Student Loan: A Comprehensive Guide

Education is the foundation of a successful career in today’s competitive world. However, the escalating costs of higher studies in India and abroad have become a major hurdle for many aspiring students. This is where a student loan or education loan comes to the rescue. Serving as a financial lifeline, it empowers students to pursue their dreams without worrying about financial constraints. Whether it’s covering tuition fees, accommodation, travel expenses, or essential academic supplies, an education loan ensures students have access to the resources they need to excel in their studies.

This exhaustive guide provides a comprehensive overview of student loans, encompassing eligibility criteria, application procedures, repayment strategies, and government initiatives.

What is a Student Loan?

A student loan, often referred to as an education loan, is a financial solution designed to help students achieve their academic goals without being hindered by financial limitations. These loans provide the necessary funds to cover a wide range of educational expenses, including tuition fees, books, accommodation, and other associated costs, both domestically and internationally.

Offered by banks, Non-Banking Financial Companies (NBFCs), and government institutions, education loans come with flexible repayment options and a grace period, allowing students to focus on their studies without immediate financial burdens. Moreover, these loans cater to a variety of courses, from undergraduate and postgraduate programs to vocational training and skill development certifications.

The government recognises the importance of higher education. Hence, to encourage students to pursue their academic goals, it offers tax benefits under Section 80E of the Income Tax Act. This deduction can be claimed on the interest paid on education loans.

Looking For An Education Loan

Why Do Students Need an Education Loan?

Pursuing higher education, especially in fields like engineering, medicine, or business, can be a significant financial investment. Rising tuition fees, coupled with expenses for books, accommodation, travel, and other essentials, can pose challenges for families. For students planning to study abroad, the costs can be even more substantial, encompassing airfare, health insurance, and living expenses.

In such situations, student loans play an important role in alleviating financial burdens. They provide the necessary funds for tuition fees and other educational expenses, allowing students to focus on their studies without financial distractions. Education loans offer flexible repayment options and tax benefits, making them an attractive choice for families seeking financial support for higher studies. 

Types of Education Loans

When planning to finance your higher education, understanding the different types of student loans available is crucial. These loans are designed to support students pursuing their academic goals, both domestically and internationally. Let’s explore the primary types of student loans:

1. Domestic Student Loan: Whether you’re pursuing an undergraduate, postgraduate, or professional degree, these loans can cover expenses such as tuition fees, hostel fees, books, and other educational costs. To be eligible for a domestic education loan, you typically need to secure admission in a recognized institution. The loan amount, interest rate, and repayment tenure vary depending on the lender and the course of study.

2. International Student Loan: This type of loan provides the financial support needed to pursue a dream of studying abroad. It helps to cover expenses such as tuition fees, accommodation, travel costs, and other educational expenses. By securing an international student loan, students can focus on their studies and cultural experiences without worrying about immediate financial constraints. Many international student loans offer flexible repayment options and potential tax benefits, making them an attractive choice for aspiring international students.

3. Specialised Student Loan: This type of education loan is designed to provide targeted financial support for individuals pursuing specific academic programs or career paths. These loans often cater to high-cost fields like medicine, engineering, law, or business. They offer tailored features such as higher loan amounts, flexible repayment terms, and potential tax benefits.

Banks and Non-Banking Financial Companies (NBFCs) offer specialised loans for niche academic courses such as MBA, medical, engineering, and pilot training. Some specialised loans may require specific collateral or co-signers, while others may have eligibility criteria based on academic performance or course of study. 

4. Skill Development Loan: This type of education loan is designed to support individuals pursuing vocational and skill-based training programs. Unlike traditional student loans, which primarily cater to degree courses, these loans are tailored to those seeking specialized training to equip themselves with hands-on skills for specific industries.

These loans can help cover expenses such as tuition fees, course materials, certification fees, and even equipment or toolkits required for the course. As the demand for skilled professionals grows, many financial institutions and government-backed schemes are offering student loans to support individuals pursuing these specialised training programs.

Eligibility Criteria for Education Loans

The eligibility criteria for an education loan can vary depending on the lender, the course of study, and the applicant’s profile. However, the following are common requirements:

1. Nationality:

  • The applicant must be an Indian citizen.
  • Non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) may also be eligible for certain student loans.

2. Age Limit:

  • Applicants typically need to be between 18 and 35 years old.
  • Exceptions may apply based on the specific loan scheme or course type.

3. Academic Admission:

  • The applicant must have secured admission to a recognized institution in India or abroad.
  • This admission should be confirmed through a merit-based selection process or an entrance examination.

4. Course Eligibility:

Education loans are available for a wide range of courses, including:

  • Graduate, postgraduate, and professional degrees (e.g., engineering, medicine, MBA)
  • Specialized training or vocational courses
  • Overseas education programs at reputable institutions

5. Academic Performance:

  • A strong academic track record can significantly improve loan approval chances.
  • Many lenders assess past academic achievements to gauge the student’s commitment and potential.

6. Co-borrower/Guarantor:

  • A co-borrower, typically a parent, guardian, or spouse, is required to act as a financial guarantor.
  • The co-borrower must have a stable income and good creditworthiness to ensure loan repayment.

7. Financial Background:

  • Lenders often consider the financial status of both the applicant and the co-borrower.
  • Family income levels may influence the loan amount and interest rates offered.

8. Collateral Requirement:

  • Loans up to ₹7,50,000 may not require collateral.
  • For higher loan amounts, tangible security like property, fixed deposits, or insurance policies may be necessary.

9. Repayment Capability:

  • Banks assess the potential future income of the student after course completion.
  • This helps determine the borrower’s ability to repay the student loan.

Student Loan Amount

The amount of a student loan depends on several factors, including the lender’s policies, the applicant’s eligibility, and the course of study. Here’s a detailed breakdown:

Category Loan Amount Range Coverage Security
Domestic Education Loans ₹1 lakh to ₹10-20 lakh Tuition fees, hostel charges, and other academic expenses
  • Unsecured up to ₹7.5 lakh
  • Secured above ₹7.5 lakh
International Education Loans ₹15 lakh to ₹1.5 crore Tuition fees, accommodation, travel, living expenses, and other costs
  • Unsecured up to ₹7.5 lakh
  • Secured above ₹7.5 lakh
100% Financing Varies Tuition fees, accommodation, and other expenses May not require marginal money for select courses and institutions

Documents Required for Student Loan Application

When applying for an education loan programme, students must submit the following documents:

  • Proof of identity such as Aadhaar Card, Voter ID, Electricity bill, etc.
  • Residence proof
  • Marksheets of previous qualifications
  • Admission letter from the educational institution
  • Fee structure of the course
  • Income proof of co-borrower
  • Bank statements for the last 6 months
  • IT returns or Form 16
  • Loan application form
  • Statement of cost of study
  • Disability certificate (if applicable)
  • Caste certificate (if applicable)
  • Passport and Visa (if applicable)

Steps to Apply for an Education Loan

Applying for an education loan is a structured process that requires careful preparation and attention to detail. To begin, students should research various lenders – banks, financial institutions, government schemes, and scholarship providers such as Buddy4Study – to find the best education loan options available. The first step is to check the eligibility criteria set by the lender, which often includes factors like the student’s age, course type, and the institution’s recognition. Once eligibility is confirmed, students need to gather essential documents, such as academic records, proof of admission, and financial details of the co-borrower, usually a parent or guardian.

Next, students must fill out the student loan application form, either online or offline, providing accurate personal, academic, and financial information. After submission, the lender will process the application, which may include a credit check of the co-borrower to assess their repayment capacity. Once the loan is approved, the lender will issue a sanction letter detailing the loan amount, interest rate, and repayment terms.

Finally, the student loan amount is disbursed. The funds are typically transferred directly to the educational institution or the student in installments, depending on the course fee structure. By following these systematic steps, students can successfully apply for an education loan to fund their higher education aspirations.

Education Loan: Financing and Collateral Requirements

When applying for an education loan, it’s very important to understand the financing and collateral requirements. Most lenders finance up to 100% of the total education cost, encompassing tuition fees, accommodation, travel expenses, and other academic-related costs.

  • Unsecured Loans: For smaller loan amounts (up to ₹7.5 lakh), banks often offer unsecured loans, which do not require collateral.
  • Secured Loans: For larger loan amounts, especially for international education, lenders may require collateral such as property, fixed deposits, or insurance policies.
  • Flexible Options: Some lenders may accept a guarantor’s income in place of collateral. Additionally, offering collateral can often lead to lower interest rates and more favourable loan terms.

Bank Policies for Student Loans

Banks typically offer flexible policies for education loans:

Loan Amount Margin Money Collateral and Guarantees
Up to ₹4 lakh No margin money required No collateral or guarantor needed
Above ₹4 lakh (Domestic) 5% margin Third-party guarantee required
Overseas 15% margin Collateral required

Disbursement Process: Once approved, student loan amounts are usually disbursed directly to the educational institution as per the fee structure. 

Looking For An Education Loan

Education Loan: Interest Rates, Repayment Terms, and Tax Benefits

Interest Rates for Education Loans:

Banks determine education loan interest rates based on the Marginal Cost of Funds Based Lending Rate (MCLR) plus a spread, typically ranging from 1.35% to 3%. The final interest rate depends on factors like the borrower’s creditworthiness and the lender’s policies. Comparing rates across different banks can help you secure the most competitive deal.

Repayment Terms for Education Loan:

  • Repayment Commencement: Repayment of the education loan generally commences after the completion of the course.
  • Grace Period: Most banks offer a grace period of 6 months to 1 year after securing a job or completing the course, during which no repayment is required.
  • Repayment Tenure: The standard repayment tenure for education loans is 5 to 7 years. However, for larger loans or specific terms, extensions may be available.

Additionally, students can repay the loan amount in the form of Equated Monthly Instalments (EMIs). Using an education loan EMI calculator can help plan finances effectively, ensuring informed decisions and smoother loan management.

Important Considerations:

Before applying for an education loan, consider these additional charges:

  • Processing Fees: Typically around 0.15% of the loan amount.
  • Prepayment Penalties: Charged for early repayment.
  • Late Payment Penalties: Incurred for missed payments.

Tax Benefits for Education Loan:

One of the significant benefits of education loans is the tax benefits offered under Section 80E of the Income Tax Act. This section allows taxpayers to claim a deduction on the interest component of the education loan, reducing their overall tax liability. By availing this deduction, you can significantly lower your tax burden and save money.

What is the taxable income under Section 80E of the Income Tax Act, 1961?

The taxable income under Section 80E of the Income Tax Act, 1961, for an education loan is not the loan amount itself. Instead, it’s the interest you pay on the education loan that is deductible from your taxable income.   

Here’s how it works:

  • Interest Payment: When you pay your monthly EMI, a portion goes towards the principal amount, and another portion goes towards the interest.   
  • Tax Deduction: The interest component of your EMI is eligible for a tax deduction under Section 80E.   
  • No Limit: There is no maximum limit on the amount of interest you can claim as a deduction. You can claim the entire interest amount paid during the financial year.   

Important Points to Remember:

  • Loan Source: The loan must be taken from a bank or financial institution.   
  • Purpose: The loan must be taken for higher education either in India or abroad.   
  • Time Limit: The deduction can be claimed for a maximum of 8 years or until the interest is fully repaid, whichever is earlier.

To be eligible for a tax deduction under Section 80E, the following conditions must be met by the applicants:

  • Individual Borrower: The loan must be taken by an individual for their own higher education or for their spouse, children, or a student for whom they are the legal guardian.
  • Ineligibility of Companies and HUFs: Companies and Hindu Undivided Families (HUFs) cannot claim this deduction.
  • Primary Borrower Claims Deduction: Only the individual who has taken the loan can claim the tax deduction.

Compare Top Student Loans in 2025

Let’s take a look at some of the major student loan providers, their interest rates, and processing fees:

Bank Interest Rate (p.a.) Processing Fees
SBI 8.15% to 11.75% Up to ₹10,000 only above loan amount more than ₹20 lacs
Central Bank of India 8.10% – 10.60% NIL for studies in India, 1% for abroad, max ₹15,000
PNB 9.20% NIL for studies in India, 1% for abroad, max ₹10,000
Canara Bank 9.25%
  • 0.5% up to max ₹10,000 (for collateral security of 100% above)
  • 0.5% up to max ₹20,000 (for collateral security of less than 100%)
IDFC First Bank 10%-15% Up to 1.5% of the loan amount
IDBI Bank 8.50% NIL for studies in India, 1% for abroad, max ₹5,000
Bank of Baroda 8.15%
  • NIL up to ₹7.5 lacs
  • 1% above ₹7.5 lacs up to max ₹10,000
Bank of India 11.05%-11.85% NIL for studies in India
ICICI Bank 9.85% Up to 2% + GST
Bank of Maharashtra 9.45% Contact the bank
Axis Bank 13.70%-15.20% 2% of the loan + GST
HDFC Bank 9.50% Nil for studies in India, 1% for abroad
Kotak Mahindra Bank Up to 16% NIL
Federal Bank 12.55% Contact the bank
Tamilnad Mercantile Bank 11.75%-13% 1% of sanctioned amt above ₹7.5 lacs

*The above details are based on the data available in 2024 and are subject to change. For the latest information, kindly check with the corresponding bank.

Conclusion

Education loans provide a financial lifeline for students seeking higher education. By understanding financing options, collateral requirements, repayment terms, and tax benefits, students can make informed decisions to secure the necessary funds for their academic goals. Proper planning and timely repayment can ensure that education loans catalyze a brighter future.

Education Loan: Frequently Asked Questions (FAQs)

What is an education loan? 

An education loan, also known as a student loan, is financial assistance provided by banks, NBFCs, or government institutions to help students cover the cost of tuition, accommodation, travel, and other educational expenses for pursuing higher studies.

Who can apply for an education loan?

Indian citizens aged 18 to 35 years who have secured admission to recognised institutions in India or abroad can apply for education loans. A co-borrower, such as a parent or guardian, is often required.

Are education loans available for studying abroad? 

Yes, many banks and NBFCs offer education loans for international studies. These loans cover expenses such as tuition fees, accommodation, travel, and living costs.

What expenses are covered under an education loan? 

Education loans typically cover tuition fees, hostel expenses, travel costs, exam and library fees, books, and other academic supplies required for the course.

Is collateral required for an education loan? 

For loans up to ₹7.5 lakh, collateral is usually not required. However, higher loan amounts often require collateral such as property, fixed deposits, or insurance policies.

How is the loan amount disbursed? 

The loan amount is typically disbursed directly to the educational institution as per the fee schedule. Some lenders may also disburse funds directly to the borrower for specific expenses.

What is the interest rate for education loans? 

Interest rates vary across lenders and typically range from 8% to 15%. Factors such as the applicant’s profile, loan amount, and lender’s policies influence the interest rate.

When does the repayment of an education loan start? 

Repayment usually begins after a moratorium period, which is typically 6 months to 1 year after course completion or securing a job.

Are there tax benefits for education loans? 

Yes, under Section 80E of the Income Tax Act, you can claim a tax deduction on the interest paid on an education loan for up to 8 years or until the interest is fully repaid.

Can I prepay my education loan? 

Yes, most lenders allow prepayment of education loans. However, some may charge prepayment penalties, so it’s advisable to check the terms beforehand.