expenses for studies in India or abroad.
Here is a general overview of the features and benefits of government-sponsored education loans based on information from the official websites of public-sector banks:
Eligibility Criteria
- The borrower must be an Indian citizen.
- The student should be between 18 and 35 years of age (varies by the bank).
- The loan is available for undergraduate, postgraduate, diploma, and vocational courses. The courses should be recognized by regulatory authorities like UGC, AICTE, etc.
- The student must have secured admission to a recognized institution through an entrance exam or merit-based selection.
Loan Amount & Interest Rates
The amount of loan sanctioned depends on the course, the institution, and the financial need of the borrower. Commonly, public-sector banks in India offer:
- Up to INR 10 Lakhs for studies in India
- Up to INR 20 Lakhs for studies abroad
In some cases, banks may offer higher loan amounts based on the merit of the course or institution.
Interest rates for education loans vary across banks but are generally in the range of 8% p.a to 12% per annum, depending on the loan amount, the course, and whether the student is pursuing education in India or abroad.
- Some banks offer concessional rates for female students or for specific courses in priority sectors (like STEM fields).
- The interest is usually charged on a reducing balance basis, which means interest is calculated only on the outstanding loan amount.
Subsidy Schemes
Some government schemes are also available to encourage education loans-
- Pradhan Mantri Vidya Lakshmi Karyakram: A government initiative to provide easy access to education loans. This includes interest subsidies for students from economically weaker sections.
- Interest Subsidy Scheme for Education Loans: For students who avail of loans under the Central Scheme of Interest Subsidy (CSIS), the government provides a subsidy on interest during the moratorium period for loans up to INR 7.5 Lakhs.
Also Read: Check out this blog on how to write a letter to a bank requesting for education loan extension. Know what details to include and the supporting documents to attach.
Popular Banks Offering Education Loans in India
Education loans from banks in India are an excellent way for students to finance their higher education. With attractive interest rates, flexible repayment terms, and various government schemes offering interest subsidies, these loans provide much-needed financial assistance. Check out some of the best private and public-sector banks offering education loans.
| Bank Name | Loan Amount | Interest Rate (p.a.) |
| State Bank of India (SBI) | Up to INR 1.5 crores | 8.30% to 9.85% (based on amount) |
| HDFC Bank | Up to INR 1.5 crores | 9.90% onwards |
| ICICI Bank | Up to INR 3 crores | 10.50% onwards |
| Axis Bank | No upper limit | 9.90% to 14% |
| Punjab National Bank (PNB) | Need-based finance | 9.05% to 10.15% |
| Bank of Baroda (BoB) | Up to INR 1.5 crores | 8.50% to 9.25% |
| Canara Bank | Need-based finance | 9.20% to 10.00% |
| Kotak Mahindra Bank | Up to INR 20 Lakhs | 10.50% to 11.50% |
| Bajaj Finserv | Up to INR 25 Lakhs | 11.99% to 13.99% |
| IDFC First Bank | Up to INR 20 Lakhs | 10.75% to 11.75% |
How to Apply for Education Loans in India?
Applying for education loans in India is super easy. You can choose any of the 3 methods based on your convenience. Visiting the branch allows face-to-face assistance, while the bank’s official website offers ease of application from home. The Vidya Lakshmi Portal offers a streamlined process with access to both public and private sector banks. Check out the details below-
Visit the Bank Branch
You can visit the nearest branch of the bank where you wish to apply for the loan. Meet with a loan officer, fill out the application form, submit required documents (admission letter, ID proof, academic records, etc.), and discuss loan terms.
Benefits- Direct interaction with the bank’s representative, and personalized assistance for your queries.
Apply Through the Bank’s Official Website
Most banks have an online loan application portal. You can visit the bank’s website, fill out the loan application form, upload the required documents for education loans, and track the status of your loan application online.
Benefits- Convenient and faster, as you can apply from anywhere and anytime.
Use the Government-Backed Vidya Lakshmi Portal
You can also visit the Vidya Lakshmi Portal. It is a government initiative to provide a single window for students to apply for education loans. You can apply to multiple public and private banks, check loan status, and access other education-related services.
Benefits- One-stop platform for multiple bank options, easy access to government schemes, and interest subsidy programs.
This was all about education loans. To learn more about education loans, the best bank accounts for students, forex, banking experience for global students, or international money transfers, reach out to our experts at 1800572126 to help ease your experience with studying abroad.
FAQs
An education loan is financial assistance provided by banks or financial institutions to students for pursuing higher education, covering tuition fees, living expenses, and other educational costs.
Indian students who have secured admission to a recognized institution, either in India or abroad, are eligible to apply for an education loan.
You can borrow up to INR 1.5 crores for studies abroad, depending on the bank’s policies, course, and institution. Most banks cover 100% costs of studies and offer flexible repayment conditions.
Collateral is usually required for loans above INR 7.5 Lakhs. For loans below this, many banks offer loans without collateral, based on the student’s profile and co-applicant’s financials.
Interest rates for education loans typically range from 8% to 14% per annum, depending on the loan amount, bank, and whether the loan is for studies in India or abroad.
The repayment period for education loans is typically up to 15 years, starting after the moratorium period (course duration + 6 months to 1 year).
Yes, you can repay the education loan early without penalties. Some banks may charge a pre-payment fee for early settlement, but many banks waive this.
Common documents include proof of identity, admission letter, academic records, proof of income (from parents), and collateral documents (if applicable).
The moratorium period is the time during which you don’t have to repay the loan—typically during your studies and up to 6-12 months after course completion.
While some banks allow loans without a co-applicant for lower amounts, most banks require a co-applicant (typically a parent) for loans above INR 7.5 Lakhs.
Follow Us on Social Media
