Education loan interest rates are one of the important factors for applicants when deciding if a loan scheme is worth the financial burden or not. In recent years, education loan interest rates have escalated, making financing higher education increasingly expensive. These rates frequently change based on government policies, yet many students remain unaware of such changes. A lack of information about interest rate subsidy schemes further prevents students from benefiting from government programs.
Importance of Education Loan Interest Rates
In today’s world, where higher education often comes with a hefty price tag, education loans have become an extended helping hand for students aiming to achieve academic excellence and professional growth. While these loans provide the financial means to access quality education, they come with an essential caveat—interest rates. That’s why a complete understanding of education loan interest rates is very important, as they significantly influence the total repayment burden and the long-term financial well-being of borrowe₹
“To demonstrate the importance of understanding education loan interest rates, let’s consider the case of Arnaaz, a bright and ambitious student from a middle-income family in India. Arnaaz secured admission to a renowned engineering college but needed a student loan to cover her tuition and living expenses. Like many students, she focused on obtaining an instant student loan and overlooked the nuances of the interest rate, repayment terms, and their long-term implications. As a result, a few years later, she found herself struggling with financial stress due to accumulating interest and mounting EMIs (Equated Monthly Installments).”
This case study serves as a springboard to explore why students and their families need to have an understanding of the inside outs of education loan interest rates before opting for one. From identifying the types of interest rates; fixed versus floating; to recognising how interest compounding and repayment schedules work. The understanding of a student loan can empower borrowers to make informed decisions. Moreover, it can help them strategically plan for their future, minimising financial strain and maximising the value of their educational investment.
Education Loan Interest Rates: Key Points to Remember
Applicants must keep the following points in mind while applying for an education loan:
- Fixed vs. Floating Rates: Lenders may offer fixed rates or floating rates. It is important to have an understanding of the interest rates that are being offered for the selected student loan.
- Interest Rate Variability: Education loan interest rates vary based on the lender (banks, NBFCs, or government schemes) and the type of loan i.e. domestic or international.
- Base Rate Dependency: Most of the education loans are linked to the lender’s base rate or the MCLR (Marginal Cost of Funds Based Lending Rate).
- Credit Score Influence: A higher credit score often results in lower interest rates as it reflects better financial stability and increases the chances of approval.
- Hidden Costs: Apart from interest rates, consider processing fees, prepayment penalties, and other charges that impact the effective cost of the borrower.
- Moratorium Period: Many lenders offer a moratorium (grace) period during the course and for a few months after, but interest usually accrues during this time.
- Loan Amount & Tenure: Higher loan amounts or longer repayment tenures may result in higher interest rates due to increased risk for lende₹
- Tax Benefits: Interest paid on student loans is eligible for tax deduction under Section 80E of the Income Tax Act (India). It helps to reduce the financial burdens of the borrowers to an extent.
Education Loan Interest Rate Trend
Education loan interest rates in India are influenced by various factors, including the Reserve Bank of India’s (RBI) monetary policy, economic conditions, and individual bank policies.
Current Interest Rates:
As of December 2024, education loan interest rates vary across banks. Here are some examples:
State Bank of India (SBI):
- Student Loan Scheme: 11.15% per annum, with a 0.50% concession for female students.
- Scholar Loan Scheme: Starting at 8.05% per annum for premier institutions.
ICICI Bank:
- Interest rates start from Repo Rate + 3.75%.
Axis Bank:
- Interest rates range from 13.70% to 15.20% per annum.
Recent Trends: The RBI has maintained the repo rate at 6.50% since February 2023.
What is the Interest Rate for an Education Loan in India?
Education loan interest rates in India vary based on the bank, loan amount, course, and various other factors. Here’s an overview of the interest rates offered by some major banks as of December 2024:
Education Loan Interest Rates of Popular Indian Banks
The below table enlists the interest rate on education loans offered by multiple banks under various schemes they offer:
| Bank | Scheme | Amount | Interest Rate | Processing Fee |
| State Bank of India | SBI Student Loan Scheme | According to requirement | 10.90% | – NIL for loans up to ₹20 lakh
– ₹10,000 for loans above ₹20 lakh |
| SBI Scholar Loan Scheme (IITs, IIMs, NITs, etc.) | ₹7.5 lakh onwards, no upper limit | 8.30% – 9.80% | NIL | |
| SBI Skill Loan Scheme | Up to ₹1.5 lakh | 10.50% | NIL | |
| SBI Global Ed-vantage Scheme | ₹7.5 lakh – ₹1.5 Crore | 10.90% | ₹10,000 | |
| Bank of Baroda | Baroda Vidya | Up to ₹4 lakh | 12.50% | NIL |
| Baroda Gyan | No upper limit | 11.05% – 11.15% | – NIL for loans up to ₹7.50 lakh
– 1% of the loan amount (maximum ₹10,000) for loans above ₹7.5 lakh |
|
| Baroda Scholar | No upper limit | 10.40% – 11.15% | – NIL for loans up to ₹7.50 lakh
– 1% of the loan amount (maximum ₹10,000) for loans above ₹7.5 lakh |
|
| Baroda Education Loan to Students of Premier Institutions | Depends on the categorization of the institute | 9.15% – 10.20% | – NIL for studying in India
– 1% of the loan amount (maximum ₹10,000) for studying abroad – 0.50% for loans taken for career development |
|
| Baroda Skill Loan Scheme | ₹5,000 – ₹1.5 lakh | 10.65% | NIL | |
| Union Bank of India | Union Education Scheme | Up to ₹46.50 lakh | 11.30% | NIL |
| Special Union Education Loan Scheme for Premier Institute Abroad Studies | ₹7.50 lakh to ₹150 lakh | 9.30% – 10.80% | NIL | |
| Special Union Education Loan Scheme for Premier Medical Institutes | Up to ₹200 lakh | 10.30% – 10.80% | NIL | |
| Union Education – Skill Development Loan | Up to ₹1.5 lakh | 10.80% – 12.55% | NIL | |
| Punjab National Bank | PNB Saraswati | According to requirement | 10.75% – 12% | NIL |
| PNB Pratibha | According to requirement | 8.55% – 10.50% | NIL | |
| PNB Udaan | According to requirement | 10.75% – 12% | 1% (minimum ₹10,000, refundable) | |
| PNB Kaushal | ₹5,000 to ₹1.5 lakh | 10.25% – 10.75% | NIL | |
| Bank of India | Star Education Loan – Studies in India | Up to ₹150 lakh | 9.95% – 10.75% | NIL |
| Star Education Loan – Studies Abroad | Up to ₹150 lakh | 9.95% – 10.75% | ₹5,000 (refundable) | |
| Star Vidya Loan | Up to ₹40 lakh, depending on the institute | 8.25% | NIL | |
| Star Progressive Education Loan | Up to ₹4 lakh | Contact the bank branch | NIL | |
| Central Bank of India | Cent Vidyarthi | – Up to ₹10 lakh (for studying in India)<br>- Up to ₹20 lakh (for studying abroad) | 10.65% – 11.25% | – NIL for studying in India
– 1% of the loan amount (maximum ₹15,000) for studying abroad |
| Cent Vidyarthi for Executive MBA | Up to ₹40 lakh | 8.30% | NIL | |
| Cent Skill Loan | ₹5,000 to ₹1.5 lakh | 10.90% – 10.95% | NIL | |
| Canara Bank | Vidya Turant | Up to ₹50 lakh (depending on institute) | 9.25% – 9.85% | NIL |
| Vidya Shakthi | Up to ₹7.50 lakh | 9.25% | NIL | |
| Vidya Sahay | Up to ₹1 lakh | 11.25% | NIL | |
| Vidya Sagar | According to requirement | 10.85% – 11.25% | NIL | |
| IBA Skill Loan Scheme – Education Loans | ₹5,000 to ₹1.5 lakh | 10.65% | NIL | |
| Indian Overseas Bank | Education Loan – Vidyajyoti | ₹7.50 lakh to ₹30 lakh | 12.55% | Contact the bank branch for details |
| Vidya Suraksha | Up to ₹7.50 lakh | 11.55% | ||
| Vidya Shresht | Up to ₹30 lakh | 9.75% – 10.25% | ||
| IOB Scholar | Up to ₹60 lakh | 11.55% – 12.55% | ||
| Skill Loan | ₹5,000 – ₹1.5 lakh | 11.05% | ||
| HDFC Bank | Education Loan for Indian Education | Up to ₹150 lakh | Contact the bank branch for more details | NIL |
| ICICI Bank | For domestic courses | Up to ₹50 lakh | 9.50% onwards | Up to 2% |
| For international courses | Up to ₹1 Crore | 9.50% onwards | ||
| Axis Bank | Prime Domestic | Up to ₹50 lakh | 13.70% – 15.20% | Up to 2% |
| Prime Abroad | Up to ₹50 lakh | 13.70% – 15.20% |
Education Loan Interest MCLR Rates
MCLR (Marginal Cost of Funds-based Lending Rate) is the standard interest rate used by banks to determine the interest rates for various loans, including education loans. This rate is revised by the Reserve Bank of India (RBI) on a monthly basis. Generally, banks add a spread to the MCLR to arrive at the final student loan interest rate. This spread can vary between banks and is often revised by the Indian Banks’ Association (IBA) every six months.
Students can make informed decisions when choosing a student loan provider by understanding the MCLR and the additional spread.
MCLR rates for all the banks in India that provide study loans are listed below:
| Bank | 3 Years | 2 Years | 1 Year | 6 Months | 3 Months | 1 Month | Overnight |
| SBI | 9.10% | 9.05% | 9.00% | 8.90% | 8.55% | 8.20% | 8.20% |
| HDFC | 9.50% | 9.45% | 9.45% | 9.45% | 9.30% | 9.20% | 9.20% |
| Axis | 9.50% | 9.45% | 9.35% | 9.30% | 9.25% | 9.15% | 9.15% |
| PNB | 9.30% | NA | 9.00% | 8.85% | 8.65% | 8.45% | 8.35% |
| IndusInd | 10.55% | 10.55% | 10.55% | 10.55% | 10.40% | 10.30% | 10.25% |
| RBL | NA | NA | 10.55% | 10.55% | 10.20% | 9.85% | 9.60% |
| DBS | 9.30% | 9.30% | 9.25% | 9.05% | 9.00% | 8.75% | 8.75% |
| Canara | 9.40% | 9.30% | 9.05% | 8.85% | 8.50% | 8.40% | 8.30% |
| IDFC First Bank | NA | NA | 10.45% | 9.95% | 9.90% | 9.65% | 9.65% |
| Bank of India | 9.10% | NA | 9.00% | 8.85% | 8.60% | 8.45% | 8.20% |
| Nainital Bank | 10.15% | 10.15% | 8.95% | 8.65% | 8.40% | 8.20% | 8.10% |
| Jammu & Kashmir Bank | 9.35% | 9.30% | 8.85% | 8.70% | 8.40% | 8.20% | 8.10% |
| Central Bank of India | NA | NA | 8.95% | 8.80% | 8.60% | 8.25% | 8.20% |
| Bandhan Bank | 11.90% | 11.90% | 11.90% | 8.35% | 8.35% | 6.85% | 6.85% |
| UBI | 9.30% | 9.15% | 9.00% | 8.85% | 8.55% | 8.30% | 8.20% |
| UCO Bank | NA | NA | 9.00% | 8.85% | 8.55% | 8.40% | 8.20% |
| Punjab and Sind Bank | NA | NA | 9.15% | 8.95% | 8.65% | 8.50% | 8.25% |
| Bank of Baroda | NA | NA | 9.00% | 8.80% | 8.55% | 8.35% | 8.15% |
| Federal Bank | NA | NA | 9.80% | 9.75% | 9.65% | 9.60% | 9.55% |
| Standard Chartered | 8.70% | 8.70% | 8.50% | 8.50% | 8.50% | 8.35% | 7.80% |
| IDBI Bank | 10.15% | 9.70% | 9.20% | 9.15% | 8.90% | 8.60% | 8.45% |
| Indian Overseas Bank | 9.15% | 9.00% | 9.05% | 8.85% | 8.60% | 8.50% | 8.25% |
Education Loan Interest Rate: Tax Benefits and Subsidies
Student loans are not affordable for everyone, especially in the current environment of rising interest rates. Considering that subsidies and tax benefits are provided to applicants and co-applicants to encourage students to pursue higher education. These benefits help students repay their loans as quickly as possible and reduce the burden of interest payments. Additionally, these measures help prevent education loans from becoming NPAs (Non-Performing Assets), thus maintaining the stability of the education loan in India.
What is an Education Loan Interest Subsidy?
An education loan interest subsidy is a benefit that allows students to offset the expenses incurred in repaying their loans. Various government policies and private bank schemes offer interest-rate benefits to education loan applicants. Generally, subsidies are provided in the form of interest rate compensation, as per the norms established by the Central Government and RBI. This means students may receive complete or partial compensation for the interest paid during their course duration.
A few Government education loan interest rate subsidies are:
- Central Sector Interest Subsidy (CSIS)
- Dr. Ambedkar Central Scheme of Interest Subsidy for Overseas Studies (ACSIS)
- Padho Pardesh – Scheme for Interest Subsidy on Educational Loans for Overseas Studies
Also Read: Education Loan – Everything You Need to Know
How to Apply for an Education Loan Interest Subsidy
Education loan interest subsidies are additional benefits provided by banks following Central Government guidelines. Some subsidies cater to special circumstances, such as loans for girls, disabled applicants, or minority groups.
Key Points to Remember while Applying for an Education Loans:
- Subsidies are not automatically applied to all education loans. Eligible applicants must apply separately to avail for it.
- Subsidy eligibility depends on income and category. Applicants are required to provide income and caste/minority certificates issued by government authorities to be eligible for a subsidy.
- Only government-issued documents are accepted. Salary slips, IT returns, or community membership certificates are not valid and may lead to disqualification of the loan application.
- Subsidies are reimbursements, not waivers. Applicants must pay interest and EMIs, which are reimbursed upon approval.
How to Apply for Education Loans:
Step 1: Check the eligibility criteria for the subsidy scheme you want to apply for.
Step 2: Collect income and minority/caste certificates from the appropriate authorities.
Step 3: Visit the bank where the loan was taken.
Step 4: Request for subsidy application form, fill in the required details, and submit the form along with the required documents.
Step 5: Follow up with bank officials to track your application.
Tax Benefits on Education Loan Interest
Applicants and co-applicants can avail tax benefits under Section 80E of the Income Tax Act for interest paid by them on the applied student loans. The key points include:
- Tax benefits can be claimed for up to 8 years.
- Benefits will be ceased if the loan is repaid within 8 years.
- Only the individual paying the EMIs can claim this deduction.
- Deductions are capped by the limits under Section 80E.
- Tax benefits cannot be claimed alongside an interest subsidy scheme.
How to Apply for Tax Benefits:
Step 1: Firstly, you have to obtain an interest payment certificate from the bank.
Step 2: Make sure the certificate includes details of the interest paid for the financial year and is stamped by the bank.
Step 3: Declare the interest paid while filing ITR under Section 80E and attach the interest certificate with the ITR documents to avail the tax benefits.
Also Read: Study Loan Process: Eligibility, Application, & More
Education Loan Interest Rate – FAQs
What is an education loan interest rate?
An education loan interest rate is the percentage charged by a lender on the borrowed loan amount.
How are education loan interest rates determined?
Interest rates are influenced by various factors, including the lender’s base rate, the loan amount, the tenure, the borrower’s creditworthiness, and any applicable government schemes.
Can education loan interest rates change over time?
Yes, education loan interest rates can change over time due to changes in the lender’s base rate or economic conditions.
What are fixed interest rates?
A fixed interest rate is an unchanging rate charged on a liability, such as a loan or a mortgage. It remains the same throughout a set period, whether it’s the entire term of the loan or just a part of it.
What are fluctuating interest rates?
Also known as variable interest rates, fluctuating interest rates are interest rates that change over time. Unlike fixed interest rates, which remain constant throughout the loan term, fluctuating interest rates are tied to a standard rate, such as the repo rate or the prime lending rate.
What is the average interest rate for education loans in India?
The average interest rate for education loans in India typically ranges from 8% to 12%, but it can vary depending on the lender and the specific loan terms.
How can I get a lower interest rate on my education loan?
Applicants can consider the following points to find a student loan with a lower interest rate:
- A strong credit history can help you get a better interest rate.
- Offering collateral, such as property or fixed deposits, can reduce the risk for the lender and may lead to a lower interest rate.
- Explore government-sponsored schemes that offer subsidised interest rates.
- Sometimes, negotiating with the lender can help you secure a lower interest rate.
How is interest calculated on education loans?
Interest can be calculated using either the simple interest method or the compound interest method. Most of the banks use the reducing balance method, where interest is calculated based on the outstanding loan amount.
Can I prepay my education loan?
Yes, most banks allow prepayment of the student loans. However, there might be prepayment charges, so it’s advisable to check the terms and conditions with your lender.
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