Are you searching for an interest-free education loan in India? If so, you may have noticed that banks and NBFCs always charge interest on study loans. So, is it even possible to get a loan without paying interest?
While you can’t completely avoid interest on a loan, what if we told you there’s a way to make it vanish, at least for the moratorium period? Yes, you read that right! There are government schemes designed to help students reduce or even eliminate education loan interest. One such scheme is the Central Sector Interest Subsidy Scheme (CSIS), which pays off the interest accumulated during the course duration plus one year after the completion of the course for EWS students.
Curious to know about other such schemes and ways to keep your study loan interest rate as low as possible? Keep reading as we reveal everything you need to know about getting an education loan at the lowest cost.
Government Schemes for Interest-Free Education Loans
The government of India wants students from the low-income and backward category to excel in their studies without any worry about funding. That is why they offer different schemes under which students can claim subsidies on their education loan interest for a fixed period of time. Below, we have discussed these subsidies and all related details.
Dr Ambedkar Scheme for Socially and Economically Backward Students
Are you planning to study abroad, but the interest on education loans makes it impossible to afford it? For students like you, the Department of Social Justice and Empowerment, Ministry of Social Justice & Empowerment launched the Dr Ambedkar Scheme for Socially and Economically Backward Students. Under this scheme, if you come from the OBC or EWS category, then you are eligible for an education loan interest subsidy for the moratorium period. Some important points regarding this scheme are mentioned below.
- The scheme covers approved courses of study abroad at Masters, M.Phil, and PhD levels.
- Students belonging to the Other Backward Classes (OBCs) and Economically Backward Classes (EBCs) are eligible for this scheme.
- The annual family income of the applicant must be less than ₹8 lakhs per annum.
- Loans up to ₹20 lakhs are covered under this scheme.
- Approved students can get a 100% subsidy on their education loan interest for the moratorium period under the Dr Ambedkar Scheme for Socially and Economically Backward Students Scheme.
Central Sector Interest Subsidy Scheme (CSIS)
Another great scheme by the government of India is the Central Sector Interest Subsidy Scheme (CSIS), which aims to provide financial assistance to students to pay their study loan interest during the moratorium period. EWS category students who have taken an education loan from the scheduled banks under the Model Education Loan Scheme of the Indian Banks Association (IBA) are eligible for this scheme. In addition, the annual income of the family of the applicant must be lower than ₹4.5 lakhs. Check the points below to learn more about the Central Sector Interest Subsidy Scheme (CSIS).
- Provides 100% interest subsidy on education loans during the moratorium period (course duration plus one year).
- Students from economically weaker sections (EWS) with annual parental income up to ₹4.5 lakh from all sources are eligible for the subsidy.
- Must have taken an education loan under the Model Education Loan Scheme of the Indian Banks Association (IBA).
- Subsidy is offered for loan only for higher education in professional/technical courses. Also, the institution must be NAAC/NBA accredited or an Institution of National Importance or a Centrally Funded Technical Institution (CFTI).
Alternatives to Education Loan with Interest
There are no banks in India that offer education loans without any interest. That is why if you are looking for a 0% interest student loan, then you can opt for low-interest loans offered by top banks in India. Below, we have listed these banks and their interest rates for student loans.
| Education Loans | Interest Rate Per Annum |
| Central Bank of India Education Loan | 8.10% to 10.60% |
| Bank of Baroda Education Loan | 8.15% |
| SBI Education Loan | 8.15% to 11.75% |
| IDBI Bank Education Loan | 8.50% |
| PNB Education Loan | 9.20% |
| Canara Bank Education Loan | 9.25% |
| Bank of Maharashtra Education Loan | 9.45% |
| HDFC Bank Education Loan | 9.50% |
| ICICI Bank Education Loan | 9.85% |
| IDFC First Bank Education Loan | 10% to 15% |
| Federal Bank Education Loan | 12.55% |
| Bank of India Education Loan | 11.05% to 11.85% |
| Axis Bank Education Loan | 13.70% to 15.20% |
| Kotak Mahindra Bank Education Loan | Up to 16% |
Also Read: Student Loan: A Comprehensive Guide
Why are there No Education Loans with Zero Interest?
Education loans at a 0% interest rate are not offered by banks or any other educational institutions. The reasons behind this are listed below.
- Income of Banks: Charging interest on different types of loans, such as education loans, is one of the biggest sources of income for banks. If banks start offering loans without interest, then they would quickly start losing money, and they can not operate.
- Problem With Government Schemes: While there are some schemes available for students that take care of student loan interest for the moratorium period, there are no schemes that can cover the interest of the whole education loan. This is because if the government starts doing so, then they would have to finance thousands of students, for which a big chunk of the budget would be dedicated to loan repayment. This will halt the development of other sectors in the country, negatively affecting the economy.
- Borrower’s Credit History: As you may know, you can build a positive credit history only by repaying your loans and credit card bills on time. If banks do not charge interest on loans, then your motivation to repay the loan will be gone, which will lead to delayed repayments. Thus, it will negatively affect your CIBIL score, your credit history will be bad, and you will not get a loan in the future.
How to Make your Education Loan Interest as Low as Possible
Now that you know that it is not possible to get an education loan with no interest, you can try to get a lower interest rate. The banks and NBFCs set their interest rates based on the risk factors associated with the borrower, which is usually decided during the underwriting process of a student loan. Therefore, it is paramount that you make sure every factor considered in the underwriting process is in your favour so that you get a lower interest rate. There are some tips we mentioned below that you can use to lower your interest rate for an education loan.
Credit Score
The very first thing any lender will check is your credit score. You must maintain a high credit score as it showcases your creditworthiness and increases your chances of securing loans at favourable interest rates.
Collateral
When you apply for an education loan, the collateral you pledge plays a vital role in reducing your interest rate. For example, if persons A & B take a loan of ₹10 lakhs each and the collateral A offers is valued at ₹12 lakhs and what B offers is valued at ₹15 lakhs, by comparison, the risk factor of B is lower than A. Thus, the education loan interest rate offered to B will be much less than that offered to A.
Also Read: What is a Collateral? – Understanding its Meaning, Purpose, Types and Importance
Educational Institutes
You must try to get admission to well-known and prestigious institutions. Students of such institutions often have better loan options and can get a better interest rate.
Government Schemes and Subsidies
Keep yourself updated on various government initiatives that can help you get a subsidy on your education loan interest. The government offers schemes like the Dr Ambedkar Scheme for Socially and Economically Backward Students and the Central Sector Interest Subsidy Scheme (CSIS) to make your study loan interest free!
Effective Financial Planning
There are various ways you can plan your loan repayment to make sure your interest gets reduced. The first way is to pay back more whenever you can. Imagine you get a bonus from your company, and you can use that money to reduce your loan amount. Thus, you have to pay less interest in the future. Next, you can choose to repay your loan as soon as you get a job even though you are still in your moratorium period. This proactive approach can save you from a larger financial burden later. In addition, once you start repaying your loan, prioritize timely loan payments to avoid accumulating additional interest.
A Way to Make your Education Loan Interest-Free
Since you have to pay the interest on your education loan, there is a way that can help you pay off your education loan so that it does not cost you a penny. We are talking about investing your money so that it can work for you and you can pay off your loan interest with it.
After completing your course, you have a year or so in the moratorium period. Most students waste this golden opportunity to make the most out of their earnings. After you get placed and start earning, you can save every penny you can and invest it in a safe, high-yield sector like stocks, mutual funds, commercial property, etc.
The yield that you get in the form of interest from these savings can go towards your education loan interest repayment. Using this method, you can pay off your education loan without spending money. After your loan is paid off, you can pull back your investment. Interestingly, you will still have your original funds with you!
Caution: Investing your money and paying off your study loan with the interest generated on investment is related to market risk. Thus, you need to be responsible and careful when making investments.
Summary of Key Points – Education Loan with No Interest
- There are no education loans in India that are completely interest-free.
- The government of India has schemes that can help you cover 100% of your study loan interest for the moratorium period.
- You can reduce your interest rate on a study loan by reducing the risk factors by providing a high-value asset as collateral, having a co-signer with a high CIBIL score, etc.
- Education loan applicants can use smart investing to make a profit from their investments and pay off their student loans.
FAQs
Can I get an education loan without interest?
No, you can not get an education loan without paying interest. However, you can opt for government subsidy schemes to help you pay 100% of your interest rate on study loans for the moratorium period.
Which bank gives 0% interest on education loans?
There are no banks that offer 0% interest rate on education loans. However, you can try to get an education loan with a lower interest rate.
What if I don't pay my education loan?
If you do not pay your education loan, then you will have to pay late fees on your next repayment. If you do not pay your loan for more than 90 days, then it will be declared as a Non-Performing Asset (NPA), and your collateral will be seized, or your co-signer will have to pay your education loan EMI.
Which bank loan has the lowest interest rate?
For education loans, banks such as the Central Bank of India (8.10% to 10.60% interest rate), Bank of Baroda (8.15% interest rate), SBI (8.15% to 11.75% interest rate), etc., have the lowest interest rates in India.
Which type of education loan is best?
If you want to keep your education loan interest as low as possible, then opting for a secured loan where you have to pledge collateral is the best option.