An education loan lets you pay for tuition and related costs now and repay after you finish studying. Done well, it is an investment in yourself. Done carelessly, it can follow you for years. This guide covers what to understand before you sign.
What an education loan covers
Most lenders cover:
- tuition and college fees
- hostel or accommodation fees paid to the institution
- exam, library and laboratory fees
- books, equipment and a laptop, if required for the course
- travel and living costs, for study abroad
- caution deposits and insurance, in some cases
Collateral vs non-collateral loans
Non-collateral (unsecured) loans are given without property or deposits as security, usually up to a limit that depends on the lender and your institution. They are faster to get but may carry a higher interest rate.
Collateral (secured) loans are backed by property, a fixed deposit or other assets. They usually allow larger amounts and lower rates.
The co-applicant
Almost every education loan needs a co-applicant, usually a parent or guardian. Their income and credit score strongly influence approval and rate. The co-applicant is legally responsible for the loan too.
Interest and the moratorium
The moratorium is the period when you do not have to pay EMIs, typically your course duration plus 6–12 months. But interest usually still accrues. If you pay nothing during this time, the unpaid interest is added to your balance, and your EMIs will be higher.
Rates are usually floating, linked to the lender's benchmark rate, so your EMI can change over the life of the loan. Ask for the Key Fact Statement (KFS), which shows the annual percentage rate including fees.
Tax benefit
Under the old tax regime, Section 80E lets you deduct the full interest paid on an education loan from taxable income, for up to 8 years from when repayment starts. It is not available under the new regime. Rules change, so confirm with a tax professional.
Documents you will usually need
- admission letter and fee structure from the institution
- academic records (10th, 12th, graduation as applicable)
- ID and address proof for student and co-applicant
- income proof for the co-applicant (salary slips, ITR, bank statements)
- collateral documents, for a secured loan
- for study abroad: entrance test scores, visa documents and a cost estimate
Where to apply
You can apply to banks and NBFCs directly, or use the government's Vidya Lakshmi portal to apply to several banks through one form.
How to compare offers
Compare these, not just the headline rate:
- Annual percentage rate including processing and other fees
- Moratorium length and whether simple interest applies during it
- Prepayment charges. Many floating-rate loans have none.
- Margin money, the share of costs you must pay yourself
- Disbursement process. Is money paid directly to the institution each term?
Use our EMI calculator to see what each offer will cost per month.
Key takeaways
Borrow what you need, not what you are offered. Understand the moratorium interest, compare the full cost of each offer and keep your co-applicant fully informed.