Types of Education Loan: Eligibility, Interest Rates & Benefits

Pursuing higher education can be a significant financial commitment, but the right type of education loan can ease the burden. Whether you're looking for a government-backed loan with lower interest rates or a private loan with flexible repayment options, understanding the available choices is crucial. The right loan can help fund your tuition, living expenses, and other academic costs, making your educational journey smoother.

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What are Education Loans?

Higher education often comes with significant costs, and for many students, securing financial support is essential. An education loan serves as a financial aid option that helps students cover their tuition fees and other academic expenses. These loans enable students to pursue higher studies in India or abroad without financial constraints. Depending on the loan type, students may receive funding in the form of tuition fee coverage, scholarships, or financing options.

If you need an education loan quickly without visiting a bank, find out how to apply for an instant student loan online.

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What Expenses Do Education Loans Cover?

Education loans are designed to support students by covering a variety of academic expenses. Here are a few key details on the expenses covered by different types of education loan.

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Types of Education Loan in India

Pursuing higher education can be financially demanding, and many students rely on education loans to fund their academic aspirations. Various types of education loans are available in India, catering to different needs based on location, course type, and collateral security. 

1. Education Loans Based on Location

Domestic Education Loans

These loans cater to students planning to continue their studies within India. They cover essential academic expenses such as tuition fees, accommodation, books, and other related costs. Domestic education loans usually offer lower interest rates as they are linked to the RBI’s repo rates, making repayment more manageable.

Overseas Education Loans

For students aspiring to study in foreign universities, overseas education loans provide financial assistance for tuition fees, travel, living expenses, and study materials. Since studying abroad is often more expensive, these loans may come with competitive education loan interest rates and flexible repayment plans. These loans are provided by banks and NBFCs, with collateral typically needed for larger loan amounts.

2. Education Loans Based on Collateral Security

Loan Against Deposits

Students or parents can avail of education loans by pledging fixed deposits or recurring deposits as security. Since these loans are backed by a financial asset, they may come with lower interest rates.

Loan Against Property

Some banks offer education loans against immovable assets like residential property, flats, or agricultural land. These loans typically allow higher loan amounts, making them ideal for students enrolling in premium institutions.

Loan Against Securities

Certain banks accept bonds, debentures, or shares as collateral for granting education loans. The loan amount depends on the value of the pledged security.

Third-Party Guarantee Loans

In cases where a student cannot provide collateral, banks may accept a third-party guarantee. A relative or a family friend can act as a guarantor to secure the loan.

3. Education Loans Based on Course Type

Undergraduate Education Loans

‍These loans help students finance their bachelor's degrees in various disciplines at recognised Indian and international universities. They generally cover tuition fees, hostel fees, and essential academic expenses, with repayment starting after course completion.

Postgraduate Education Loans

‍Postgraduate courses, including master's degrees and specialised professional programs, can be funded through these loans. They ensure students can focus on higher education without financial stress, covering tuition, living expenses, and project costs.

Career Development Loans

‍Designed for working professionals, career development loans help individuals upgrade their skills through certification courses, executive programs, or specialised training. These loans cater to those looking to advance in their careers by acquiring new expertise.

4. Loans for Parents

Some banks offer loans to parents to cover their children's education expenses. These loans help manage tuition fees, accommodation, and other related costs without burdening the student. Parents or guardians can take responsibility for repayment, ensuring financial stability for their children.

Many banks mandate collateral for loans exceeding a certain amount, particularly for overseas education. However, some banks and NBFCs offer education loans without collateral. Discover which banks provide collateral-free education loans for studying abroad.

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What Courses Are Covered Under Education Loans?

Most education loans support degree programs offered by recognised universities and institutions. Eligible courses include:

1. Undergraduate and Postgraduate Degrees

Engineering, medicine, management, law, arts, science, and commerce programs.

2. Professional and Technical Courses

Specialised programs in fields like finance, data science, artificial intelligence, and architecture.

3. Vocational and Skill-Based Training

Short-term certification programs, diploma courses, and job-oriented training sessions.

4. Doctoral and Research Studies

Ph.D. programs and research-based studies at reputed institutions.

5. International Education

Study programs at foreign universities cover tuition, accommodation, travel, and additional expenses.

6. Specialised Degree and Diploma Programs

Courses from reputed institutions like IIM, IIT, XLRI, NIFT, NID, ICWA, CA, CFA, etc.

Planning to pursue higher education abroad? Explore the range of SBI Education Loans for international studies, including interest rates and eligibility requirements!

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Types of Education Loan: Key Benefits

Student loans offer crucial financial support for those aiming to further their education, both domestically and internationally. With adaptable repayment plans and attractive interest rates, these loans cover tuition, living expenses, and other academic costs, easing the financial burden. Below are some key benefits of choosing an education loan:

1. High Loan Amounts

Students pursuing education overseas can avail loans up to Rs. 1 crore, while those studying domestically can access up to Rs. 50 lakh.

2. Full Financial Coverage

100% financing is available under specific conditions.

3. Additional Expense Coverage

Includes student exchange programs, laptops, and study-related travel expenses.

4. Favorable Forex Rates

Preferential foreign exchange rates for international education payments.

5. Mandatory Co-Borrowers

Parents must be co-borrowers for most education loans.

6. Flexible Repayment Period

The repayment period extends up to 15 years for added flexibility.

7. Post-Graduation Moratorium

6-month to 1-year moratorium period after course completion.

8. Tax Benefits

Tax deductions on loan interest payments for up to 8 years under Section 80E of the Income Tax Act.

Before taking an education loan, it's essential to research the lending institution carefully. Explore education loans offered by NBFCs, including their distinct features and interest rates.

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Eligibility Criteria for Different Types of Education Loans

Securing an education loan requires meeting specific eligibility conditions. While requirements may vary across lenders, some fundamental factors determine a student's qualification for different types of education loans.

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Essential Documents for Education Loan Approval

To process your education loan application, banks and financial institutions require specific documentation, including:

• Proof of identity and address (KYC documents).
• Academic records, including 10th, 12th, and graduation mark sheets, along with entrance exam scores.
• Official admission letters from the university or institution.
• Detailed fee structure provided by the college.
• Co-applicant details (if required), including KYC and proof of income.
• Additional documents may be requested based on lender requirements.

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Key Factors Lenders Evaluate for Education Loan Approval

When applying for an education loan, banks and financial institutions assess various aspects to determine eligibility. Understanding these criteria can improve your chances of securing the best loan option. Whether opting for government-backed loans or private lenders, the approval process is influenced by the following factors:

1. Chosen Course & Institution

The reputation of the educational institute and the employability of the course play a significant role in approval.

2. Loan Amount Requirement

The total loan amount needed for tuition, living expenses, and other costs is carefully reviewed.

3. Academic Record

A strong academic history can positively impact the lender’s decision as it reflects a student’s potential.

4. Family’s Repayment Capability

Lenders assess the financial standing of the applicant's family to ensure smooth loan repayment.

5. Assets & Collateral (if applicable)

Depending on the type of education loan, secured loans may require collateral such as property or fixed deposits.

6. Annual Income of Co-Applicant

Most lenders consider the earnings of parents or guardians to gauge repayment feasibility.‍

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Maximising Tax Benefits on Education Loans

One of the biggest advantages of education loans is the ability to claim tax deductions under Section 80E of the Income Tax Act:

• The interest component of loan repayments qualifies for tax deductions, helping reduce the overall financial burden.
• There is no maximum cap on the loan amount eligible for tax deductions.
• This advantage remains valid for up to eight years from the beginning of loan repayment or until the complete interest amount is settled, whichever occurs first.
• A bank-issued interest certificate is required as proof to claim deductions.

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How to Apply for an Education Loan?

Here’s a structured guide to applying for an education loan for students:

1. Research and Compare Loan Schemes

Start by exploring different types of education loan options offered by banks and financial institutions. Select a loan option that fits your academic goals and financial repayment ability.

2. Download the Application Form

Go to the lender’s official website, locate the education loan section, and access the application form. Certain lenders also offer a direct "Apply Now" feature for seamless online applications.

3. Fill in the Required Details & Attach Documents

Complete the loan application form and attach the necessary documents, such as academic certificates, admission letter, and fee structure provided by the institution.

4. Loan Assessment & Verification

Once submitted, the lender will evaluate your eligibility, review your documents, and assess factors like the course of study, institution, and collateral (if required).

5. Loan Disbursement

After approval, the loan amount is sanctioned and disbursed as per the lender’s policy. The financial aid is generally disbursed directly to the educational institution to cover tuition and related costs.

For those preferring offline applications, the process remains the same—visit a bank branch, submit the form along with the required documents, and proceed with verification.

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Education Loan Repayment & Grace Period

Repaying an education loan is structured to be student-friendly, ensuring a smooth transition from academics to employment.

1. Many lenders offer a grace period of 6 months to 1 year post-course completion, allowing students time to secure a job before starting EMI repayments.

2. Based on the borrower’s income and repayment capacity, banks provide flexible EMI options. If needed, students can negotiate the loan amount or tenure with the bank.

3. The maximum repayment tenure for most education loan schemes is 8 years, though this may vary by lender.

Planning repayments early ensures financial stability while benefiting from tax deductions on education loan interest under Section 80E of the Income Tax Act.

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Best Banks and NBFCs in India Offering Different Types of Education Loans

A range of education loans is available from banks and NBFCs in India, catering to students pursuing studies both within the country and abroad. Below is a detailed comparison of financial institutions providing education loans with different interest rates, processing fees, and loan conditions.

If you're considering an SBI Education Loan for a premier institute, ensure your college is on the approved list. Explore the SBI Education Loan College List here.

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Choosing the Right Type of Education Loan for Your Needs

Selecting the ideal education loan requires careful consideration of multiple factors, including your financial situation, repayment capacity, and study destination. Here’s how you can make the best decision:

1. Identify Your Study Destination

For Domestic Education

Public sector banks often offer lower interest rates and government-backed subsidies for students studying in India.

For International Education

‍Private banks and NBFCs provide high-value loans to cover tuition fees, living expenses, and additional costs like travel and insurance.

2. Evaluate Your Financial Needs

Low-Interest Options

‍Government banks generally have lower interest rates, but they may require collateral for higher amounts.‍

Quick Approval and Minimal Paperwork

NBFCs and private banks offer faster processing but often come with slightly higher interest rates.

3. Collateral vs. Non-Collateral Loans

Collateral-Based Loans

‍If you have assets to pledge, you can secure a lower interest rate and better repayment terms.‍

Unsecured Loans

‍These are best for students who don’t have collateral, but they may come with higher interest rates and shorter repayment periods.

4. Compare Interest Rates and Processing Fees

Always check the annual percentage rate (APR), processing fees, and additional charges before finalising a lender.

5. Look for Additional Benefits

Some lenders provide flexible repayment options, tax benefits, and moratorium periods to ease financial stress while studying.

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Education loans help students finance their higher education in India and abroad. With different types of education loans available, it’s important to compare interest rates, repayment terms, and eligibility criteria before choosing one. The right loan can ease financial stress, allowing students to focus on their studies.

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Understanding loan terms and repayment options helps students and their families plan better. A well-structured education loan covers key expenses and ensures a smooth repayment process, making quality education more accessible.

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Why Propelld?

The Propelld education loan has the following main benefits.

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FAQs About Types of Education Loans

What are the different types of education loans available for students?

Education loans primarily fall into two categories: federal (or government-sponsored) loans and private loans. Federal loans often offer benefits like fixed interest rates and income-driven repayment plans. Private loans are provided by banks or financial institutions, and terms can vary widely.

Which type of bank has a low interest rate for education loans?

Public sector banks generally provide lower interest rates on education loans compared to private banks and NBFCs. They also offer government-backed subsidies and schemes for eligible students.

How does a Direct Subsidized Loan differ from a Direct Unsubsidized Loan?

Direct Subsidized Loans are need-based, and the government pays the interest while you're in school at least half-time, during grace periods, and deferment. Direct Unsubsidized Loans are not need-based, and interest accrues during all periods.

Can I apply for both federal and private education loans simultaneously?

Yes, students often use federal loans first due to favorable terms and supplement with private loans if additional funding is needed.

Are there education loans specifically for graduate students?

Yes, Graduate PLUS Loans are federal loans available to graduate or professional students to help cover education expenses.

What is a Direct Consolidation Loan?

A Direct Consolidation Loan allows you to combine multiple federal student loans into one loan with a single servicer, simplifying repayment.

Do private education loans offer income-driven repayment plans?

Generally, private loans do not offer income-driven repayment plans; these are a feature of federal loans.

Can I refinance my education loans after graduation?

Yes, refinancing is available through private lenders and can potentially lower your interest rate, but it may result in the loss of federal loan benefits.

Are there education loans available for international students?

Yes, some private lenders offer education loans to international students, often requiring a creditworthy U.S. co-signer.

What is the difference between a fixed and variable interest rate on education loans?

A fixed interest rate remains the same over the life of the loan, while a variable rate can change periodically, affecting your monthly payment and total interest cost.

Can I defer payments on my education loans while in school?

Federal loans typically allow deferment while you're enrolled at least half-time. Private loan deferment policies vary by lender.

What happens if I default on my education loan?

Defaulting can lead to serious consequences, including damage to your credit score, wage garnishment, and loss of eligibility for future federal student aid.

How do I determine the best type of education loan for my needs?

Evaluate factors like interest rates, repayment terms, loan forgiveness options, and eligibility criteria to choose between federal and private loans.

Can I use education loans to cover expenses beyond tuition?

Yes, education loans can often be used to cover other education-related expenses, such as room and board, books, and supplies.

Is a co-signer required for all types of education loans?

Federal loans typically do not require a co-signer, but private loans often do, especially if the borrower has limited credit history.

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