How do Education Loans Work in India - Complete Guide

Raghuvamshi Kanukruthi
March 11, 2024

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Up to Rs. 50 Lakhs for 10 Years.
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About Education Loans in India

Education loans are the answer to the skyrocketing and ever inflating costs of education in India. They are the financial support for students to help them navigate through their educational aspirations, whether in India or overseas. Different banks and NBFCs offer these loans at good rates to help students afford a good education. 

Here are two key features of Education Loans:

  • You can get full tax benefits on the interest you pay under Section 80(E).
  • For certain courses and schools, you can get a loan without needing collateral up to a certain amount.

Read on to know the complete details about education loans,  their types, features, benefits, eligibility, how they work and how to secure one.

How Education loan work in India

Understanding what an education loan is and getting these loans is easy. Here is how an education loan works: 

  1. Students can borrow from Rs 1 lakh to Rs 1 crore in India. It often depends on what and where they are learning and can be even more  depending on the course and location. 
  2. Most lenders cover 100% of the expenses in education loans.
  3. The loan amount can also be used for expenses like buying a laptop or covering travel costs.
  4. The interest rate on the loan varies across lenders. 
  5. The loan amount is paid directly to the institution. 
  6. It's not necessary to start paying the loan immediately. Most lenders offer a moratorium period, i.e. payment holiday. 
  7. After the moratorium too, you get flexible options for repaying the loan. Students can take up to 15 years after finishing their course to repay it.
  8. Usually students don't have a job and are studying, hence, they might need someone else to sign the loan agreement, too. This person can be someone who agrees to pay back the loan if the student can't. These are called co-signer and can be any close one like parents or close relatives.

Different Types of Interest Rates in Education Loans

The bank decides what kind of interest rate students need to pay back. Some Indian banks may offer loans with fixed interest rates. It often means the rate stays the same throughout the loan term.

Others have interest rates linked to the Lending Rate. This is defined by the Marginal Cost of Funds based Lending Rate for a year. In case this rate changes regularly, your student loan's interest rate might also change.

Compare Top Education Loan Information 2024

Let’s have a glance at some of the most prominent education loan providers, their interest rates and processing charges:

Bank Interest Rate (p.a.) Processing Fees
SBI8.15% to 11.75%Up to Rs. 10,000/- only above loan amount more than Rs. 20 lacs
Central Bank of India8.10% - 10.60%Nil for studies in India, 1% for abroad, max Rs. 15000/-
PNB9.20%Nil for studies in India, 1% for abroad, max Rs. 10000/-
Canara Bank9.25%0.5% up to max Rs. 10,000/- (for collateral security of 100% above), 0.5% up to max Rs. 20,000/- (for collateral security of less than 100%)
IDFC First Bank10%-15%Up to 1.5% of loan amount
IDBI Bank8.50%Nil for studies in India, 1% for abroad, max Rs. 5000/-
Bank of Baroda8.15%Nil up to Rs. 7.5 lacs, 1% above Rs. 7.5 lacs up to max Rs. 10,000/-
Bank of India11.05%-11.85%Nil for studies in India
ICICI Bank9.85%Up to 2% + GST
Bank of Maharashtra9.45%Contact the bank
Axis Bank13.70%-15.20%2% of the loan + GST
HDFC Bank9.50%Nil for studies in India, 1% for abroad
Kotak Mahindra BankUp to 16%Nil
Federal Bank12.55%Contact the bank
Tamilnad Mercantile Bank11.75%-13%1% of sanctioned amt above Rs. 7.5 lacs

*The above details are as of May 2024 and are subject to change. For latest information, please check with the corresponding bank. 

You can also get your loan from new age NBFCs like Propelld that provide hassle free education loans with minimal documentation and no collateral requirement. 

‍Get your Loan 10X Faster than Banks. Disbursal in Just 7 Days. Apply Now. 

Factors That Decide Your Education Loan EMI

Several things determine how much you'll pay each month for your education loan. These include:

  • The interest rate on the loan
  • How much you borrowed
  • How long you have to repay the loan

Types of Education Loans in India

There are numerous education loans for different kinds of courses. Whether you are pursuing a skill-based course or studying abroad, there's a loan for it.

There are numerous education loans for different kinds of courses. They are of different kinds based on several distinguishing factors:

Based on Location of Institute

  • Domestic Education Loan: For courses within the country. To get this loan, you need to meet certain requirements and have a confirmed seat in an approved institute.
  • Overseas Education Loan: For courses outside the country. Similar to domestic loans, you need to have a secured seat in a recognized college or university.

Based on the Course

  • Undergraduate Education Loans: For undergraduate degree programs. Undergraduate degrees are usually 3-4 years. After completing these programs, pupils have plenty of job opportunities.
  • Postgraduate Student Loans: For postgraduate degrees within India. Postgraduate degrees are usually of 2 years in India. Students need to have completed their undergraduate program to qualify.
  • Professional Courses Loans: For career-oriented education programs. Many people, after spending some time in corporate, decide to take up skill development courses to improve their employment prospects. 

Based on Collateral Provided

  • Loan Against Deposits: Students can get a loan against fixed deposits, recurring deposits or gold deposits. 
  • Loan Against Property: Education loan information includes financial institutions that offer loans against properties like your house.

Loan Against Securities

  • Students can also get loans against bonds, debentures or equity shares.

The Process to Apply for an Education Loan in India

Step 1: Choose a Lender Based on your Preferences and Requirements. 

Do a proper research and choose a lender based on your preferences like interest rate, processing fees, repayment tenure, moratorium availability etc. 

Step 2: Fill the Student Loan Application Form Online or Offline

You will need to fill out a form with your personal details and provide the required documents.

Step 3: Bank Initiates the Process

Bank initiates the process of loan, verifies your documents and evaluates your application. You'll have a chat with a bank employee about your academic performance, chosen course, and possibly your institute along with collateral requirements, if any. 

Step 4: Provide Supporting Documents

Before the bank approves your loan, you need to submit documents showing your admission to the institute.

If your loan is for a larger amount, you might need collateral like property papers.

Step 5: Loan Approval or Denial

Students often require a guarantor for their loans. They can usually be your parents or guardians. The bank will check their credit history.

After checking everything, the bank will decide whether to approve or deny your loan.

Step 6: Get your Loan

Once everything's sorted, the bank will give you the loan. They'll directly pay your college fees to your institute.

For easy processing with minimal documents, students can visit Propelld's website. They are efficient and offer a hassle-free approach to education loans. Propelld is a preferred choice for many students and parents in India.

Minimal Documentation. No Collateral Required. 7 days Disbursement. Apply Now

Features of Education Loan in India

The most important features of an education loan in India are: 

  1. Loan Amount: The maximum loan amount in education loans can be as much as 1 crore. Most lenders provide 100% financing for college fees including tuition fees, hostel, laptop, student exchange program and other expenses too. 
  2. Flexible Repayment: Numerous education loans let students pay back the money after they finish learning. They can choose a schedule that works for them. It often makes their finances more manageable.
  3. Moratorium Period: Some banks give students a break from paying right after they graduate. This gives them time to settle into their new job. Pupils can do this without worrying about loan payments.
  4. Tax Benefits: Disbursing education loans might help students save money on taxes. It indicates they could pay less tax overall. This feature often lightens their financial load.
  5. Online Application and Management: Students can easily apply for loans. Propelld also helps them keep track of their accounts online. So, it is convenient, saving time and energy.

Benefits of Education Loans Explained

The major benefits of education loans are as follows: 

  1. Access to Higher Education: Now, students from different financial backgrounds can fulfill their dreams of higher education. Students acquire the funds for their academic aspirations and can study without worrying about how to pay for it.
  2. Financial Flexibility: Students can focus on their studies with the help of education loans. They can now do this without stressing about finances. They can fully concentrate on learning and achieving their goals. Many pupils are not being held back by financial worries.
  3. Building Credit History: Disbursing education loans on time helps students build a good credit history. This is important for their financial future. It often makes it easier to borrow money later on if needed.
  4. Global Opportunities: Education loans can enable students to explore educational opportunities abroad, broadening their horizons and exposing them to different cultures and academic environments. This global perspective can enrich their educational experience and prepare them for an increasingly interconnected world.
  5. Interest Subsidies and Tax Benefits: Some education loans come with interest subsidies or tax benefits, reducing the overall cost of borrowing. These incentives can significantly lower the financial burden on students and their families, making higher education more affordable in the long run.
  6. Investment in Future Earnings: Education loans are often considered investments in future earning potential. By obtaining a degree or certification through higher education, individuals can enhance their skills and qualifications, leading to better job prospects and potentially higher salaries over time.

Click here for Higher Chances of Approval than Banks - Propelld Education Loan

List of Expenses Covered in Education Loan

Here's what the loan amount will cover:

  1. Tuition fees
  2. Hostel fees
  3. Travel expenses passage money for students studying abroad
  4. Insurance premium
  5. Cost of books/equipment/instruments/uniform
  6. Examination/laboratory/library fees
  7. Cost of a computer/laptop required for course completion
  8. Caution deposit, building fund/refundable deposit supported by institution bills/receipts
  9. Any other expenses required to complete the course such as study tours/thesis/project work

Tax Benefits on Education Loan

The interest you pay on your student loan can be deducted under Section 80E of the Income Tax Act of 1961. This advantage is only available to individual borrowers and is only offered for the purpose of higher education. The deduction is available to all fields of study, both domestically and internationally. It includes both vocational and academic courses.

It's important to remember that the tax deduction only applies to the interest portion of the EMI, not the principle. There is, however, no limit to how many times you can claim this benefit. You'll need a certificate from your bank or financial institution that separates the principal and interest components of your EMIs to qualify for this benefit.

This benefit is accessible for eight years from the day you start repaying your loan or until the interest component is paid off, whichever comes first.

Courses Covered Under an Educational Loan

  1. Undergraduate degrees
  2. Postgraduate degrees
  3. Undergraduate diplomas
  4. Postgraduate diplomas
  5. Vocational training courses
  6. Skill development courses
  7. Doctoral programmes

Education Loans Eligibility

  1. Indian Residence/Citizenship
  2. Age Requirement: The Pupil should be at least 18 years old to apply for a loan. Or, the parents can apply on their behalf.
  3. Admission to a Course: Pupils must have confirmed admission to a college or university. It should be recognized by the UGC, government, AICTE, or relevant authority.
  4. Academic Undertaking: Pupils must achieve at least 60% in their previous qualifying exams.

List of Documents Required for Education Loan

Here is an indicative list of documents that most lenders ask for:

  1. Admission letter from the educational institution
  2. Marksheets (previous education - school/college)
  3. Age proof
  4. ID proof
  5. Address proof
  6. Signature proof
  7. Salary slips
  8. Recent bank account statements
  9. ITR with the income computation
  10. Audited balance sheet
  11. Recent bank statements
  12. Proof of turnover (service tax return/sales receipt)
  13. Completed application form with signature
  14. Latest passport-size photographs
  15. Appropriate Visa for studies abroad

Tired of too much Documentation? Turn to Propelld for Minimal Documentation, Superfast Processes and Hassle Free Loans. Apply Now!

What is an Education Loan EMI Calculator

The Education Loan EMI calculator is an online calculating tool designed to help borrowers calculate the monthly repayment amount for their educational loans. It generates an amortization schedule illustrating the EMI breakdown, including monthly interest payments and the portion of the principal repaid.

The tool also outlines the total amount repaid to date and the outstanding balance, offering a comprehensive understanding of the overall cost of the educational loan. This facilitates the calculation of the total interest payable throughout the loan tenure.

How Does the Education Loan Calculator Help you

For individuals considering or already applying for an educational loan, understanding the monthly EMI commitment is crucial. The Education Loan EMI calculator aids in assessing the monthly financial obligation, allowing borrowers to explore various interest rates and select preferred banks. This information enables effective budget planning. The calculator is user-friendly, offering simplicity, speed, and the ability to experiment with different parameters—all at no cost.

How to Use the Educational Loan EMI Calculator

The tool is user-friendly and free of charge, requiring users to input the following details:

  • Amount: The desired educational loan amount.
  • Tenure: The preferred duration for repaying the loan, representing the EMI period.
  • Rate of Interest: The applicable interest rate offered by the lending institution.

By entering these details, users can obtain the monthly EMI amount, with the flexibility to adjust parameters for a customized monthly budget.

How to Calculate Educational Loan EMI

The following formula illustrates how educational loan EMI is calculated:

EMI= [P*R*(1+R)^n]/[(1+R)^n-1]  

Where,

  • P = Principal amount
  • R = Rate of interest
  • n = Tenure (in months)

As the cost of university fees keeps rising, more students find it tough to manage their expenses. In such a scenario, Education loans can be really helpful. But, it's important to think carefully and understand how student loan work in India. Do this before choosing a bank for your loan. 

Getting an education loan has become even simpler now with online applications and hassle free loans. 

Students can visit Propelld, for obtaining education loans in India. With a vast customer base of over 2 lakh individuals, Propelld has partnered with more than 2500 institutes and disbursed over Rs. 2000 crores in loans.

Propelld collaborates with various institutions across different sectors, such as Upgrad, Simplilearn, Great Learning, Allen, Aakash, Physicswallah, BITS Pilani, Presidency University, ISB, and even reputed schools. Their primary features include:

  1. No Collateral Loans: Unlike traditional banks, Propelld offers education loans without requiring collateral.
  2. Moratorium Option: Propelld provides a moratorium period, allowing borrowers to defer loan payments if needed.
  3. Faster Process: Propelld boasts a significantly quicker loan processing time compared to banks. While banks typically take around a month to disburse loans to universities, Propelld completes the process in just seven days. For skill-up courses, disbursement is even quicker, often instantaneously.
  4. Minimal Documentation: Propelld requires fewer documents, simplifying the application process.
  5. Fully Online Process: The entire loan application and verification process with Propelld is conducted online, eliminating the need for physical verification.

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FAQs About How Education Loan Works

What types of courses can I get an education loan for?

You can apply for an education loan in India for:

  1. accredited vocational courses
  2. diplomas
  3. undergraduate
  4. graduate
  5. doctoral
  6. professional programs

Are there any interest-free education loans available?

No, all education loans in India come with interest. They are automatically charged by the lenders.

When to start repaying my loan?

Repayment usually commences after you finalise your course. You can also do this a few months after you secure a job. This period is called a moratorium period.

Do I need to provide collateral?

Collateral is required only for education loans above a certain amount. It may vary among banks.

Can I add a co-applicant to my loan?

Many banks require a co-applicant for an education loan. This can be: a parent, guardian, spouse, or parent-in-law.

How does the education loan process work?

After you submit your loan application, the bank will start the process by checking your paper, assessing the course of study you want the loan for, and determining what kind of collateral you can offer. Following that, the bank will notify you.

Is it beneficial to take education loan?

taking an education loan can be a smart financial move that can help you build your credit and improve your financial future.

What happens if education loan is not paid?

Hard Recovery occurs when the payment of EMIs hasn't commenced. Government banks will send you a notice which will state that if the payment is not made, then the Government will sell your collateral. If this is ignored, then the Bank will go ahead and put your collateral on an auction.

How to get an education loan after 12th standard for higher education?

To obtain an education loan after 12th standard for higher education, one typically needs to apply through banks or financial institutions offering such loans. 

There are certain requirements for documentation and other eligibility criteria like proof of admission to a recognized institution, financial documents, and sometimes a co-signer. Meeting eligibility criteria and providing necessary documentation is key to obtaining a hassle free loan. 

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