Education Loans in India - A Comprehensive Guide

Education Loans in India – While pursuing higher education, a significant hurdle that students and their families often come across, is the rising cost of tuition and related expenses. While the dream of acquiring knowledge and skills required to shape a brighter future is universal, the financial realities can be daunting.

This is where education loans come to the rescue, bridging aspirations and affordability. It is a financial instrument that provides individuals with the necessary funds to cover their cost of expenditures on tuition fees, living expenses, books, and other education-related costs.

These loan facilities are available from multiple sources under different terms and conditions.

Navigating the landscape of education loans reflects our sincere endeavour to inform and educate the readers on types of education loans available in India, including government-backed, private, and loans available for students located overseas.

Additionally, it offers valuable insights and useful guidance on choosing the loan in alignment with the academic needs of the applicants.

Types of Education Loans in India

In India, education loans are offered by various banks and financial institutions, both from the public and private sectors. These loans cater to a wide audience pursuing their studies while facing adverse financial circumstances. The primary types of education loans available in India are as follows:

Education Loans in India – Based on Location

Domestic Education Loans: A domestic education loan is designed to assist students in financing their education at the educational institutions in India.
Education Loans for Study Abroad: A study abroad education loan is tailored to support applicants willing to pursue their studies at an accredited foreign colleges and universities located overseas.

Education Loans in India – Based on Collaterals and Guarantee

Loan against Deposits: Education loan against deposits can be obtained mainly using recurring and fixed deposits. It also includes any other deposits deemed acceptable by the lending institution.
Loan against Property: An education loan is offered against immovable property or assets as the collateral. These assets can include residential property such as a house, flat, land, agricultural land, including other real estate holdings.
Loan against Securities: Financial assets in the form of securities like debentures, bonds, equity shares, and other eligible instruments can serve as the collateral for an education loan.
Third-Party Guarantee: An education loan against a third-party guarantee is acquired with the backing of a third party. A relative or friend is a third party, who assumes responsibility for repayment of loan in case the primary borrower encounters difficulties.

Education Loans in India – Government-Sponsored and Private Education Loans

Central Government-backed Education Loans

Education loan schemes backed, guaranteed or subsidised by the Central Government are offered to the applicants who seek to pursue their ambition.

1. The Central Sector Interest Subsidy Scheme (CSIS) is one of the key initiatives of the Ministry of Education (MoE), Government of India.

Launched in 2009, the Central Sector Interest Subsidy Scheme offers a full interest subsidy during the moratorium period for loans obtained under the Model Education Loan Scheme of the Indian Banks’ Association (IBA).
The scheme aims to support individuals from the Economically Weaker Section (EWS) pursuing technical or professional courses within the Indian territory.
Students pursuing professional or technical courses must be enrolled in institutions that hold accreditation from NAAC or in programs accredited by the NBA. Additionally, eligibility extends to Institutes of National Importance (INIs) or Central Funded Technical Institutions (CFTIs).
The scheme is available to students whose annual gross parental or family income does not exceed ₹4.5 lakh.
The scheme is universally adopted by the Scheduled Banks (SBs), Regional Rural Banks (RRBs), and Cooperative Banks, and it is seamlessly integrated with the existing Model Educational Loan Scheme of the Indian Banks’ Association.
Under the CSIS, interest subsidy is applicable only once, whether it is meant for undergraduate, postgraduate, or integrated courses. The scheme provides interest subsidy on a maximum loan amount of ₹10 lakh.
In the CSIS scheme, no collateral security or third-party guarantee is necessary for education loans sanctioned up to ₹7.5 lakh. The lending institution must ensure that this portion of the loan is covered by the Credit Guarantee Fund Scheme for Education Loan (CGFSEL).
Within the framework of the scheme, the Government of India assumes responsibility for the interest payable on the Educational Loan during the moratorium period, which includes the course period plus one year. Subsequent to the moratorium period, the student is responsible for paying the interest on the outstanding loan amount.
The interest rates applied to educational loans will be determined in accordance with the Benchmark Prime Lending Rate (BPLR) or Base Rate, following the interest rate guidelines established by the IBA Model Educational Loan Scheme.
- The banks have been advised to switch over to the system of Base Rate with effect from July 1, 2010.
- Banks may determine their actual lending rates on loans and advances with reference to the Base Rate.
- The Base Rate system is aimed at enhancing transparency in lending rates of banks and enabling better assessment of transmission of monetary policy.
- As per the RBI guidelines, there can be only one Base Rate for each bank. Banks have the freedom to choose any benchmark to arrive at a single Base Rate which should be disclosed transparently.
The scheme is administered through Canara Bank, the designated Nodal Bank for the Ministry of Education.
The Nodal Bank disburses the subsidy directly into the Education Loan accounts of the beneficiaries using the Direct Benefit Transfer (DBT) mode through the Public Financial Management System (PFMS) portal.
- It is the responsibility of the lending bank to annually claim the interest subsidy on behalf of eligible beneficiaries.
According to the 2021 IBA Scheme, banks may grant a 1% interest concession if interest payments are made during both the study period and the subsequent moratorium period before the commencement of repayment.

2. The Credit Guarantee Fund Scheme for Education Loans (CGFSEL) is another key initiative of the Government of India.

The CGFSEL scheme was launched on September 16, 2015.
Within the framework of the CGFSEL, the Central Government extends a guarantee for education loans obtained by students, with no requirement for collateral security or third-party guarantees, up to a maximum loan limit of ₹7.5 lakh.
The scheme offers guarantee coverage of 75% for the defaulted amount through the National Credit Guarantee Trustee Company Ltd. (NCGTC).

Some of the other key central government-backed education loan schemes are as follows:

Dr. Ambedkar Scheme of Interest Subsidy on Educational Loan for Overseas Studies for OBCs & EBCs
National Minorities Development & Finance Corporation (NMDFC) Education Loan Scheme
National Safai Karamcharis Finance & Development Corporation (NSKFDC) Education Loan Scheme
National Backward Classes Finance & Development Corporation (NBCFDC) Education Loan Scheme
National Scheduled Castes Finance & Development Corporation (NSCFDS) Education Loan Scheme
National Handicapped Finance & Development Corporation (NHFDC) Education Loan Scheme
National Scheduled Tribes Finance and Development Corporation (NSTFDC) Education Loan Scheme

The Pradhan Mantri Vidya Lakshmi Scheme is another prominent initiative that simplifies the loan application process for various banks.

State Government-Backed Education Loans

The State Governments in India often come out with announcements on programmes and schemes for education loans offered under unique terms and conditions. Some of the prominent schemes are as follows:

Rajasthan Minority Finance & Development Cooperative Corporation (RMFDCC) Education Loan Scheme
Bihar Student Credit Card Scheme
Gujarat Interest Subsidy Scheme on Education Loan for Study Abroad
Higher Education & Skill Development Guarantee Scheme for Pursuing Higher Education in Delhi
Karnataka Arivu Education Loan Scheme
Kerala Education Loan Repayment Support Scheme
West Bengal Student Credit Card Scheme
Odisha Kalinga Sikhya Sathi Yojana
Himachal Pradesh Mukhya Mantri Gyandeep Yojna

Private Education Loans

Private education loans in India are financial products offered by the private banks and financial institutions to help individuals fund their cost of academic expenditures.
Banks in India typically offer educational loans with a maximum limit of up to ₹1.25 crore for domestic institutions and up to ₹1.50 crore for international colleges or universities.
Depending on circumstances, borrowers may be eligible for 100% financing. A margin of 0% to 15% may be applicable in other cases.
A relative or friend can act as a guarantor if required in the application process for an education loan.
Education loan repayment typically begins 12 months after finishing the course, although this timeline can vary with respect to different banks and lenders.
Interest rates on education loans typically range between approximately 8% and 11.50%, varying on the basis of the loan scheme, loan amount, and the lending policies of the institution.
Applicants are provided with flexible terms and conditions that allow ample time to repay the loan after completing their education.

Education Loans in India – Based on Courses Selected

Undergraduate Education Loans: Undergraduate education loans are tailored for courses spanning three to five years, enabling students to pursue a bachelor’s degree at national or international colleges and universities. Eligibility under this loan scheme typically requires successful completion of the 12th grade.
Postgraduate Education Loans: Postgraduate education loans support two-year-long courses that empower students to pursue postgraduate degrees in their chosen fields at national or international colleges and universities. Students must typically hold a bachelor’s degree in order to qualify for this loan.

Education Loans in India – Career Education Loan

Career education loans are designed to support working professionals seeking to pursue advanced professional courses at national or international colleges and universities.
These loans enable individuals to pursue career-oriented programs at technical and professional-trade level leading to enhancement of their employability skills.

Education Loans in India – Loans for Parents

Loans meant for parents or their adult relatives are unsecured financial offerings provided by the banks.
These loans are intended to cover the various cost of expenditures associated with their child’s education, including tuition fees, living expenditures, books, uniforms, transportation costs, and more.
These loans offer parents and their relatives timely support to assist the process of enrollment of their children in national or international colleges and universities.

Education Loans in India – Interest Rates

Table provided below showcases the top education loan interest rates for the financial year 2023-24.

Name of the Bank	Interest Rates % (Per Annum)
Bank of Baroda	9.15% onwards
Punjab National Bank	9.25% onwards
Canara Bank	9.25% onwards
Union Bank of India	11.30% onwards
State Bank of India	8.55% onwards
Central Bank of India	8.55% onwards
IDBI Bank	9.01% onwards
Indian Overseas Bank	11.05% onwards
HDFC Bank	Preferential rates as per the college/university
Axis Bank	13.70% onwards
Federal Bank	12.55% onwards
ICICI Bank	9.95% onwards
Kotak Mahindra Bank	Up to 16%
Karnataka Bank	10.44% onwards

Note:- These interest rates are applicable as of March 2023 and are subject to change as per the bank’s regulations.

Education Loans in India – List of Expenditures Covered

Fees payable to educational institutes: This includes tuition fees, admission fees, and any other mandatory fees charged by the educational institution.
Examination/library/laboratory fee: Costs associated with examinations, access to libraries, and laboratory usage fees.
Travel expenses/passage money for studies abroad: Funding for international travel, visa fees, and expenses related to studying abroad.
If applicable, insurance premium for student borrowers: Premiums for insurance policies that cover the borrower (applicants) against unforeseen circumstances or health issues.
Caution deposit, building fund/refundable deposit supported by institution bills/receipts: Expenditures related to deposits required by the institution include caution deposits and building funds, supported by official bills or receipts. These deposits should typically not exceed 10% of the total loan amount.
Purchase of books/equipment/instruments/uniforms: Funding for essential study materials, equipment, instruments, or uniforms required to pursue and complete the course. Total expenditures should not exceed 20% of the total loan amount.
Purchase of a computer at a reasonable cost, if required, to complete the course: If a computer and related accessories are a necessary requirement for completion of the course, the loan can include the cost incurred on these. This expenditure should not exceed 20% of the total loan amount.
Any other expenditures incurred to complete the course, such as study tours, project work, thesis, etc.: Miscellaneous expenditures incurred directly on study tours, project work, thesis expenses, and other educational necessities could be included. This expenditure should not exceed 20% of the sanctioned loan amount.
Consideration of scholarships, fee waivers, etc., if any, available to the student borrower: While calculating the required loan amount, any scholarship, fee waiver, or financial aid available to the borrower should be taken into consideration in order to determine the actual loan amount.

The coverage of these expenditures may vary depending on the terms and conditions of the education loan and the lending policies of the institution. Borrowers must carefully review the loan agreement and consult with the bank or financial institution for specific details.

Also Read: Kerala NMDFC Education Loan Scheme Offers up to INR 30 Lakh Credit to Minorities

Education Loans in India – List of Courses

List of courses covered under the educational loan is as follows:

Graduation and Post-Graduation Courses: This category includes professional, technical, and diploma courses conducted by approved universities or colleges recognised by the regulatory bodies such as UGC, AICTE, etc.
Regular Degree or Diploma Courses: Educational loans can be availed for degree or diploma courses offered by prestigious autonomous institutions like IIM, IIT, IISc, XLRI, NIFT, and NID, including courses on professional qualifications conducted by ICWA, CA, CFA, and more.
Specialised Courses with Regulatory Approval: Loans are available for regular degree or diploma programs in specialised fields such as pilot training, aeronautical studies, shipping, including others that have received approval from relevant regulatory authorities like the Director General of Civil Aviation (DGCA), shipping authorities, or other applicable bodies.
Job-Oriented Professional/Technical Courses: This category covers job-oriented courses at the undergraduate, postgraduate, or diploma levels. It includes programs like MBA, MCA, and MS, and courses offered by the internationally recognised institutions such as the Chartered Institute of Management Accountants (CIMA) – London or Certified Public Accountant (CPA) – USA.
Skill Development Programs: Educational loans can also be availed for pursuing skill development courses, aimed at enhancing specific skills and employability.

These eligible courses include a wide range of academic and vocational programs, ensuring that students can avail financial support for their diverse educational needs and career pursuits.

Education Loans in India – Document Required

A list of the documents typically required for an educational loan application is as follows:

KYC Documents: Proof of identity and address, including the Aadhaar card, Passport, Voter ID, or Driving Licence.
Academic Records: Mark sheets and certificates for 10th standard, 12th standard, and graduation, along with scores or results of the relevant entrance exams if applicable.
Admission Letter: A copy of the official admission letter or offer of admission from the educational institution where the student intends to enrol.
Fee Structure: Documentation outlining the fee structure for the chosen course, including tuition fees, examination fees, and other related expenses.
Co-applicant Documents (if required): KYC documents and income proof of the co-applicant, if applicable, such as that of a parent or guardian co-signing the loan.
Additional Documents (as requested): Additional documentation may be sought to support the loan application, depending on the lender-specific requirements.

Education Loans in India – Tax Benefits

When students begin to repay their education loans, they can benefit from an income tax deduction under Section 80E of the Income Tax Act of 1961.

This deduction specifically applies to the interest portion of their monthly loan payments however, it does not cover the principal repayments.

There’s no fixed limit on the amount claimed by the applicants for interest repayment with regard to tax benefits.

However, they must obtain a certificate from their bank or lending institution to take advantage of this tax break.

Tax deduction provision is available for a period up to eight years, starting from the year the borrower has begun repaying the loan or until the entire interest amount is settled—whichever occurs earlier.

This is beneficial to borrowers in reducing their tax liability while repaying their education loans.

Education Loans in India – Useful Suggestions

Choosing the right educational loan is a crucial decision that can significantly impact the financial well-being of the applicants. Some of the valuable suggestions in order to help the borrowers make an informed decision are as under:

Understanding the Eligibility Criteria: Applicants should carefully review the eligibility criteria of different lenders in order to ensure that they meet the requirements with regard to age limit, academic qualifications, and admission to recognised institutions etc.
Comparing Interest Rates: It’s essential to compare interest rates offered by the banks and financial institutions. A lower interest rate can result in more affordable loan repayment in the long run.
Consideration of Loan Amount: Borrowers must evaluate the maximum loan amount offered by different lenders. It has to be ensured that it covers the anticipated educational expenditures, including tuition fees, cost of living, study materials, and other essentials.
Repayment Terms and Conditions: Applicants need to understand the repayment terms and conditions including the tenures offered by the different lenders. They should opt for a loan that has the flexible repayment options aligned with their future borrowing and repaying capacities.
Verifying Additional Charges: Borrowers need to be aware of any processing fees, prepayment penalties, or hidden charges associated with the loan. Transparent terms and conditions are crucial.
Co-borrower Requirement: Some lenders may require a co-borrower, often a parent or guardian, for approval. It has to be ensured that the borrower is aware of this requirement. They should select a co-borrower accordingly if required.
Loan Disbursement Process: It is important to understand how the loan disbursement process works. It has to be ensured that the funds are disbursed directly to the educational institution to cover tuition fees and related expenditures.
Loan Security: Some lenders may require collateral or a guarantor, depending on the loan amount. Applicants must evaluate the security options and choose one that is aligned with their needs.
Loan Repayment Moratorium: Check if there is a moratorium period (grace period) before the period of loan repayment begins. This can provide valuable time to find employment after having completed their studies.
Research Tax Benefits: Applicants must explore any potential tax benefits available on the interest paid on educational loans under Section 80E of the Income Tax Act, 1961.
Read Loan Agreement Thoroughly: Students should read and understand all terms and conditions before signing any loan agreement. They must seek clarification on any points of ambiguity.
Customer Service and Support: Quality of customer service and support extended by the lenders is always helpful. Prompt and helpful customer service can clarify doubts whenever required.
Loan Prepayment Options: Penalties for prepaying the loan before the agreed-upon tenure must be paid due attention. Some loans offer flexibility in early repayment.

Education Loans in India – EMI Calculator

An Education Loan EMI Calculator is an online tool that assists students and borrowers in estimating their monthly loan repayment amount.
It requires inputs such as the loan amount, interest rate, and loan tenure to calculate the Equated Monthly Instalment (EMI).
This tool is widely available on the websites of banks, educational loan comparison platforms, and finance-related websites. A breakdown of the EMI into principal and interest components is vital to gain clarity with regard to repaying capacity within a specific timeframe. It allows borrowers to plan their repayments without facing unexpected financial burden.
Students can use this calculator to evaluate and compare different education loan options. It helps them to take an informed decision on borrowing.

Education Loans in India – How to Apply?

It is always advisable for the applicants to pay a visit to the preferred branch bank. They can meet the bank officials and inquire about the education loan application process in greater detail. They can also apply online if it is more convenient.

The step-by-step guide exclusively meant for the applicants to apply for an education loan online is as follows:

Bank Selection: Applicants must visit the website of the bank selected for an educational loan scheme that aligns with their needs.
Application Form: They should download the form directly from the bank’s website or click the ‘Apply Now’ button.
Form Completion: They must complete the application form providing accurate information. They must ensure that all the required fields are filled in appropriately. Additionally, they must attach the necessary supporting documents as specified by the bank.
Submission: Students must submit the duly filled in application form and upload the required documents on the bank’s online portal.
Verification and Evaluation: The bank will initiate the verification process upon receiving the application. This includes verifying the submitted documents, evaluating the selected course of study, and assessing any collateral or security offered by the student.
Loan Approval: Once the loan application is approved, the bank will disburse the approved loan amount to the student’s designated account.

Also Read: Assam Abhinandan Education Loan Subsidy Scheme Grants INR 50K Subsidy

Education Loans in India – Frequently Asked Questions (FAQs)

What are the main types of education loans available in India?

Education loans in India can be categorised based on location, collateral/guarantee, and type of courses etc. They include domestic education loans, study abroad education loans, and more. Such loans are also generally categorised into two types, secured education loans, and unsecured education loans, former require collateral as a security in order to avail the loan while the latter do not have a collateral requirement.

What is the significance of government-backed education loans in India?

Government-backed education loans in India, provided with the assistance of the central and state governments, often come with favourable terms, lower interest rates, along with subsidy options. This makes it more accessible to the applicants on the basis of easier terms and conditions.

Which are the major central government-backed education loan schemes?

The major central government-backed education loan schemes include the Central Sector Interest Subsidy (CSIS) scheme which has been in operation since 2009. Under this scheme interest subsidy is given during the moratorium period i.e., course period plus one year on education loan obtained from the Scheduled Banks under the Model Education Loan Scheme of Indian Banks Association. There are various loan schemes for the target segments facilitated by the National Backward Classes Finance & Development Corporation (NBCFDC) and other government bodies.

Who is eligible for the Central Sector Interest Subsidy (CSIS) scheme?

Central Sector Interest Subsidy (CSIS) scheme is designed for individuals from the Economically Weaker Section (EWS) who are pursuing technical or professional courses within India. To be eligible, students pursuing such courses must be enrolled in institutions accredited by NAAC or in programs accredited by the NBA. Furthermore, eligibility extends to Institutes of National Importance (INI) or Central Funded Technical Institutions (CFTIs). Applicants with an annual gross parental or family income not exceeding ₹4.5 lakh are eligible to benefit under this scheme.

Where is the interest subsidy credited under the Central Sector Interest Subsidy (CSIS) scheme?

Central Sector Interest Subsidy (CSIS) scheme is administered through the Canara Bank, the designated Nodal Bank for the Ministry of Education. The Nodal Bank disburses the subsidy directly into the Education Loan accounts of the beneficiaries using the Direct Benefit Transfer (DBT) mode through the Public Financial Management System (PFMS) portal.

How does the bank disbursing education loans apply for CSIS, and what are the key steps in the process?

The bank responsible for disbursing education loans under Central Sector Interest Subsidy (CSIS) scheme should submit an application through the CSIS portal managed by the Canara Bank. There is no need for filing an additional application by the applicants. The branch of the bank handling the loan disbursement should verify the student’s eligibility and submit the subsidy claim through the portal when it becomes due. The portal canarabank.com/User_page.aspx?othlink=375 is accessible throughout the year.

Is there a maximum loan amount limit for eligibility to claim the interest subsidy under the CSIS scheme?

Under the CSIS scheme, interest subsidy is applicable only once, whether for undergraduate, postgraduate, or integrated courses. The scheme provides interest subsidy on a maximum loan amount of ₹10 lakh. Under the CSIS scheme, no collateral security or third-party guarantee is necessary for Education Loans sanctioned up to an amount of ₹7.5 lakh. The lending institution must ensure that this portion of the loan is covered by the Credit Guarantee Fund Scheme for Education Loan (CGFSEL).

How can a borrower claim the subsidy from the Government of India under the CSIS scheme?

The borrower cannot directly request the subsidy from the Government of India. It is primarily the responsibility of the financing bank or branch to process the subsidy claim on behalf of the borrower.

If any lending bank fails to claim the interest subsidy for the current year, any outstanding or pending interest subsidy claims will not be considered. The Ministry of Education will not assume responsibility for any retroactive payments resulting from the bank’s failure to claim the interest subsidy before closing the student’s loan account.

Who should I contact to inquire about the subsidy amount disbursed by the government under the CSIS scheme?

To obtain specific information about the credited amount, students may contact the respective financing bank branch. If the branch’s response is unsatisfactory, they may reach out to the head office of the bank in question. If any lending bank fails to claim the interest subsidy for the current year, any outstanding or pending interest subsidy claims will not be considered.

Are there any tax benefits associated with education loans in India?

Students can claim income tax deductions under Section 80E of the Income Tax Act of 1961 for the interest portion of their education loan repayments. It helps in reducing their tax liability.