Education Loan Interest Rate

Education loans are financial support offered by banks and NBFCs, under government regulations, to students, assisting them in completing their desired education. This helps bridge financial gaps for higher education, covering tuition, living expenses, and travel costs, among others.

With fluctuating student loan interest rates across banks and NBFCs coupled with various features and benefits, understanding how interest is calculated and comparing lenders is crucial for making informed choices. Read on to learn more about education loan interest rates so that you can make an informed decision as to where to get the best terms for your education loan.

Table of Contents:

• ⇾ What is an Education Loan?
• ⇾ Banks With Best Education Loan Interest Rates
• ⇾ Education Loan Interest Rate Calculation
• ⇾ How to Apply for an Education Loan?
• ⇾ Documents Required for an Education Loan
• ⇾ Features of an Education Loan
• ⇾ Student Loan Interest Rates for Abroad Students
• ⇾ Frequently Asked Questions

What is an Education Loan?

An education loan is a financial product offered by banks and NBFCs, designed to support students in pursuing higher education, both in India and abroad. These loans cover tuition fees, accommodation, books, and related expenses.

The interest is typically lower for secured loans and may be subsidised under certain government schemes. Educational loans often come with a moratorium period, where repayment is suspended for a set amount of time, allowing students to start repayment after completing their studies.

Banks With Best Education Loan Interest Rates

Below is a comparison of the top banks and NBFCs offering low-interest student loans in India.

Note: Although the provided rates are accurate, it is advised to verify the rates from the official sources before you proceed with a loan application.

Alternatively, you can also proceed to approach loan aggregators like Buddyloan for assistance in finding the best education loan suited for your profile.

Education Loan Interest Rate Calculation

Your education loan interest rate is dependent on various factors—both external variables, like loan amount, tenure, relationship with the bank, repayment capabilities, salary type, etc., and internal variables, like repo rate, EBLR, etc.

The general formula for interest rate calculation is

Where:

• The rate is the annual interest rate
• Time is the loan tenure in years

However, manual interest rate calculations have their own drawbacks, as it is a hassle when comparing various banks, and there is a possibility of error.

You can use online education loan interest rate calculators to calculate your interest rate efficiently. These calculators consider the loan amount, interest rate, and tenure to give monthly payment amounts.

Impact of RBI Repo Rate

Presently, educational loan interest rates are calculated using floating interest rates rather than fixed interest rates. Therefore, the RBI’s Repo Rate is directly linked to education loan interest rates in India, specifically for loans with a floating interest rate.

However, the repo rate is not the only variable that affects your education loan interest rate. The interest rates are linked to external benchmarks or internal lending rates.

The two most common rates are:

• MCLR (Marginal Cost of Funds-based Lending Rate): Used by public sector banks like SBI and PNB.
• EBLR (External Benchmark Lending Rate): Linked to the RBI’s repo rate and revised periodically. Your interest rates are calculated using this variable, which is based on the repo rate.

Tax Benefits on Education Loan

Taxpayers can claim their benefits under the regime they adopt, based on their choice:

• Under Old Regime: Section 80E allows full deduction of interest paid on the education loan for up to 8 years.
• New Tax Regime: Does not permit 80E deductions and has no specific deduction on education loans; only an overall deduction is promoted. Opt for the old regime if you intend to claim interest deductions.

How to Apply for an Education Loan?

Applying for an education loan can be done both online and offline:

Online Process:

• Visit the official bank portal or aggregator (e.g., Buddy Loan, Credila).
• From the products section, choose ‘Education loan’.
• Fill in the application form.
• Upload required documents.
• Get eligibility confirmation (includes your interest rates and other details).
• Loan disbursement on approval.

Offline Process:

• Visit the nearest bank branch.
• Talk with the teller and get the application form.
• Submit the completed loan application form.
• Provide necessary documentation.
• Attend in-person verification (if needed).
• Receive the sanction letter and disbursement.

Documents Required for an Education Loan

Most banks have common documentation norms for student loans with low interest rates. These are as follows:

• Admission Letter from the institution.
• Mark sheets of the last qualifying examination.
• KYC of student and co-applicant.
• Income proof of co-borrower/parent or collateral.
• Fee structure provided by the institution.
• Passport (for foreign studies).

Features of an Education Loan

Education loans have a lot of features which make them different from the typical loans and help you benefit better. Here are the key features that define most educational loans:

• Covers tuition, exam, travel, and living costs.
• Moratorium period (course duration + 6–12 months).
• Flexible repayment tenure (up to 15 years).
• Competitive interest rates with floating/fixed options.
• Tax benefits under 80E.
• Online EMI calculators and application portals.
• No prepayment penalties (in most cases).
• Can be secured or unsecured.
• Disbursed directly to the institution.
• Available for a range of courses and geographies.

Student Loan Interest Rates for Abroad Students

Loans for foreign education can sometimes come at higher student loan percentage rates due to extended moratoriums, currency risk, and lack of collateral in some cases. However, usually it doesn’t have high differences, and they are often comparable.

Lenders like HDFC Credila and Prodigy Finance offer customised study loan interest rates based on country, university ranking, and student profile.