A detailed student-friendly guide covering interest rates, collateral, repayment rules, and tax benefits.
Taking an education loan can make higher studies—India or abroad—affordable. But before signing up, students and parents must understand interest rates, repayment rules, moratorium period, collateral conditions, tax benefits, and more.
This guide explains everything in simple language to help you make a smart decision.
Types of Education Loans in India
Education loans are mainly of two types:
Based on Collateral
- Secured Loan (With Collateral)
You need to pledge an asset such as:
- Property
- Fixed deposits
- LIC policy
- Government bonds
Best for: High loan amounts (₹7–50 lakh for India, ₹20 lakh–₹1 crore+ for abroad).
Benefits: Lower interest rates, higher approval chances.
- Unsecured Loan (Without Collateral)
No assets required. Approval depends on:
- Student’s academic profile
- Course quality
- Parents’ income
- Co-applicant credit score
Best for: Loan up to ₹10–15 lakh.
Disadvantage: Higher interest rate compared to secured loans.
Based on Place of Study
- Domestic Education Loans
For graduation, PG, engineering, medical, MBA, etc., within India.
Interest rates: 9%–13%.
- Abroad Education Loans
For MS, MBA, MBBS abroad, aviation, etc.
Interest rates: 10%–16%, depending on currency risk.
- Interest Rates — Most Important Factor
Interest rate varies depending on:
- Loan type (secured/unsecured)
- Bank/NBFC
- Student profile
- Course ranking
- College reputation
Typical Education Loan Interest Rates (2025)
| Lender Type | Secured Loan | Unsecured Loan |
| Public Sector Banks (SBI, BOB, PNB) | 8.5%–10.5% | 10%–13% |
| Private Banks (ICICI, Axis, HDFC) | 9.5%–12% | 11%–16% |
| NBFCs | 11.5%–13.5% | 12%–18% |
Tip: Public sector banks almost always offer the lowest rates for students.
Moratorium Period — Your EMI Holiday
The moratorium period is the time during which you don’t need to pay EMI.
It generally includes:
- Course duration +
- 6–12 months after getting a job
Key Points You Must Check
✔ Whether you need to pay simple interest during the moratorium
✔ Whether interest is completely waived (rare)
✔ Whether the bank compounds interest monthly or quarterly
✔ Option to pay partial interest to reduce the burden
Important: The longer the moratorium, the larger the total repayment amount because interest keeps adding.
Repayment Terms
Education loan repayment starts after the moratorium.
Check these factors:
✔ Tenure
- Public banks: 10–15 years
- NBFCs: 7–10 years
Longer tenure = lower EMI but higher total interest.
✔ EMI Affordability
Ask for a quote for:
- 10-year EMI
- 15-year EMI
Compare interest difference — it can be huge
✔ Prepayment Charges
- Public banks: 0% penalty
- Private banks/NBFCs: Up to 2%–4%
Always choose a loan with zero pre-closure charges if possible.
Collateral Rules — When Is Security Required?
Banks may require collateral in the following cases:
✔ Collateral NOT required
- Loan amount up to ₹7.5 lakh (as per RBI guidelines)
- Good academic profile
- Co-applicant has strong income
- Admission in top-ranked colleges
✔ Collateral REQUIRED
- Loan above ₹7.5 lakh from public banks
- Studies abroad loan above ₹15–20 lakh
- Average college or non-professional course
- Co-applicant has weak credit score
Accepted Collateral Types
- Residential or commercial property
- Non-agricultural land
- Fixed Deposits
- LIC money-back policies
- Government bonds
Processing Fees & Other Hidden Charges
Before finalizing your loan, check:
- Processing fee (₹5,000–₹15,000)
- Legal & valuation charges (for collateral loans)
- Forex conversion charges (for abroad study)
- Late payment penalty
- Insurance charges (optional)
Tip: Negotiate with private banks; these charges can often be reduced.
Tax Benefits — Section 80E (Very Useful)
Under Section 80E, you get 100% tax deduction on interest paid on education loans.
Key Highlights:
- Applicable for 8 years from the start of repayment
- No upper limit on deduction
- Only interest is deductible, not principal
- Loan must be taken from banks, NBFCs, or approved financial institutions (not friends/relatives)
Who can claim?
- Parents
- Students
- Spouse
- Legal guardian
Tip: If the student has taxable income abroad, the parent in India should claim the 80E benefit.
Things to Check Before Taking an Education Loan
Here is your complete checklist:
✔ Interest rate (fixed or floating)
✔ Whether collateral is required
✔ Processing fees
✔ Moratorium rules (interest during study period)
✔ EMI after moratorium
✔ Total interest cost
✔ Tenure flexibility
✔ Co-applicant requirements
✔ Prepayment penalties
✔ Tax benefits under 80E
✔ Bank reputation & customer service
✔ Hidden charges (legal, valuation, conversion charges for abroad loans)
Sample EMI Comparison (Example)
Loan amount: ₹20 lakh
Tenure: 10 years
Interest: 10%
- Monthly EMI: ₹26,430
- Total interest paid: ₹11.7 lakh
- Total repayment: ₹31.7 lakh
If you choose 15 years tenure:
- EMI: ₹21,505
- Total interest: ₹18.7 lakh
- Total repayment: ₹38.7 lakh
Conclusion: Long tenure reduces EMI but increases overall cost.
FAQs
- What is the maximum loan I can get for studying abroad?
Public banks offer up to ₹1.5 crore with collateral. NBFCs may offer ₹40 lakh–₹75 lakh without collateral for top universities.
- Can students with low income get an education loan?
Yes, the co-applicant’s income and collateral are more important than student income.
- Do banks check my academic records?
Yes. Better grades = better approval chances.
- Is it compulsory to buy insurance with an education loan?
No, but banks may recommend it. You can opt out.
- Can I switch my loan to another bank?
Yes, through education loan takeover if you find a lower interest rate.
- Are education loans available for part-time courses?
Yes, but only from selected lenders and if the course has strong placement potential.
- Do I need to pay interest during moratorium?
It depends on the bank. Most banks charge simple interest during the study period.
Final Advice
Always compare at least 3 banks + 2 NBFCs before taking an education loan.
Focus on:
- Interest rate
- Moratorium rules
- Total cost (not just EMI)
- 80E tax benefits
