As a parent, you want the best education for your child. However, education costs in India are rising faster than other prices. According to Bank Bazaar, education costs increase by 11-12%, while general prices rise by 5-5.5%. This makes funding education more difficult.
Education loans have become essential. They help students from all backgrounds afford studies in India and abroad. These loans cover tuition, books, and laptops, making higher education more accessible.
How Student Loans Benefit Indian Students
Student loans are vital for many Indian students. They cover tuition, hostel fees, books, and study materials. Banks and government agencies provide these loans. This support allows students to focus on academics without financial worries.
“A student loan covers not just tuition,” says Yashoraj Tyagi, CEO of CASHe. “It also covers costs like accommodation, exam fees, and even laptops.”
Popular Courses for Education Loans in India
Students often need loans for higher education, both in India and abroad. Popular fields are engineering, management (MBA), and medicine. Tyagi notes that students often target institutions like IITs, IIMs, and AIIMS for loans. However, they also consider design, law, and social sciences.
Private medical colleges can charge up to Rs 1 crore. Meanwhile, top private engineering colleges may charge between Rs 30 to 40 lakh. Therefore, many families find loans essential.
How Do Education Loans Work in India?
In India, students can use education loans for higher studies, both at home and abroad. These loans cover tuition, accommodation, books, travel, and equipment like laptops, says Vivek Chopra, COO at Tata Capital.
Eligibility depends on academic performance and the chosen institution. Typically, a parent or guardian must co-sign. Loans of higher amounts may require collateral. Repayment usually begins 24 to 36 months after graduation.
Types of Education Loans Available
Students can choose from several types of loans depending on their needs:
Secured vs. Unsecured Loans: Secured loans require collateral, such as property, and tend to have lower interest rates. Unsecured loans, which do not need collateral, come with higher rates.
Course-Specific Loans: Some banks and government schemes offer loans tailored to specific courses like medicine, engineering, or management.
Loan amounts vary based on the lender, program, and institution. Government schemes like the Vidya Lakshmi Portal offer different loan options with varying eligibility criteria and rates.
Education Loan Interest Rates in India
Interest rates on student loans in India range from 8.5% to 16% or more, depending on the lender. Public sector banks offer lower rates, while private banks may charge higher rates. “Rates for public sector banks range from 8.5% to 10%, while private lenders could go up to 13% or more,” Tyagi explains.
Factors such as the institution’s ranking, credit history, and whether the loan is secured can impact the interest rate. Some banks offer rate concessions for female students and economically weaker sections.
Factors Affecting Loan Eligibility
Eligibility for education loans depends on several factors:
- The student must be an Indian citizen.
- Admission to a recognized institution in India or abroad.
- The academic record of the student and the co-applicant’s income.
- The type of course and the reputation of the institution.
- Collateral is required for larger loans.
Most banks also consider the co-applicant’s creditworthiness when evaluating eligibility.
The Moratorium Period for Education Loans
The moratorium period lets students study without repaying loans right away. It lasts for their course and adds six months to a year after graduation. “Repayment starts after the moratorium, but interest builds up,” says Shetty.
Some banks allow paying just simple interest during this time. This offers flexibility before starting full EMI payments.
Hidden Costs to Watch Out For
When applying for a student loan, be aware of hidden costs like processing fees, administrative charges, and late payment penalties. Shetty advises, “Some banks may require loan protection insurance. Students should also ask about fees for changing the loan or paying it off early.”
Always read the fine print before signing to understand all costs.
