Education is a powerful vehicle for social mobility, career advancement, and personal growth. Yet, the rising cost of higher education often presents a significant financial hurdle for many families. Whether it’s pursuing an undergraduate degree, a professional diploma, or advanced studies abroad, the expenses related to tuition fees, accommodation, study materials, travel, and living costs can quickly add up.
Education loans bridge this financial gap, making quality education accessible without burdening families with immediate out-of-pocket expenses. They are tailored financing solutions that provide students the necessary funds to pursue their academic ambitions while spreading the repayment over a manageable period post-education.
This guide provides an in-depth understanding of education loans, covering types, benefits, eligibility, application processes, interest rates, tax benefits, repayment options, and tips for selecting the right loan to support your educational journey.
An education loan is a financial product designed to cover the costs associated with education. These loans are extended by banks, non-banking financial companies (NBFCs), government agencies, and educational institutions to students or their parents to pay for:
Education loans typically offer flexible repayment options, allowing students to focus on their studies during the loan tenure and begin repayment after course completion or after securing employment.
An education loan ensures financial barriers do not prevent students from enrolling in their preferred institutions or courses, whether in India or overseas.
Repayment often starts after course completion or after a moratorium period, reducing immediate financial
stress.
Education loans usually carry lower interest rates than personal loans, making them affordable.
The Income Tax Act provides tax deductions on education loan interest under Section 80E, promoting education financing.
Many lenders offer unsecured education loans up to a certain limit, removing the need for collateral.
Loans can cover tuition fees, accommodation, travel, and more, giving comprehensive support to students.
These loans are for students pursuing courses in India. They cover expenses related to degree programs, diplomas, or vocational courses from recognized Indian universities and institutions.
Loans for studying abroad, covering tuition, travel, accommodation, insurance, and other associated costs. These often require higher documentation and collateral.
• Unsecured Loans: Offered up to ₹7.5 lakh (limits vary by lender) without collateral, but with stricter eligibility criteria.
• Secured Loans: For amounts beyond unsecured limits, collateral such as property or fixed deposits is required.
Various government schemes offer subsidized or no-interest loans for students from economically weaker sections or minority groups.
Eligibility depends on the lender and loan type but typically includes:
Strong academic performance can improve loan approval
chances.
Proof of admission or provisional letter from the recognized institute.
Courses recognized by AICTE, UGC, or relevant accreditation bodies.
Typically, the student should be between 16 to 35 years of age.
Usually, a parent or guardian must act as co-applicant and provide income and credit information.
Stable income of co-applicant or borrower, with minimum thresholds varying by lender.
A good credit score of the co-applicant enhances approval likelihood.
Application form
Admission letter or confirmation from the educational institution
Proof of identity and address (Aadhaar, PAN, Passport)
Academic certificates (marksheets, graduation certificates)
Income proof of co-applicant (salary slips, IT returns, bank statements)
Collateral documents (if applicable)
Course fee structure and breakdown
Passport and visa (for international studies)
• Passport-size photographs
• Loan Amount : Typically ranges from ₹50,000 to ₹1 crore or more, depending on the course and institution.
• Tenure : Varies from 5 to 15 years, including a moratorium period (study plus grace period).
Interest rates on education loans vary from 8% to 15% per annum, depending on:
• Loan amount
• Secured vs. unsecured loan
• Type of institution (domestic/international)
• Borrower’s credit profile
• Government subsidies
• Processing fees (0.5% to 2%)
• Prepayment penalties (may apply on some loans)
• Late payment fees
Under Section 80E of the Income Tax Act, interest paid on education loans qualifies for a tax deduction for up to 8 consecutive years
starting from the year in which repayment begins. The principal repayment may also be eligible under Section 80C in some
cases (check with current tax laws).
Usually, repayment starts after course completion, with a grace period (typically 6 months to 1 year). Interest may accrue during this period depending on the loan type.
Equated Monthly Installments (EMIs) are paid over the loan tenure.
Most lenders allow prepayment without penalties on floating rate loans, enabling faster loan closure.
Borrowers can pay extra amounts during repayment to reduce interest burden.
Use lender websites or visit branches to understand options and check eligibility.
Complete the loan application form with accurate details.
Submit all required documents to support your loan application.
Lender conducts background checks, income verification, and document validation.
On approval, loan sanction letter is issued detailing terms and conditions.
Funds are disbursed directly to the institution or the borrower’s account in tranches, depending on the course structure.
Decide between fixed or floating interest rates based on your repayment capability and market trends.
Longer moratorium provides relief but may increase interest
cost.
Choose a tenure balancing manageable EMIs and total interest paid.
Compare total cost of borrowing, not just interest rates.
Understand prepayment options and associated costs.
Opt for credible and customer-friendly lenders.
Apply early after admission confirmation.
Maintain good credit history of co-applicant.
Provide complete and accurate documentation.
Choose courses recognized by reputed institutions.
Consider co-applicants with stable income and good credit.
Ensure transparent communication with lender.
• Myth: Only students from wealthy families get loans.
• Fact: Loans are available for various income groups, with government schemes for low-income families.
• Myth: Education loans cover only tuition fees.
• Fact: They can cover multiple expenses including accommodation, travel, and equipment.
• Myth: Repayment starts immediately after loan sanction.
• Fact: Repayment usually starts after course completion or during a grace period.
Studying abroad involves higher costs and additional considerations:
Higher loan amounts required.
Collateral usually mandatory.
Additional documentation like passport, visa, admission letter.
Consider currency fluctuations and exchange rates.
Some lenders offer customized loans covering airfares, insurance, and living expenses.
Complex documentation process
High collateral requirements for large loans
Credit history of co-applicant affecting approvals
Long processing times for some lenders
Understanding the fine print and terms can be difficult for first-time borrowers
Scholarships and grants
Education crowdfunding platforms
Employer-sponsored education benefits
Part-time jobs and internships during study
Family and friends funding support
An engineering aspirant from a small town secured an education loan from FinotechServices to pursue a degree at a premier institute in India. With affordable EMIs and a moratorium period, he focused on studies and graduated debt-free.
A medical student aspiring to study abroad obtained an
international education loan with collateral from parents. The
loan covered tuition, travel, and living costs, making her dream possible.
Education loans open doors to opportunities that might otherwise be inaccessible due to financial constraints. With thoughtful planning, clear understanding of terms, and timely repayments, education loans are powerful tools that can empower you to pursue your academic and professional goals.
At FinotechServices, we are committed to supporting students and families through transparent, affordable, and flexible education loan solutions. Our expert advisors guide you through the application process, helping you choose the best loan product tailored to your needs.
Invest in your future today—because quality education is an investment that pays lifelong dividends.