by An education loan is a financial aid provided by banks or financial institutions to students to help cover the cost of their higher education, either in India or abroad. It typically covers tuition fees, hostel expenses, exam fees, library charges, travel costs (for overseas studies), and other related academic costs. The repayment generally begins after the course is completed, often with a moratorium period of 6 months to 1 year. Interest rates can be fixed or floating, and some loans are eligible for government interest subsidies, especially under schemes like the Central Sector Interest Subsidy (CSIS) in India.
Features of Education Loan:
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Coverage of Educational Expenses
Education loans generally cover a wide range of expenses related to a student’s academic journey. These include tuition fees, examination fees, library and laboratory charges, hostel or accommodation costs, travel expenses (especially for overseas studies), and even the purchase of books, laptops, and study materials. Some banks also fund insurance premiums for the student during the study period. This comprehensive coverage ensures students can focus on learning without financial stress. Coverage limits vary based on the course, institution, and whether it is domestic or international education.
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Moratorium Period
A unique feature of education loans is the moratorium period, also known as the repayment holiday. During this time—usually the course duration plus 6 to 12 months—the borrower is not required to start repaying the loan. Some banks allow payment of simple interest during this period, while others may defer all payments. This grace period helps students concentrate on their studies and find suitable employment before beginning repayment. The moratorium makes education loans student-friendly and eases the financial burden during the initial stages of career development.
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Collateral and Co-applicant Requirement
Depending on the loan amount and lender’s policy, banks may require collateral security and a co-applicant (usually a parent or guardian). Loans up to ₹7.5 lakhs are often unsecured, while larger amounts typically demand property or fixed deposits as collateral. The co-applicant guarantees repayment in case the student is unable to pay. This arrangement ensures banks are safeguarded against default risks. The collateral also impacts the interest rate—secured loans generally have lower rates compared to unsecured ones, making it important for applicants to assess their options.
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Interest Rate and Subsidy
Interest rates on education loans vary across banks and depend on the loan amount, type of institution, and collateral provided. Rates usually range between 8% to 13% per annum. Government schemes like the Central Sector Interest Subsidy (CSIS) offer interest relief during the moratorium for eligible students from economically weaker sections. Some lenders offer reduced rates for top-ranking institutions or for girl students. Floating and fixed interest rate options are available. Subsidies and concessions make loans more affordable and increase accessibility for underprivileged and deserving candidates pursuing higher studies.
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Repayment Tenure
Education loans come with flexible repayment options. The repayment tenure generally ranges from 5 to 15 years, depending on the loan amount and the student’s repayment capacity. Banks offer EMI (Equated Monthly Instalment) based repayment schedules after the moratorium period ends. Some institutions allow partial prepayments or full closures without any penalty. A longer tenure reduces the EMI burden, making it easier for fresh graduates to manage expenses. However, a longer term also results in higher overall interest costs. Hence, students are encouraged to plan their repayment based on expected income and job prospects.
Example of Education Loan:
Riya, a student from Mumbai, secured admission to a Master’s program in Data Science at a reputed university in the United States. The total cost of the program, including tuition, accommodation, and travel, amounted to ₹35 lakhs. She approached a leading public sector bank in India for an education loan. The bank approved the loan under the CGFSEL scheme, offering ₹30 lakhs with collateral security (her parents’ residential property) and a 1-year moratorium post-study period. The interest rate was 10% per annum. The bank directly paid the tuition fees to the university in installments. After completing her course and securing a job in the U.S., Riya began repaying the loan in monthly EMIs as per the 10-year repayment schedule.
Challenges of Education Loan:
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High Interest Burden
Education loans can carry interest rates ranging from 8% to 14% or more, depending on the bank, course, and borrower profile. While repayment usually starts after the moratorium period, interest continues to accrue during the study period, increasing the total burden. Many students struggle with repayments if they don’t get well-paying jobs immediately after graduation. Compounding interest during the moratorium can lead to significantly larger EMIs, making it difficult to manage finances early in a career, especially without a steady or sufficient income.
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Limited Access without Collateral
For loans above ₹7.5 lakh, banks often require collateral such as property or fixed deposits. Students from financially weaker backgrounds or those without assets may struggle to secure loans for expensive courses or foreign education. Even when the student is meritorious, lack of collateral often becomes a barrier to higher loan amounts. This disproportionately affects rural and low-income students, making education financing unequal. Non-availability of co-signers or guarantors adds another hurdle for those in need of large education loans.
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Stringent Repayment Terms
While education loans provide a moratorium period (generally course duration plus 6–12 months), the repayment window is limited, typically 5–15 years. If a student faces unemployment or underemployment after studies, repaying EMIs becomes challenging. Lenders are not always flexible in rescheduling or restructuring loans. Delays in repayment affect credit scores, which can impact future financial eligibility. In many cases, banks treat delayed payments strictly, adding penalties and pressuring guarantors. The rigid nature of repayment terms makes loan management stressful for fresh graduates.
Providers of Education Loan:
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State Bank of India (SBI)
SBI offers education loans under schemes like the SBI Student Loan, SBI Global Ed-Vantage, and Skill Loan Scheme. These loans cover tuition fees, living expenses, and travel costs for students pursuing studies in India or abroad. SBI offers competitive interest rates, starting around 8.55% with concessions for girl students. Loan amounts can go up to ₹1.5 crore for premier foreign institutions. The repayment typically begins one year after the course ends or six months after getting a job. SBI also supports government interest subsidy schemes.
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HDFC Credila
HDFC Credila, a subsidiary of HDFC Ltd., specializes in education loans for Indian students pursuing higher studies in India and abroad. It offers tailor-made loans with flexible repayment options and competitive interest rates. Loan amounts can cover full academic and living expenses, with collateral-free options available for select institutions. HDFC Credila offers pre-visa disbursement for students going abroad. The company allows easy online application, minimal paperwork, and quick approvals. It is a preferred choice for students going to the US, Canada, UK, Germany, and Australia.
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Punjab National Bank (PNB)
PNB provides education loans under schemes like PNB Udaan (for studies abroad), PNB Saraswati (for studies in India), and PNB Kaushal (for vocational training). The bank offers up to ₹10 lakh for domestic education and ₹20 lakh for foreign education. Interest rates are affordable with concessions for female students. The loan covers tuition fees, travel expenses, examination charges, books, and more. Repayment usually starts one year after course completion. PNB also implements the Credit Guarantee Fund Scheme for Education Loans (CGFSEL), enabling loans without collateral up to ₹7.5 lakh.
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Bank of Baroda
Bank of Baroda offers education loans under various schemes like Baroda Scholar (for overseas education) and Baroda Gyan (for studies in India). The bank finances up to ₹10 lakh for domestic and ₹20 lakh or more for overseas studies. Interest concessions are available for female students. It covers tuition, travel, living, and other academic expenses. The moratorium period includes the course duration plus one year. They also support government-backed interest subsidy schemes and allow online application through their student portal.
