Education Loans in India: All You Need to Know Before Applying
In India, education is generally regarded as the greatest possible means to transform one’s life. Parents have laboured day and night for generations to educate their children well, even at the cost of reducing domestic expenses or giving up on their own aspirations. For middle-class families, particularly, the degree of a child is the best long-term investment — one that can place the whole family on the social and economic map.
But stepping into the 21st century, the price tag of higher education has gone through the roof. A medical degree from AIIMS or a government institution can still be somewhat affordable, but private medical institutions charge between ₹50 lakh and ₹1 crore for an MBBS course. In the same way, engineering at an IIT costs about ₹10–12 lakh today, while private colleges could charge up to ₹25 lakh. Abroad, however, the figures are even more mind-boggling — a two-year MBA in the US can be as much as ₹50–70 lakh, and doing a master’s from the UK or Canada usually involves ₹30–50 lakh when accommodation is factored in.
Not all families can fall back on such money. While others draw from their savings, sell assets, or take personal loans with high interest rates, others find that these options are not viable in the long run. It is here that education loans come in. Education loans differ from general-purpose loans because they target academic fees and allowing students to follow their aspirations without placing untenable financial burdens on their families.
Here in this blog, we will discuss the idea of education loans in detail — what they are, why they are so crucial, what do you need to look out for before applying, some further insights which many borrowers tend to miss, and lastly, how sites like Money Buddha can make it easier to find the optimal loan.
What Is an Education Loan?
Fundamentally, an education loan is a type of financial assistance offered by banks and non-banking financial institutions (NBFCs) to enable students to fund higher studies in India or abroad. As opposed to multipurpose personal loans, education loans are designed specifically for educational purposes and tend to be given at slightly reduced interest rates with extended repayment terms.
What Does an Education Loan Cover?
An education loan doesn’t only pay your fee. Any loan in India typically pays for:
- Tuition Fees: The primary part, paid directly to the school.
- Hostel Fees & Living Expenses: Rent, food, and occasionally even transportation.
- Books, Equipment, and Technology: Laptops, lab equipment, or other course-specific materials.
- Travel Costs: Airfare for international students is usually covered.
- Insurance: Some banks make it mandatory for students abroad to purchase health or travel insurance.
This renders them much more holistic than other loans.
Who Borrows the Loan?
As most students lack any income. the student applies for the loan in their own name, with a parent, guardian, or spouse as the co-borrower. The co-borrower’s income, credit score, and repayment ability play a significant role in determining approval.
Collateral Conditions in India
Banks divide education loans into two categories:
- Unsecured Loans (up to ₹4–7.5 lakh): No collateral, but a co-borrower is required.
- Secured Loans (over ₹7.5 lakh): Involves tangible collateral such as property, fixed deposits, or an LIC policy.
This way, banks maintain a balance of risk in lending, particularly for costly foreign courses.
Moratorium Period
One of the largest benefits of education loans is the moratorium (holiday period). This is the study period + 6–12 months, which allows borrowers to delay repayment. For instance, if your course is for two years and the bank provides an extra 12 months, you actually begin paying EMIs from the 3rd year.
Some banks charge interest during this period, while others let it accumulate. This fact can make a considerable difference in your overall repayment and should never be overlooked.
Why Should You Consider an Education Loan?
Most Indian families shy away from taking loans, equating debt to cost. But things are different in real life. An education loan is really an investment. Here’s why:
Access to Better Institutions
Without loans, most students settle for the quality of education available to them. For instance, a student who is eligible for an IIT but cannot pay the tuition fees may opt for a local engineering college. With a loan, they can opt for the better college, which usually results in better placements and salaries.
Protecting Family Savings
Parents may think about liquidating their fixed deposits, provident funds, or selling gold to fund fees. But it compromises retirement security and long-term stability. Parents can continue to save while helping their child get educated through education loans.
Shared Responsibility
In conventional Indian homes, education expenses are entirely taken care of by the parents. An education loan reverses this equation. After graduation and employment, the student takes up repayment. This inculcates money sense among students and makes them more responsible towards education.
Tax Benefits
Under Section 80E of the Income Tax Act, Borrowers can claim a deduction on the entire interest they pay for up to 8 years. There is no upper limit on the amount, which can lead to significant savings over time.
Global Exposure
Education loans have made it possible for thousands of Indian students to pursue overseas education. Without loans, most will never dream of US, UK, Canadian, or Australian universities. Affordable loans have made India the second-largest international student-sending country.
Points to Consider Before Applying
Not all education loans are appropriate for every student. Before inking the agreement, keep these in mind:
Loan Amount
- Study in India: ₹50,000 to ₹10 lakh.
- International studies: ₹20–40 lakh, occasionally even ₹1 crore for overseas courses like MBBS.
Interest Rates
- Public sector banks: 8–10%.
- Private banks/NBFCs: 11–14%.
- Girl students: Usually entitled to a 0.5% rebate.
Moratorium Conditions
Check whether the bank accepts simple interest during the moratorium or grants full deferment. In certain cases, accumulation of interest may boost the total by several lakhs.
Repayment Tenure
Extended tenures lower EMI burden but raise overall interest. For instance:
- 5 years → High EMI, lower total interest.
- 10–15 years → Lower EMI, but much higher total repayment.
Collateral Requirements
Be clear on whether you’ll need to pledge property, FDs, or insurance policies. Missing this detail often leads to last-minute stress during loan processing.
Additional Costs
Processing fees, documentation charges, and compulsory insurance can add 1–2% to the loan value. Always ask for the total cost of the loan calculation upfront.
Additional Insights for Borrowers
Government Schemes
- Vidya Lakshmi Portal: A single-window online platform to apply to multiple banks with one form.
- Central Sector Interest Subsidy Scheme (CSIS): Lower-income families earning up to ₹4.5 lakh per annum the government pays the entire interest during the moratorium.
Academic Performance Matters
Excellent academic marks not only enhance approval probabilities but can even attract lower interest rates. Banks consider well-performing students as low-risk borrowers.
Overseas Education Loans
These need more papers, such as visa approval, proof of finance, and tighter collateral terms. These loans take longer to process, so apply well before your course start date.
Clever Repayment Strategies
- Start paying partial interest during the moratorium.
- Utilise scholarships, stipends, or part-time income for prepayment.
- Avoid defaults, as these will harm your credit rating and make it harder to obtain credit.
How Money Buddha Can Help
India’s education loan market is filled with public banks, private banks, NBFCs, and online financial institutions. Each of them has various terms, not-so-hidden charges, and conditions. For parents already worried about admissions, it is daunting to compare all of these. Money Buddha fills this gap.
What Money Buddha Provides
- Loan Comparison: Rather than visit 10 banks separately, Money Buddha compares them side by side.
- Expert Advice: Loan specialists define eligibility, papers, and payment schedules in easy-to-understand terms.
- Large Number of Loans: Not only education loans, but also personal, home, gold, business loans, and many more
Why This Matters
Most families hasten to take loans from the first bank they visit, which makes them pay higher EMIs or lose subsidies. By using Money Buddha, you do not commit these errors and make an educated decision.
Conclusion
Education loans are not a choice anymore — they are the key to making dreams come true for most families. The increasing expense of higher education is such that if loans do not cover the gap, many bright minds would have to abandon their aspirations. If chosen wisely, an education loan is not a burden at all but an investment — one whose returns come in the shape of enhanced prospects, greater earnings, and increased family stability.
By knowing how education loans function, considering all the aspects prior to applying, and making use of platforms such as Money Buddha to streamline the process, students can concentrate on what is really important: being the best in their studies and leading a better life.
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