Education Loan – Everything You Need to Know

Education loans are a critical financial resource for students aspiring to achieve their academic goals, especially when financial constraints might otherwise hinder their education. These loans cover a wide range of expenses, from tuition fees to non-academic costs, enabling students to focus on their studies. In India, both public and private financial institutions offer education loans, with various schemes tailored to domestic and international studies. This guide explores the key aspects of education loans, including their types, eligibility criteria, benefits, and application processes, empowering you to make informed decisions about funding your education.

What is an Education Loan?

Loans are termed as money or assets shared with any demandant/applicant with a promise of repayment in future by a certain timeline. Although the financial system has turned this simple definition to a more twisted technical concept, the core idea remains the same. Students in need of huge consolidated funds for pursuing their education generally take the education loan in India, from banking institutions. Applicants with aspirations to pursue courses with outcomes of employability or business generally are able to secure these loans for their higher education.

Types of Education Loans 

Study loans can be of as many types as the education programs they fund. There are skill-based student loans, student loans for study abroad programs, student loans for diploma courses etc. In a broader category, they are put together as:

  • Domestic Education Loan
  • Study Abroad Education Loan

These study loans can be further categorized based on the educational level of the applicant as well. They are also categorised based on secured loans and non-secured loans depending upon the necessity and availability of collateral/guarantee from the applicant. There are other categories as well described below:-

  • Based on the Education course type
    • Higher Education Loan: for degree/graduation
    • Diploma Student Loan: for diploma/professional courses for skill-based learning
    • Professional Study Loan: for post-graduation/doctoral/post-doctoral education
  • Based on the security of collaterals/guarantee
    • Secure Loans: covered by collaterals, tangible or non-tangible guarantee, third-party guarantee
    • Non-Secured Loan: not covered by any guarantee or collateral and thus liable to risk or forfeit
  • Based on loan collateral type
    • Loan against property: agricultural and non-agricultural land/flat/house etc.
    • Loan against deposits: fixed deposits/recurring deposits/gold-deposits
    • Loan against securities: equity shares/debentures/bonds etc.
    • Loan against third-party guarantee: certificate of guarantee from the home bank (for a study loan application to another bank), certificate of guarantee from employer (in some cases)

How does Education Loan Work?

Education loans help students pay not only academic fees but also non-academic expenses during their studies. The provision of a student loan, like any other loan, comes on the payment terms of an interest amount over the originally borrowed money. Commonly known as Study Loan EMIs, the monthly installments paid against the student loan allow applicants to repay the loan amount borrowed step-by-step.

Who can Provide Education Loans?

Banking institutions in India which are allowed to provide education loans have to be approved by the Indian Banking Association (IBA). These banking institutions are obligated to follow the CSIS (Central Sector Interest Subsidy Scheme) and other regulatory norms to provide services which are in the best interest of student loan applicants. The two common types of institutions which are allowed to provide study loans in India are:-

  1. Registered banking institutions
  2. Non-Banking Financial Institutions (NBFCs)

Education loan from registered banks (features/benefits/conditions)

  • Accountability of transactions
  • Study Loan insurance facility available
  • Lower rate of interest for a loan
  • Higher education loan tenure
  • Extra features like part-payment, health cover, etc.
  • Interest Rate subsidies and tax rebates

Education loan from non-registered banks/NBFCs (features/benefits/conditions)

  • Higher education loan amount availability
  • Low processing time
  • Low or no need of collateral (even for high student loan amounts)
  • Higher interest rates
  • Tough repayment timeline
  • Extra features like loan against movable property/bullion (gold/diamond deposit loans)
  • Wider course and institution eligibility options for applicants
  • Higher processing fees
  • Lower moratorium period (holiday period when applicants can choose to not pay the EMIs)

It is strongly suggested that students should apply for study loans at a banking institution regulated by IBA and RBI. Only these institutions provide loans which are considered safe in terms of financial security and anti-theft norms.

Best banks providing study loans generally fall in the category of registered banks but there are other NBFCs too, which are becoming more popular with their quick service and easier norms. There is another method by which students can find the best possible blend of services provided by both NBFCs and registered banks. They can opt for Student Loan Experts or Student Financing Institutions. Education loan experts like Buddy4Study EduLoans provide the best of what NBFCs and ‘Registered Banks’ have to offer.

Looking For An Education Loan

Features of student financing institutions like Buddy4Study 

  • Provide customised education loans (high loan amount, low interest rate, maximum expense coverage, etc.)
  • Can help provide student loan from foreign banking institutions as well
  • Can help get extra services which do not come packaged with standard loans
  • Study loans for scholastic education available
  • Relaxed eligibility norms of age, course, and economic background

What is the Education Loan Repayment Process?

Student loans generally work like any other bank loan where applicants have to pay regular EMIs (Easy Monthly Installments) till the complete loan amount including interest is paid off. Each monthly installment includes some portion of the principal amount and some portion of interest. Students can choose the amount of their study loan EMI based on their affordability. The higher the EMI amount, the higher the principal component and the faster the applicant will be able to pay back the loan. Some peculiar details of the student loan repayment process are:-

  • Moratorium period: Education loans in India provide the facility of starting EMI payment after the applicant has completed education or after attaining successful employment.
    • Time duration: Course duration + 1 year or First employment + 6 months
    • Interest on the loan is still applicable for this time duration
  • Student loan EMI (Easy Monthly Installment): A fixed sum of repayment set by the applicant to be paid monthly in return of the study loan.
    • Student loan EMI = (annual interest on total disbursed loan amount/12) + principal amount adjustment
    • Applicants can choose to set any amount for EMI, to manage the amount of principal amount adjusted with every EMI
  • Education loan part-payment: Students with available funds can submit the consolidated sum of repayment to decrease the burden of interest rates.
    • This is not at all related to the fixed EMI amount, students can repay higher than EMI up to any limit (As per bank conditions)
    • Most banks do not provide this service but applicants should check with their respective bank
    • Part-payment can be used to adjust the loan tenure/duration and lower the EMI rates for subsequent payments
  • Education loan pre-payment: Students who happen to arrange for the complete due amount of study loan can choose to repay the complete loan before its tenure, irrespective of the fixed monthly EMIs
    • Involves some processing charges (not compulsory for all banks)
    • Is not allowed during the moratorium period
    • Applicants might need to check the limits of pre-payment at their respective bank
  • Education loan extension: Applicants can also choose to extend the loan tenure or lower the EMI based on their affordability. This helps students to manage the loan in a better way.
    • Extension of study loan can be done in two ways, (i) decrease in EMI value (ii) increase in loan tenure
    • A decrease in EMI value is adjusted to increase the number of total EMIs to be paid
    • An increase in the loan tenure is adjusted by the change in EMI value or by an increase in the study loan principal amount
  • Education loan refinancing: The addition of study loan amount can be done as per the requirement of an applicant based on their existing loan and credit record. Students wishing to continue their education or seek more funds can present their existing study loan as proof for refinancing. The above repayment options are all applicable for student loan refinancing.

What are the Expenses Covered under the Education Loan?

Education loans cover all sorts of academic expenses of any student. Almost all banking institutions provide loans that cover not only tuition fees but other institutional expenses as well. Students should still check if the bank of their choice covers all expenses they are meant to incur. Higher education especially abroad includes the following vivid academic expenses that student loans cover:-

Academic Expenses:

  • Tuition fees
  • Capitation fees
  • Registration fees
  • Counselling fees
  • Examination fees
  • Study visits and educational tour fees
  • Laboratory fees
  • Library fees
  • Hostel fees/transport fees
  • Mess-Food expenses

Non-Academic Expenses

  • Building fees
  • Fixed/Student welfare contribution
  • Refundable caution money
  • Transport and commute expenses
  • Equipment and project expenses
  • Laptop, 2-wheeler, transport pass, wheelchair expenses (if applicable)
  • Student insurance
  • In-flight expenses, outward remittances (study abroad)
  • Entrance exam fees SAT Exams, LSATS, GRE, GMAT, TOEFL, MCAT, etc.

What are the Qualities of a Good Education Loan?

Education loans are mostly identified by their core terms and conditions, as these decide the extra amount that students have to pay while repaying the loan. These terms and conditions are laid out in the form of:

  • Study loan interest rates
  • Study loan eligibility criteria
  • Collateral requirements
  • Loan repayment conditions

A detailed account of what a study loan comprises is listed below:-

Who can avail Education Loans?

Generally, Indian citizens who are pursuing higher education in India or abroad can avail education loans. However, specific eligibility criteria may vary between different banks and financial institutions. Below are the common eligibility criteria that are required to be met while applying for an education loan in India:

  • Applicants must be between 18 and 35 years of age can apply.   
  • Students must maintain a good academic track record.   
  • The course should be recognised by relevant regulatory bodies, and the institution should be reputable.
  • A co-applicant, usually a parent or guardian, is required to support the loan application. Additionally, the co-applicant should have a stable income.   
  • Depending on the loan amount, collateral is required to apply for an education loan. This can include property or other valuable assets.   

It’s recommended to check with specific banks or financial institutions to understand their exact eligibility criteria and documentation requirements.

Also Read – Education Loan Eligibility Criteria: Complete Guide for Students

Education Loan Eligibility Criteria of Popular Banks in India

Bank Name Education Loan Eligibility
State Bank of India
  • HSC/12th class or equivalent passed
  • Confirmed admission in case of foreign university
  • Courses approved by UGC/AICTE/IMC/etc.
  • Applicants for higher education (degree/diploma/graduation/post-graduation
HDFC Bank
  • Indian resident
  • Age limit: 16 to 35
  • Academic: HSC (10+2) or equivalent at least
  • Enrolled for Graduation and above in a recognised Indian University/College/Institution accredited by UGC/AICTE/IMC/ etc.
Canara Bank
  • Eligible courses:
    • Graduation, Postgraduation and onwards
    • Technical/Professional Courses
    • Certified by UGC/AICTE/IMC/etc.
  • Indian National
Axis Bank
  • Student loan applicants must be an Indian citizen
  • Applicants must score at least 50% marks in HSC (10+2 or equivalent) or Graduation for respective loans
  • Must have secured admission in India or Abroad

How to Apply for an Education Loan? 

Education loan application process involves three major steps. Each of these steps can be followed via online or offline channels. Applicants have always preferred to use the offline loan application methods but online features with low turn-around-time and transparency of information are catching on among parents and students. The three major steps involved in study loan application are:-

  • Education loan research
  • Loan application
  • Document verification and sanction

Where can I apply for an Education Loan? 

Education loan applications can be filed via various channels. Applicants should always compare the best offers and benefits while choosing these channels.

  • Study loan application offline (at bank branch/office)
  • Online application for study loan (at bank’s official website)
  • Online application for study loan (at the government’s Vidyalakshmi portal)
  • Application via education loan experts like Buddy4Loan

Loan Applications with Education Loan Experts like Buddy4Study 

Applicants looking for customised student loan services which help in covering extra expenses and provide easier loan terms can avail student loan expert services. Generally, banks have limits on loan amounts (both upper and lower) which keeps students from applying for study loan services. Students also face problems with loan repayment with conventional student loans. Student loan experts provide students with financing options selected from a wide pool of loan providers. Thus, they are able to provide applicants with services which best suit their requirements.

The application process for EduLoan experts is:-

  • Search for the best student loan expert services such as Buddy4Study, HDFC Credilla, Avanse etc.
  • Visit the official website of the education loan expert
  • Fill the study loan application form, providing the applicant’s contact details only
  • Experts will contact the applicant, where applicants will need to provide the required details
  • Experts will revert to the best loan service options

What is the Education Loan Repayment Process?

Student loans generally work like any other bank loan where applicants have to pay regular EMIs (Easy Monthly Installments) till the complete loan amount including interest is paid off. Each monthly installment includes some portion of the principal amount and some portion of interest. Students can choose the amount of their study loan EMI based on their affordability. The higher the EMI amount, the higher the principal component and the faster the applicant will be able to pay back the loan. Some peculiar details of the student loan repayment process are:-

  • Moratorium period: Education loans in India provide the facility of starting EMI payment after the applicant has completed education or after attaining successful employment.
    • Time duration: Course duration + 1 year or First employment + 6 months
    • Interest on the loan is still applicable for this time duration
  • Student loan EMI (Easy Monthly Installment): A fixed sum of repayment set by the applicant to be paid monthly in return of the study loan.
    • Student loan EMI = (annual interest on total disbursed loan amount/12) + principal amount adjustment
    • Applicants can choose to set any amount for EMI, to manage the amount of principal amount adjusted with every EMI
  • Education loan part-payment: Students with available funds can submit the consolidated sum of repayment to decrease the burden of interest rates.
    • This is not at all related to the fixed EMI amount, students can repay higher than EMI up to any limit (As per bank conditions)
    • Most banks do not provide this service but applicants should check with their respective bank
    • Part-payment can be used to adjust the loan tenure/duration and lower the EMI rates for subsequent payments
  • Education loan pre-payment: Students who happen to arrange for the complete due amount of study loan can choose to repay the complete loan before its tenure, irrespective of the fixed monthly EMIs
    • Involves some processing charges (not compulsory for all banks)
    • Is not allowed during the moratorium period
    • Applicants might need to check the limits of pre-payment at their respective bank
  • Education loan extension: Applicants can also choose to extend the loan tenure or lower the EMI based on their affordability. This helps students to manage the loan in a better way.
    • Extension of study loan can be done in two ways, (i) decrease in EMI value (ii) increase in loan tenure
    • A decrease in EMI value is adjusted to increase the number of total EMIs to be paid
    • An increase in the loan tenure is adjusted by the change in EMI value or by an increase in the study loan principal amount
  • Education loan refinancing: The addition of study loan amount can be done as per the requirement of an applicant based on their existing loan and credit record. Students wishing to continue their education or seek more funds can present their existing study loan as proof for refinancing. The above repayment options are all applicable for student loan refinancing.

How to Find the Best Education Loan?

Applicants (students) or co-applicants (parents/guardians) can research through both offline channels and online channels. However, visiting each bank and finding details of student loan services is a very exhausting and time-consuming method. Following are the steps that students can follow to find the best education loan:

  • Find out the final amount of the education loan that you have to apply for
    • Check academic fees required (a)
    • Confirm sources of funds that can be arranged without the loan (b)
    • Identify the loan amount required (c): c = (a – b)
  • Gather information about the study loan amount limits and interest rates from the official websites of various banks
  • Verify the number of EMIs to be paid, affordable loan amount, and estimated loan tenure by visiting IBA education loan calculators (details below).
  • Confirm the information on the website and your calculation from the respective bank (call customer care or visit the nearest branch)
  • Finalise your choice of the study loan based on the top factors for finding the best student loan as mentioned above.

Education Loan EMI Calculators

An Education Loan EMI (Equated Monthly Installment) calculator is an online tool that helps students and their families estimate the monthly repayment amount for an education loan. By entering details such as the loan amount, interest rate, and repayment tenure, the calculator provides an instant EMI breakdown of the payment to be made for the student loan. 

It uses a standard formula to compute the monthly installment, offering insights into the total interest payable and the overall loan cost. These calculators are beneficial for comparing loan options, planning finances, and ensuring transparency in repayment obligations. The education loan EMI calculators make it easier for borrowers to make informed decisions.

Education Loan Interest Subsidy

An interest subsidy is a government scheme where the interest on education loans is paid by the government during the moratorium period (course duration plus 6–12 months). It is designed to support students from economically weaker sections (e.g., families earning below ₹4.5 lakhs annually in India). This subsidy is typically applicable to loans taken for recognised higher education programs in India or abroad.

Tax Benefits of Education Loans

Under Section 80E of the Income Tax Act, the interest paid on education loans qualifies for a tax deduction with no upper limit for up to 8 years or until the loan is fully repaid, whichever is earlier. This deduction is available for loans taken for higher education for yourself, your spouse, children, or a dependent student, provided the loan is from a recognised financial institution. However, the principal repayment is not eligible for tax benefits in the case of education loans.

Conclusion

Education loans are not the only means to manage one’s academic expenses. Students can avail the benefits of various scholarships, fellowships, and grants available every year. The application process and eligibility criteria for scholarships are often more relaxed than those for student loans. It’s not compulsory for students to only look for merit-based scholarships; there are also need-based scholarships that help financially weaker sections. Many banks also provide options to adjust student loan payments by using scholarship amounts, making loan repayment easier.

With all this information about student loans and scholarships, we hope that students will be able to find the best options for their educational needs. For more detailed information on loans for students, you can also visit the online archives of Buddy4Study and check out education loan information regarding popular banking institutions.

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