Education is one of the most significant investment decisions you can make for your future. But financing education has become a critical problem these days with the rising costs. Increasing tuition fee, accommodation, and other related expenses make it difficult for many students to afford quality education without financial assistance. If students have to pursue higher education then they must have to rely on scholarships and education loans. But let me tell you, receiving a scholarship is no easy feat. Some are awarded based on merit, while others are given based on means. But what about those who don’t have top grades or don’t meet the specific eligibility criteria set by these scholarships? For them, securing a scholarship almost feels next to impossible. In such cases, a study loan often becomes the only option. But even attaining an education loan isn’t as simple as it sounds. It also comes with a whole set of eligibility criteria that needs to be fulfilled. And just like an education loan has its benefits, it also comes with its own set of drawbacks; especially if a student doesn’t have a clear understanding of how it works.
Through this article, I’ll guide you through the important factors to consider before applying for an education loan, so you can make an informed decision when you apply for a study loan.
Understand your Education Loan Requirements
It is very important to assess your financial needs before you apply for an education loan. By doing this you can avoid borrowing more than you require which will certainly reduce your financial burden. Calculate your tuition fees, accommodation, books, travel, and other related expenses to have an idea of your monetary requirement. Explore various loan types, such as student loans without collateral or education loans with collateral. Compare lender options, focusing on specialised education loan providers with competitive interest rates and flexible terms. Proper research and careful evaluation will help you find the best suitable education loan as per your requirements.
Eligibility Criteria for Education Loan
Before applying for a study loan, you must be aware of the eligibility criteria of the education loan you choose to apply for as different lenders have their own set of terms and conditions. Generally it includes factors such as the applicant’s nationality, academic background, and admission to a recognised institution. Courses related to medicine, engineering, management, and other professional fields often receive preference for instant study loan approval. Some lenders often require student loans with collateral, especially for larger loan amounts or when the lender perceives a higher risk. Hence, it is better to have a quick check if you fulfill the eligibility requirements of the student loan before you apply for it.
Also Read: Education Loan Eligibility Criteria – Complete Guide for Students
Education Loan Interest Rate and Repayment Terms
Education loan interest rates vary depending on a number of factors, including the lender, the loan amount, the loan term, and the borrower’s creditworthiness. In simple terms, interest rates on study loans are lower than interest rates on other types of loans, such as personal loans or credit cards.
And the loan repayment terms vary on the study loan amount and the type of lender. However, the majority of the education loans have a grace period of 6 months to 1 year after the students complete their studies. This education loan repayment period gives time to the students to plan out the education loan repayment ways. Meanwhile, they can find a job and get their finances on track before they begin repaying the study loan amount.
It is significantly important to have a complete understanding of the interest rates and loan repayment terms to make sure that you can afford the study loan and be aware of your obligations.
Below table details the education loan interest rates and repayment period:
| Bank | Interest Rate (per annum) | Repayment Period |
| State Bank of India (SBI) | 8.05% to 11.75% | Up to 15 years (excluding moratorium) |
| Punjab National Bank (PNB) | 4.00% to 12.75% | Up to 15 years (excluding moratorium) |
| IDFC FIRST Bank | 9.50% onwards | Up to 10 years (including moratorium) |
| Bank of Baroda | 8.15% to 12.50% | Up to 15 years (excluding moratorium) |
| Canara Bank | 9.25% | Up to 15 years (excluding moratorium) |
| Bank of Maharashtra | 8.10% to 11.30% | Up to 15 years (excluding moratorium) |
| HDFC Bank | Starting from 9.50% | Up to 10 years (including moratorium) |
| Indian Overseas Bank | 9.75% to 10.25% | Up to 15 years (excluding moratorium) |
| ICICI Bank | 10.25% onwards | Up to 10 years (including moratorium) |
| Karnataka Bank | 10.48% onwards | Up to 10 years (including moratorium) |
| Tamilnad Mercantile Bank | 11.75% to 13.00% | Up to 10 years (including moratorium) |
| Karur Vysya Bank | 12.05% to 14.55% | Up to 10 years (including moratorium) |
| Axis Bank | 13.70% to 15.20% | Up to 10 years (including moratorium) |
| IDBI Bank | 8.55% to 11.15% | Up to 15 years (excluding moratorium) |
| Bank of India | 11.05% to 11.85% | Up to 15 years (excluding moratorium) |
| UCO Bank | 11.30% to 11.70% | Up to 15 years (excluding moratorium) |
| Federal Bank | 12.55% onwards | Up to 10 years (including moratorium) |
| Kotak Mahindra Bank | Up to 16% | Up to 10 years (including moratorium) |
Also Read: Education Loan Interest Rate – A Detailed Analysis for Popular Banks
Education Loan Processing Fees and Other Charges
When considering an education loan, it’s important to be aware of the potential processing fees and other charges beyond the advertised interest rate. Many banks and financial institutions charge processing fees, which are a percentage of the loan amount, for handling the student loan application. Furthermore, it is important to have an awareness of prepayment penalties, which are charges incurred if you decide to repay the study loan before the end of the agreed-upon term.
Also, don’t hesitate to ask for any other administrative fees or miscellaneous costs that might be related to your education loan, as these can add up and impact the overall cost of borrowing.
Below table enlists the processing fees and other charges for education loans from various banks in India:
| Bank | Processing Fees |
| State Bank of India |
|
| Central Bank of India | NIL for studies in India 1% of loan amount for studies abroad (Max: ₹10,000) |
| Punjab National Bank | NIL for studies in India 1% of loan amount for studies abroad (Max: ₹10,000) |
| Canara Bank |
|
| IDFC FIRST Bank | Up to 1.5% of the loan amount |
| IDBI Bank | NIL for studies in India 1% of the loan amount (Maximum: ₹5,000) for studies abroad |
| Bank of Baroda | No processing for charges up to ₹7.50 lakh 1% of loan amount up to ₹10,000 for loan above ₹7.50 lakh |
| Bank of India 3 | No processing fee for studies in India |
| ICICI Bank | Up to 2% + GST |
| Bank of Maharashtra | Contact the bank |
| Axis Bank | 2.00% of the loan plus GST |
| HDFC Bank | Maximum up to 1% of the loan amount |
| Kotak Mahindra Bank | NIL |
| Federal Bank | Contact the bank |
| Tamilnad Mercantile bank | 1% of the sanctioned loan amount above ₹7.50 lakh for studies abroad |
Also Read: Education Loan Moratorium Period
Loan Disbursement Process
After getting approval from the bank for your education loan, the final step is education loan disbursement. It is very crucial to understand the study loan disbursement process, the documents required, mode of payment and how you wish to receive the amount i.e. whether in one go or in parts, based on your needs and the lender’s policies. You inform the lender how much you require for tuition, living expenses, and other related expenses, and whether you want the amount to your account or directly to your institution.
Once all the formalities are completed, the study loan amount will be released on the agreed terms and a transaction statement will be given. To ensure that the process is smooth, you must keep all the documents handy, be aware of the terms and conditions and be sure how you want to receive the funds. Since different lenders may have different procedures, it is better to have clarity before you begin with the study loan process.
Education Loan Impact on your Credit Score
Student loans significantly affect your credit score. On time payments help to build your positive credit history, especially beneficial for those new to credit. Student loans with long tenures help to create a long good credit history. Conversely, late payments result in poor CIBIL score. Also, unmanageable study loans can increase your debt-to-income ratio, negatively impacting creditworthiness. That’s why it is important to prioritize timely repayments. In case of any problem or issue, communicate with lenders and monitor your credit report regularly.
Also Read: Navigating the Landscape of Education Loans in India
Frequently Asked Questions (FAQs)
Can I get a student loan without collateral?
Yes, many lenders offer student loans without collateral for smaller amounts i.e. up to ₹7.5 lakhs. Loans more than ₹7.5 lakhs will require collateral.
What is the moratorium period in an education loan?
Moratorium period refers to the timeline during which you don’t need to repay the loan. Usually, it lasts until course completion plus 6–12 months after getting a job.
How is the interest rate on an education loan decided?
The interest rate for an education loan varies on factors such as loan amount, tenure, collateral, and bank policies. Rates may be fixed or floating.
What happens if I fail to repay my education loan?
If a student fails to repay an education loan, it may impact their credit score and the lender may take legal action or seize collateral if applicable. It is advisable to discuss the terms and conditions related to the repayment of student loans in advance before applying.
Can I prepay my education loan?
Yes, you can make prepayment of your education loan but some lenders charge prepayment penalties. It is advisable to check your loan agreement for complete details on early repayment options.
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