Education loans in India are often misunderstood due to myths that circulate widely. These misconceptions create unnecessary fear and confusion for students and families. Here’s what you need to know to make informed decisions:
- Education loans are not limited to tuition fees. They also cover living expenses, travel, books, and other educational costs.
- Collateral-free loans are available. For loans up to ₹7.5 lakh, no collateral is required under schemes like CGFSEL.
- A credit history is not mandatory. Lenders evaluate co-applicant profiles, academic achievements, and future earning potential.
- Repayment doesn’t start immediately after graduation. Most loans include a moratorium period covering study years plus 6–12 months.
- Loans for studying abroad are accessible. Many lenders offer tailored options for international education, covering tuition, living expenses, and more.
Quick Tip: Always verify lender credentials through RBI records and focus on loan terms like interest rates, moratorium periods, and total coverage. Avoid relying on unverified advice from social circles or social media.
Myth vs Fact: 10 Common Education Loan Myths Busted
Education loans are a lifeline for many students in India, but misinformation can create unnecessary barriers. Let’s tackle 10 common myths and set the record straight with facts based on the current lending landscape in India.
Myth 1: Collateral Is Always Required
Myth: Every education loan in India demands collateral.
Fact: Collateral requirements depend on the loan amount and lender policies. For loans up to ₹4 lakh, collateral is not needed. For amounts between ₹4-7.5 lakh, many banks accept a third-party guarantee instead. Under the CGFSEL scheme, loans up to ₹7.5 lakh are collateral-free. Additionally, some private lenders offer unsecured loans based on a student’s creditworthiness and academic performance.
For higher loan amounts, the approach varies. Public sector banks like SBI often require collateral valued at around 70% of the loan amount, while Bank of Baroda may approve loans closer to 100% of the collateral’s value. Private banks such as Axis Bank typically consider 65-70% of the collateral value.
Know more about Collateral free loans by checking out this blog on No Collateral Education Loans in India.
Myth 2: Education Loans Only Cover Tuition Fees
Myth: Education Loans only pay for tuition and exam fees.
Fact: Education loans go beyond tuition. They cover living expenses, accommodation, travel, study materials, and other costs tied to education. Whether studying in India or abroad, loans are structured to address the comprehensive financial needs of students.
Myth 3: Only Students with High Credit Scores Can Get Loans
Myth: A top-tier credit score is mandatory for loan approval.
Fact: While a good credit score helps, it’s not the sole criterion. Lenders evaluate factors like the co-applicant’s financial profile, the student’s academic record, and the reputation of the institution. Many banks and NBFCs approve loans for students without a credit history. Government schemes like the Central Sector Interest Subsidy (CSIS) focus on merit and provide support to economically weaker students.
Myth 4: The Loan Process Takes Too Long
Myth: Loan approvals are so slow that students risk missing admission deadlines.
Fact: Digital banking has revolutionised loan processing. Private lenders and NBFCs now offer quick, online applications that significantly cut down approval times. While secured loans may take longer due to collateral verification, unsecured loans are often processed swiftly if all documents are in order.
Myth 5: Co-Applicants Must Be Salaried Workers
Myth: Only salaried individuals can act as co-applicants.
Fact: Lenders accept a wide range of co-applicants, including self-employed individuals, business owners, and retirees with stable pension income. Many banks assess the overall financial stability of the family, making education loans accessible to a broader group.
Myth 6: Education Loans Always Have High Interest Rates
Myth: Interest rates for education loans are exorbitant.
Fact: Education loans often have competitive rates, especially compared to personal loans. Government subsidies can further reduce costs, particularly during the study period. Secured loans generally come with lower rates due to the collateral provided, making them an economical choice for many.
Myth 7: Students Must Start Repaying Right After Graduation
Myth: Repayment begins immediately after graduation.
Fact: Most education loans include a moratorium period, giving students time to secure employment before starting repayment. While interest may accrue during this grace period, the principal repayment is deferred, easing financial pressure on recent graduates.
Myth 8: Loans for Studying Abroad Are Harder to Get
Myth: Getting a loan for international studies is overly complicated.
Fact: Loans for studying abroad are widely available and designed to cover tuition, living expenses, and travel. Many lenders have specialised teams to simplify the process, offering tailored products for international education. This makes funding accessible to students with strong academic potential.
Myth 9: Private Lenders Are Less Reliable Than Banks
Myth: Private lenders and NBFCs are riskier than traditional banks.
Fact: Private lenders often provide faster approvals and flexible repayment plans.
"The advantage of unsecured loans is that there is no requirement to pledge assets. However, the interest rate could be a little higher. You must ensure you have a strong repayment strategy." – ICICI Bank
Myth 10: Defaulting on Loans Ruins Your Financial Future
Myth: Missing loan payments permanently damages your finances.
Fact: While defaulting can hurt your credit score, education loans often come with flexible repayment and restructuring options. Communicating with your lender and exploring relief measures can help you manage financial challenges without long-term consequences.
How to Choose the Best Education Loan?
Lets see some actionable steps that can help Indian students and their families secure the most suitable education loan. With so many options available, thorough research is key to making the right choice.
Check Lender Credibility
Verify the lender's RBI registration before proceeding. Ensure the lender has a physical office, and avoid any lender that demands advance fees.
In 2023, IDFC FIRST Bank set an example by ensuring full transparency in their education loan process, offering loans up to ₹1 crore for over 25,000 courses across 3,200+ universities. This level of openness can serve as a benchmark while evaluating your options.
Understand the Loan Terms
Understand the eligibility criteria thoroughly. Each lender has unique requirements, including academic performance, course recognition, and co-applicant profiles. Avoid sharing sensitive financial details like credit card numbers or internet banking credentials during initial discussions. Such information should only be shared securely during the formal application process.
"Education loans are not just financial transactions--they are investments in future potential." - Vikas Singh, Propelld
Once you’ve confirmed the lender’s credibility, focus on understanding collateral and co-applicant requirements.
Understand Collateral and Co-Applicant Requirements
Prepare co-applicant documents carefully. While salaried parents are usually preferred, self-employed individuals, pensioners, or business owners can also qualify as co-applicants if they have a stable income and good credit history.
For collateral-free loans, look for lenders offering unsecured education loans. Check your eligibility for collateral-free options. However, if collateral is required, ensure that property valuations are up-to-date and legally clear. Lenders typically accept residential properties, fixed deposits, or life insurance policies with surrender value as security.
Keep essential documents ready, including identity proof, address proof, academic records, admission letters, and co-applicant income certificates. Once these are in place, you can focus on comparing loan offers and repayment terms.
Compare Loan Offers and Repayment Options
Calculate the total cost of the loan by focusing on the Annual Percentage Rate (APR) rather than just the interest rate. Even a 1% difference in the interest rate can result in savings or costs amounting to lakhs over a 10-15 year repayment term. In India, education loan interest rates generally range from 9% to 14%, with some lenders offering rates as low as 8.25%.
Evaluate repayment flexibility carefully. Look for loans that include a moratorium period covering your study years and an additional 6-12 months after graduation. Some lenders also offer income-linked repayment plans, where EMIs adjust based on your salary after completing your course.
Use online EMI calculators to compare processing fees, prepayment penalties, and other charges for each loan offer.
Consider additional benefits offered by lenders. Some institutions provide perks like free international debit cards, career counselling, or partnerships with universities to simplify the process. Explore 100% loan coverage for studying abroad to find comprehensive financing options.
Choose between fixed and floating interest rates based on your financial priorities. Fixed rates offer consistent monthly payments, while floating rates may start lower but can vary with market conditions. Both options have their pros and cons, so weigh them carefully before deciding.
For added support, consider exploring co-applicant options with platforms like Propelld. Relatives can play a significant role in your education financing journey, offering a layer of security and flexibility.
The bottom line? Stick to verified information from RBI guidelines, reputable institutions, and expert counsellors. By basing your decisions on facts rather than myths, you can safeguard your financial future and unlock the educational opportunities you deserve.
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