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Education Loan - Education Loan Interest Rates - Factors to Consider to Obtain Education Loan - Government Schemes for Education Loan


According to data from the Reserve Bank of India (RBI), the outstanding education loan portfolio saw a 17% increase, reaching ₹96,847 crore in the fiscal year 2022-23, up from ₹82,723 crore in the previous year. This shows that the demand for education is increasing day by day similarly the cost of education is also increasing. Education loans have emerged as a crucial means to fund higher education in the current scenario as many students aspire to study in big institutes. 


During the process of securing an education loan, students should take into account certain factors that can serve as a helpful guide, ensuring a streamlined and obstacle-free experience in obtaining the loan.

Factors to consider while obtaining An Education loan

  1. Eligibility criteria

  2. Interest rate

  3. Type of loan

  4. Margin Money

  5. Loan tenure

  6. Loan repayment and its tenure

  7. Education expenses Coverage

  8. Tax benefits

  9. Special schemes

1. Eligibility criteria

To be eligible for the loan, the individual typically needs to be an Indian citizen and have secured admission to a recognised college. Some financial institutions specialize in providing education loans solely for studies abroad, while others cater to both domestic and international studies. In certain instances, a co-applicant, such as a parent, guardian, or spouse, maybe a mandatory requirement. in this way, Different banks may impose their own set of terms and conditions


While the specifics can vary among lenders, they generally consider factors such as the applicant's credit score, existing loans, and age. Awareness of and fulfilling these criteria is essential for a smoother application process for the education loan.


2. Interest Rate

The interest rates on education loans can fluctuate significantly across different lenders, contingent upon factors such as eligibility, loan amount, and tenure. Several prominent banks in India offer Education Loans with starting interest rates as low as 9.5% per annum. Considering options from these lenders ensures that the loan remains both convenient and affordable, making it advisable for individuals to include them in their decision-making process.


3. Type of loan

individuals must decide between a secured or unsecured loan. Both options are commonly available for student loans. Choosing a secured loan involves providing collateral, such as your home, against the loan amount. This decision is pivotal and should be made before starting the application process. The choice between secured and unsecured loans can notably impact key factors, including interest rates, loan amounts, and tenures.


4. Margin Money

Margin money in an education loan serves a similar purpose to the down payment required in other loan types. For instance, if an individual applies for a 15 lakh loan, the lender may sanction 12 lakhs, requiring the applicant to contribute the remaining 3 lakhs. This contribution typically represents a specified percentage of the total cost of the education or course. It is crucial to check the margin requirement set by the lender.


Furthermore, some of the best education loans in India may not have any margin requirement up to a specific limit, particularly for loans up to Rs 20 lakhs. It is advisable to explore such options when considering education financing


5. Loan tenure

In India, student loans from most banks typically have a tenure of up to 8 years for unsecured loans and up to 10 years for secured loans. There is usually a moratorium period of around six months post-course completion, during which only interest payments are required. For those starting their careers with limited earnings, choosing a longer loan tenure, ranging from 10 to 12 years is recommended for more manageable monthly repayments. This extended tenure proves beneficial by alleviating the repayment burden, leading to more manageable Equated Monthly Installments (EMIs) for the student.


6. Loan Repayment

As per recent information, loans of INR 4 Lakhs or less typically carry an interest of 10%-12%, with a repayment period of 3 years. For higher amounts, lower interest rates are common, but the repayment period extends to 5-10 years.

Repayment terms vary among lenders and loan types. With a moratorium period, two options exist:

a) Interest payment during moratorium: The parent/student pays inter

b) No interest payment during moratorium: The parent/student isn't required to pay interest during the study period. The interest accrued is added to the loan amount, and EMI (equated monthly instalment) payments commence after the moratorium period, which includes the course duration plus 6 months or 1 year. est (either in full or partially) only on the disbursed loan amount, with principal repayment starting after the moratorium period.


7. Interest subsidies

In India, the government provides interest subsidies for higher education through various schemes, including the Central Sector Interest Subsidy Scheme, Padhao Pardesh Scheme, and Central Government Interest Subsidy Scheme. some schemes are tailored for domestic studies, while others support education abroad. Each scheme has distinct eligibility criteria. Students are advised to check for the availability of such schemes before applying for an education loan, as they can significantly reduce the overall cost of education financing.


8. Tax benefits

Tax Act, offering substantial relief by permitting individuals to claim deductions on the interest paid towards the repayment of education loans. Under Section 80E Chapter VI(a) of the Income Tax Act, individuals can claim deductions for the total interest paid on education loan EMIs during the financial year. Importantly, there is no specified maximum limit on the tax exemption amount for education loans. To avail of this deduction, it is necessary to obtain a certificate from the bank that segregates the principal and interest components of the loan payment. It's important to note that only the interest paid qualifies for tax benefits, with no such benefit applicable to the principal repayment.


9. Expense Coverage

SBI provides below coverage which can be considered illustrative and mostly all government bank may provide it :


  1. Fees payable to college/school/hostel

  2. Examination/Library/Laboratory fees

  3. Purchase of Books/Equipment/Instruments/Uniforms, Purchase of computers- essential for completion of the course (maximum 20% of the total tuition fees payable for completion of the course).

  4. Caution Deposit/Building Fund/Refundable Deposit (maximum 10% of tuition fees for the entire course).

  5. Travel Expenses/Passage money for studies abroad.

  6. Cost of a Two-wheeler upto Rs. 50,000/-

  7. Any other expenses required to complete the course like study tours, project work etc.


10. Special schemes

The Indian government implements several schemes to assist students in obtaining education loans. It's crucial to be aware that these programs may undergo changes, and new initiatives may be introduced. Here are key schemes

  • Central Sector Interest Subsidy Scheme (CSIS): Offers interest subsidy during the moratorium period for students with family income up to a specified limit.

Under this Scheme Interest Subsidy is given during the moratorium period i.e., Course period plus one year on Education Loan taken from the Scheduled Banks under the Model Education Loan Scheme of Indian Banks Association to students belonging to economically weaker sections whose annual parental income is up to Rs. 4.5 Lakh from all sources. The subsidy is allowed for pursuing higher education in professional/ technical courses only from NAAC accredited Institutions or professional/ technical programmes accredited by NBA or Institutions of National Importance or Centrally Funded Technical Institutions (CFTIs). Canara Bank has been appointed as Nodal Bank for the implementation of the scheme.


  • Padho Pardesh Scheme: Targets economically disadvantaged students pursuing higher education abroad, providing interest subsidy. Padho Pardesh" - Scheme of Interest Subsidy on Educational Loans for Overseas Studies for the Students Belonging to the Minority Communities.


  • Central Government Interest Subsidy Scheme (C-GISS): Provides interest subsidy to economically weaker students for educational loans related to professional and technical courses.

  • Credit Guarantee Fund Scheme for Educational Loans (CGFSEL): Focuses on providing credit guarantees to lenders, enhancing students' access to education funds.

  • Credit Guarantee Fund Scheme for Skill Development (CGFSSD): Similar to CGFSEL, this scheme aims to provide credit guarantee for skill development loans.

  • Vidya Lakshmi Portal: An online platform streamlining the application process for education loans and scholarships from various banks.

  • Post Matric Scholarship Scheme for Minorities: Offers financial assistance to minority students at the post-matriculation level.

  • National Means-cum-Merit Scholarship Scheme (NMMSS): A scholarship program for meritorious students from economically weaker sections.

  • Scholarship Schemes for SC/ST/OBC/Minority Students: Various scholarships for students from Scheduled Castes (SC), Scheduled Tribes (ST), Other Backward Classes (OBC), and minority communities.

  • Prime Minister's Scholarship Scheme (PMSS): Provides financial assistance to dependent wards and widows of ex-servicemen.


Before applying for an education loan or scholarship, students should check official government sources for the latest updates, as schemes may be revised or new ones introduced.

Here is a table showing some of the Best Education loan providers with their interest rates.


Name 

Interest Rate

State Bank of India

General = 11.15%

List AA IIT =  8.15%

List AA Other = 8.20%

List A Other = 8.65%

List B NIT = 9.15%


List as per SBI 

https://sbi.co.in/web/interest-rates/interest-rates/loan-schemes-interest-rates/education-loan-scheme#show

Punjab national bank

ICICI bank

9.50% onwards

Bank of Baroda

Bank of India

8.25% to 11.60%


Central Bank of India

8.30% to 11.25%


Prasanna Laxmi R., Assistant Content Manager

An MBA student specializing in Finance, driven by a keen interest in exploring the complexities of finance to navigate the business landscape.


 

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