Education Loan Guide For Indian Students – Banks, Process, and Tips

Summary 

• Education loans finance students for higher education without putting direct pressure on their families.
• Under Section 129, formerly known as Section 80E, borrowers can claim a tax deduction on the interest repayment of the loan, excluding the principal.

Pursuing a higher education often comes with significant financial commitments, making education loans an important funding option for students in India. Many banks and NBFCs provide different interest rates and schemes. The government also introduced a scheme, the Vijaya Lakshmi Portal, for students in India to access for higher studies.

What is an Education Loan?

An education loan is a form of financial assistance, designed for students to fund the expenses of higher education. It is financial assistance that facilitates students to pursue educational, professional, technical, or vocational courses in India or outside. 

They do not just cover the tuition fees. Instead, they also cover the cost of books, hostel fees, examination fees, and other academic costs. These loans involve a special term called a moratorium period, which says students are not required to pay while they are studying and for 6-12 months after implementation.

Why Students Choose an Education Loan in 2026?

A large share of India’s population belongs to the middle class. Therefore, most of them do not possess enough money to keep up with the increasing cost of education. If they choose to use their parent’s savings, they might hamper the security funds of the family. Hence, they decide to take an education loan.

Increasing Tuition Fees

The cost of education has been increasing gradually every year. Mostly specialised courses such as medical, technical, and management courses have increased significantly. The MoSPI index survey states that education expenses have increased by 3.38% till November 2025. Apart from tuition fees, students require finances to cover many other expenses, including hostel fees, living costs, books and supplies, and many more. Therefore, education loans facilitate covering these expenses and protect long-term investment plans of the family.  

Tax Relief

Under Section 129 of the Income Tax Act 2025, the borrowers are allowed to claim tax relief on the interest payment for up to 8 years of the assessment year or until the repayment is cleared. Unlike other benefits, there is no upper limit applicable for the deduction. This helps students to reduce the overall cost of borrowing.

Better Access to Higher Education

With an education loan, students can finance their higher studies without having to depend on their family savings. It allows students to continue their education without letting financial limitations stand in their way. It helps reduce the financial burden on their family while still completing their higher education or professional course.

Repayment of Education Loan

The repayment of an education loan can be done through multiple ways.

1. Moratorium period: The applicant is allowed a grace period of 6-12 months from the time of implementation. This period is known as the moratorium period. This does not require payment immediately after the application is submitted. Instead, it allows them some time to reduce the overall repayment burden.The moratorium period also includes 2 categories. When students are not required to pay any of the interest or principal amount till the course ends, it is known as a full moratorium period. Whereas, when students pay partial simple interest during the course, excluding the principal amount, it is known as a partial moratorium period.
2. Repayment Start Date: This repayment system allows applicants to begin repayment 1 year after the course completion date or 6 months after getting a job, whichever happens sooner.
3. Tenure: This repayment system allows the applicant to have a fixed tenure of up to 15 years after the moratorium period ends. This reduces the immediate financial burden when the loan amount is huge.

Types of Education Loans in India

Education loans in India are categorised by course location, academic level, and also if they are government-backed. Based on these aspects, students can choose the suitable loan scheme.

Loans for student in India

The domestic education loans cover undergraduate, postgraduate, and diploma courses offered within the country. These cover all the basic expenses such as tuition, hostel, accommodation, travel fees, and other important costs. Since the institute falls within the country, banks allow a lower rate of interest on loans. 

Loans for student abroad

International education loans are specifically designed for students pursuing studies abroad. They cover various expenses and provide a higher loan limit for accommodation and tuition expenses overseas. In some cases, they may even require collateral for securing the loan. 

Government-backed education loans

The government of India has implemented a scheme to support the education of Indian students. The Vidya Lakshmi Portal, founded by the Government of India, has provided students with a Common Education Loan Application Form (CELAF) that enables them to apply across multiple banks through a single platform. 

Institutes Providing Education Loans in India

Many banks along with non-banking financial institutions offer education loans in India. While public loans provide relatively lower interest rates, private banks nd NBFCs offer faster processing and collateral-free loan approvals.

Public Sector

Public sector banks usually provide highly competitive education loans to students. They provide finances for a wide range of courses, both domestic and overseas, along with longer repayment tenures and moratorium periods. 

Private Sector

Private banks provide the reliability of traditional banking with much faster processing, more flexibility, and higher loan limits.  They facilitate both domestic and international education loans. Although the process might be quicker and more convenient, the interest rate and eligibility criteria may differ from those of public sector banks. 

NBFCs

NBFCs are known for their specialised and customised overseas education loans.  Most of them provide higher loan amounts, quick approval, and a flexible repayment structure for students pursuing academics in reputable institutes abroad. Some even consider future potential in addition to the co-applicant’s financial position. 

Education Loan Process

1. Research and Eligibility Check: Before applying for an education loan, research the banks and the available schemes. Many banks and NBFCs have schemes that can help you get a higher limit or lower repayment rate. Compare the loan amount, interest rates, repayment tenure, etc, before choosing the loan. Also, make sure you have secured admission in a well-known university and have a co-applicant such as a parent, spouse, or legal guardian. The lender might even ask for physical collateral in certain cases.
2. Gather Required Documents: Collect all the required documents before submitting the application. It mostly requires student ID proof, marksheets, and a passport-size photo. For a co-applicant, their ID proof, bank details, and collateral documents are also required. Missing any of these documents may delay approval.
3. Application and Processing: After collecting the documents, submit them to the chosen lender through their portal or directly at their branch. The lender will review and verify the submitted documents. In certain cases, they might ask for additional documents or proofs.
4. Approval and Sanction Letter: Once verification is complete, the lender will approve the loan application request and a sanction letter will be issued. The sanction letter will include all the details regarding the loan amount, interest charges, and repayment schedule. This letter is necessary if you are applying for an overseas education loan.
5. Agreement and Disbursement: After approval, the student and the co-applicant need to sign the agreement, and the loan will be disbursed. The lender may directly fund the loan to the university as required by the fee schedule.
6. Repayment After Moratorium: Most lender institutions provide a moratorium period, i.e., you do not have to repay the loan while the course is ongoing. Repayment will begin after the period ends.

Tax Benefits Under Section 129

Section 129 of the Income Tax Act 2025, formerly Section 80E as per the Income Tax Act 1961, provides a tax deduction on interest paid. It helps to reduce their tax liability while repaying their loan. The following are the conditions under which Section 129 is applicable.

• This section is only applicable to individuals who have borrowed an education loan for themselves or any member of their family. 
• Only the interest repayment is eligible for deduction, not the principal amount. The deduction is available up to 8 consecutive assessment years.
• The loan should be secured from recognised banks or NBFCs, or approved charitable institutions.
• This tax deduction is only applicable under the Old Tax Regime. 

Documents Required for Applying for a Student Loan

The important documents essential for approval of an education loan application include the following.

1. Application Form: A fully completed application form signed by the applicant.
2. Passport-size photos: The photos must be submitted with the application.
3. ID Proof: Any ID proof of the applicant such as voter card, PAN card, Aadhaar card, or passport.
4. Address proof: Any documents to prove the applicant’s address, such as electricity bills or driving license.
5. Marksheets: Academic proof including class 10th and 12th marksheet, or graduation certificate if applying for post-graduation.
6. Exam Scores: The score if the student went through any eligible entrance tests.
7. Admission letter: The confirmation letter or official letter from the college or university including the fee structure and course details.

For the co-applicant, it is equally important to present certain documents, such as income proof, including salary slip, ITR, or Form 16. They might also have to provide documents regarding collateral, if the loan is secured against it.  

Mistakes to Avoid While Applying

To avoid delays or rejection of the loan request and prevent financial stress, you must avoid making certain mistakes.

1. Over-borrowing: Securing a loan higher than your requirements will increase the debt of the applicant and your repayment burden. This may lead to high financial stress for a long time. 
2. Ignoring Hidden Costs: When estimating the total cost of an education loan, most applicants overlook other important expenses, such as travel expenses, accommodation, living costs, and many others. 
3. Not comparing Lenders: Many applicants forget to check the several lender options available with different interest rates and repayment rules. This way, they might miss the opportunity to find more suitable loans. 
4. Incomplete paperwork: Submitting the application without filling it out correctly or completely may lead to cancellation or delay in the process of approval. 
5. Ignoring the fine print: Many applicants ignore the sanction letter that includes all the important details of the loan. They must read the letter to be aware of every detail of their loan, including the amount, repayment, interest rate, penalties, and other unavoidable terms.

Final Thoughts

An education loan is a special loan taken by students or their guardians to pursue higher studies. It helps them cover several expenses such as tuition fees, travel costs, books and supplies, and many other important expenses. This helps them get access to higher education without disrupting their family’s long-term savings. 

Several banks and NBFCs in India provide education loans. There are different schemes and plans available for domestic and international education loans. However, it is equally important to compare several options to find the one that is suitable for your requirements. 

FAQs

What expenses are covered under an education loan? 

Education loans typically cover tuition fees, hostel charges, examination fees, books, study materials, laptops (where applicable), and other approved academic expenses. Overseas loans may also cover travel and living expenses.

Who is eligible for an education loan in India? 

Indian students who have secured admission to a recognised institution are generally eligible. Most lenders also require a parent, guardian, or spouse to act as a co-applicant. 

Is collateral mandatory for an education loan? 

Not always. Smaller loan amounts may be available without collateral, while higher loan amounts or certain overseas education loans may require security, depending on the lender’s policy. 

When does repayment of an education loan begin? 

Repayment usually starts after the completion of the course and the applicable moratorium period, which may include an additional grace period depending on the lender.