What Is an Education Loan? Your Complete Guide to Financing Studies

Do you know what an education loan is? It matters if you’re looking to pursue your higher education either in India or abroad and want to raise funds for the same. These loans are immensely helpful for covering not just your tuition, but several other costs and you can repay conveniently as per varying terms and conditions. Let us know more about them below. 

Types of Education Loans

Education loans are primarily categorized into the following:

• Domestic Education Loans

Students apply for this loan to cover the costs of higher education within India. They may help pay for tuition, hostel/accommodation fees, books, and other academic expenses. 

• International Education Loans

These loans help those who wish to study in other countries, covering not just academic, but also living and related expenses. 

• Government-Sponsored Loans 

The Vidya Lakshmi Portal and Central Sector Interest Subsidy (CSIS) Scheme are examples of government-sponsored loans available that lend financial assistance to lower income students and provide low interest financing of their education.

• Privately Sponsored Education Loans

Students can obtain customized education offerings from banks and NBFCS (non-banking financial companies) based on the student's credit score, co-applicant's source of income, and sometimes collateral.

Education Loans - Eligibility Criteria

To apply for an education loan, the applicant must meet the following criteria:

• To qualify candidates must be Indian citizens. 
• A candidate needs to secure admission acceptance at either an Indian or foreign reputable institution.
• The applicant must provide access to another person who can act as co-borrower either within the family group or as a guardian or spouse.
• A student's academic performance level plays a small role in securing a loan depending on its quality.
• The property alongside fixed deposits and life insurance serve as collateral requirements when borrowing more than ₹7.5 lakh from educational loan programs.

How to Apply for an Education Loan?

• Determine the right financial institution between banks, NBFCs and government schemes to find the best interest rates together with most suitable repayment conditions.
• The necessary documents to submit for loan application include visiting the bank with admission confirmation, academic records, ID verification and financial statements of both the applicant and co-applicant.
• The bank must approve your education loan by processing these steps: examination of your suitability as a borrower and your education establishment in addition to analyzing your credit information and required property particulars.
• The loan payment will reach either the education institution or directly go to the student account.

Repayment Terms & Challenges

• Loan repayment begins only after you finish your studies and wait between 6 months to 1 year before starting repayments.
• The repayment duration for loans extends from 5 to 15 years according to lender standards.
• The specific interest rate range falls between 7% and 12% and it depends on both the lender and the chosen loan scheme.
• The process of managing interest rates and strict repayment requirements efficiently becomes essential to prevent financial difficulties from rising interest rates and strict lending terms.