Picture your dream of higher education as a thrilling adventure, like climbing a mountain to see a breathtaking view. But, just like any good adventure, you need the right gear! In this case, that gear is often an education loan. Think of it as your trusty backpack, filled with the funds you need to reach your academic peak. In India, there’s a whole range of these “backpacks” to choose from, each designed to help you on your specific journey. So, let’s unpack the different types of education loans available and find the perfect one to help you climb to success.
Types of education loan
The education loan landscape in India is diverse, with financial institutions offering various options to cater to students’ unique academic and financial requirements. These loans differ based on study location, collateral requirements, loan providers and specialised fields of study. Understanding these classifications helps students choose the best-suited loan option for their educational aspirations.
Based on Study Location: Education loans can be categorised based on whether the student plans to study within India or abroad.
Domestic Education Loans: Domestic education loans are designed for students who wish to pursue higher education within India. These loans cover tuition fees, accommodation, books, and other related expenses. Public sector banks, private banks, and non-banking financial companies (NBFCs) provide such loans at competitive interest rates.
Features:
- Available for undergraduate, postgraduate, diploma, and professional courses.
- Loan amounts vary based on the institution and course.
- Some banks offer lower interest rates for students admitted to premier institutions like IITs and IIMs.
- Typically, a co-applicant (parent or guardian) is required.
Examples:
- State Bank of India (SBI) Scholar Loan Scheme – Offers loans at lower interest rates for students enrolled in top institutes.
- HDFC Credila Education Loan – Provides flexible repayment options for students pursuing studies in India.
- Overseas Education Loans: Many students aspire to study abroad for better career prospects, and overseas education loans cater specifically to such needs. These loans cover tuition fees, travel expenses, accommodation, and even living costs.
Features:
- Loan amounts are higher compared to domestic loans due to increased expenses.
- Collateral may be required for loans exceeding a certain limit.
- The repayment period typically starts after course completion.
- Some banks require proof of admission before loan approval.
Examples:
- ICICI GlobalEdu Loans – Offers customised solutions for students pursuing education abroad.
- Axis Bank Education Loan for Abroad Studies – Covers tuition, living expenses, and travel costs.
Based on Collateral Requirement: Education loans are also classified based on whether collateral (security) is required.
Secured Education Loans: Secured education loans require the borrower to pledge collateral, such as property, fixed deposits, or government bonds, to obtain the loan.
Features:
- Lower interest rates due to reduced risk for the lender.
- Higher loan amounts can be approved.
- Longer repayment tenure compared to unsecured loans.
Best For:
- Students seeking high loan amounts for studying abroad.
- Families with assets they can pledge as collateral.
Unsecured Education Loans: Unsecured education loans do not require any collateral but usually have higher interest rates.
Features:
- Easier approval process for students with a strong academic background or admission in reputed institutions.
- Higher interest rates due to increased risk for lenders.
- Typically lower loan amounts compared to secured loans.
Best For:
- Students who do not have collateral to offer.
- Courses with lower tuition fees and shorter duration.
Based on Loan Providers: Different financial institutions offer education loans in India, each with its own set of features and eligibility criteria.
Government Education Loans: The Indian government provides education loans through various schemes to support students from economically weaker sections.
Examples:
- Vidya Lakshmi Portal – A government initiative that allows students to apply for loans from multiple banks through a single platform.
- Central Sector Interest Subsidy Scheme (CSIS) – Offers interest-free loans during the moratorium period for students from lower-income families.
Bank Education Loans: Banks, both public and private, provide education loans for domestic and international studies. These loans typically require a co-borrower and have different repayment structures.
Examples:
- Punjab National Bank (PNB) Udaan Loan – For students pursuing higher education abroad.
- Canara Bank Vidya Turant Loan – Specially designed for students admitted to premier institutes.
NBFC Education Loans: Non-banking financial companies (NBFCs) offer education loans with more flexible terms compared to traditional banks.
Examples:
- HDFC Credila – Specializes in education loans with customized repayment options.
- Avanse Financial Services – Provides student loans with minimal paperwork and quick disbursement.
International Lenders: For students studying abroad, international financial institutions offer loans without requiring Indian collateral.
Examples:
- Prodigy Finance – Provides loans based on future earning potential.
- MPOWER Financing – Offers collateral-free loans to international students.
Based on Special Categories: Some loans are tailored to specific student needs or fields of study.
Skill Development Loans: These loans cater to students enrolling in vocational and short-term skill-based courses.
Examples:
- Skill Loan Scheme by NSDC – Supports students in skill development programs recognized by the government.
Loans for Specialised Fields: Certain loans are designed for students in high-demand fields like medicine, engineering, and management.
Examples:
- ICICI Bank Medical Education Loan – Specifically for medical students.
- Axis Bank MBA Education Loan – Tailored for management aspirants.
Considerations when applying for an education loan
Beyond choosing the right type of education loan, there are several key factors students and their families should consider before applying. These considerations can significantly impact loan approval, repayment, and financial stability.
A. Interest Rate Variations
- Compare interest rates across banks, NBFCs, and government schemes.
- Check if floating or fixed interest rates apply to the loan.
- Look for interest subsidies or discounts available for female students or economically weaker sections.
B. Loan Disbursement Process
- Understand the timeline and procedure for loan disbursement.
- Ensure clarity on whether funds are sent directly to the institution or to the borrower’s account.
- Verify if loans cover additional costs such as travel, books, and accommodation.
C. Moratorium Period Benefits
- Most education loans offer a moratorium period (course duration plus 6-12 months).
- Students can choose to pay simple interest during this period to reduce overall loan burden.
- Some lenders provide flexible repayment plans to accommodate varying financial situations.
FAQs
Who is eligible for an education loan in India?
Eligibility depends on factors like academic performance, admission to a recognized institution, and a co-applicant (parent/guardian) with a stable income.
Can I get an education loan without collateral?
Yes, unsecured education loans are available but may have higher interest rates and stricter eligibility criteria.
When does repayment start for an education loan?
Repayment typically begins after the course completion plus a moratorium period (usually 6-12 months after securing a job).
Are there tax benefits on education loans?
Yes, under Section 80E of the Income Tax Act, interest paid on education loans is eligible for tax deduction.
Can I prepay my education loan?
Yes, most lenders allow prepayment without penalties, but terms may vary, so checking with the bank is advisable.