It is admission season, and for students and parents, arranging money for tuition fees is often the biggest concern. That is when an education loan comes to mind. How much loan can you get? Who is eligible? Can you get a loan without collateral? What will the interest rate and EMI be?
Keeping these questions in mind, we asked our readers to send us their questions about education loans.
Our financial experts, former Bank of India GM Rajiv C. Gupta and Chartered Accountant Rishabh Parekh, answer them below.
1. Which students and courses are eligible for an education loan?
Loans may be available for undergraduate, postgraduate, professional, technical, vocational and skill-based courses offered by recognised institutions. Management, law, computer science, agriculture, veterinary and other courses may also be covered.
Loans are available for studies in India as well as abroad. For courses such as political science, certificate, distance-learning, part-time and executive programmes, eligibility depends on the bank and the recognition status of the course.
Under PM-Vidyalaxmi, eligible students must get admission to a qualifying Quality Higher Education Institution (QHEI) through merit or an open competitive examination. Where applicable, management quota admissions are not eligible.
2. Is an education loan available for every college and university?
No. Banks look at the institution’s recognition, affiliation, regulatory approvals, admission process, academic record, course, fee structure, employment prospects and placement record. They may also check whether the institution is on their approved list.
3. What is the maximum education loan available?
There is no single maximum limit across all banks. The amount depends on the cost of the course, institution, country, student’s and co-applicant’s profile, collateral and the bank’s policy.
Under the older IBA model scheme, the limit was ₹10 lakh for studies in India and ₹20 lakh for studies abroad. However, several banks offer loans above these limits. The amount is generally higher for overseas education.
You do not have to take the entire sanctioned amount. Consider the future EMI and your ability to repay the loan before deciding how much to borrow.
Under PM-Vidyalaxmi, eligible students can get collateral-free and guarantor-free loans to cover tuition fees and other course-related expenses.
4. How much loan can you get without collateral?
In many cases, an education loan of up to ₹7.5 lakh can be available without collateral. This depends on the credit guarantee scheme and the bank’s conditions.
For higher loan amounts, banks may ask for collateral such as a house, land, fixed deposit or insurance policy. The bank will check the property’s value as well as its legal status.
Eligible QHEI students under PM-Vidyalaxmi can get loans without collateral or a guarantor.
5. What expenses can an education loan cover?
An education loan may cover tuition fees, admission and examination fees, library and laboratory charges, hostel expenses, books, equipment, essential laptops or computers, projects, thesis work, study tours and other approved academic expenses.
For overseas education, some travel and living expenses may also be covered. The final list depends on the terms of the loan sanctioned by the bank.
6. What should you keep in mind when taking a loan for overseas education?
The bank may check your admission letter, the university’s ranking and recognition, the course, fee structure, visa and passport documents, and your repayment capacity.
The loan may be sanctioned in rupees while the fees have to be paid in a foreign currency. If the rupee falls in value, your overall cost and EMI may increase. This is known as currency risk.
7. How can you apply for an education loan?
You can apply through a bank branch, its website or a digital platform.
PM-Vidyalaxmi is a unified digital platform for eligible schemes. It provides information about schemes, allows students to apply and also track the status of their applications.
Not every education loan has to be applied for through the PM-Vidyalaxmi platform.
8. What is the difference between applying through PM-Vidyalaxmi and directly through a bank?
PM-Vidyalaxmi provides a digital system for eligible schemes and participating lenders. If you apply directly to a bank, its own policies will apply and it may offer other loan products as well.
Compare the interest rate, total cost, collateral requirements, guarantor requirements, moratorium and repayment period before choosing a loan.
9. What documents are required?
You may need KYC documents, PAN/Aadhaar, address proof, mark sheets, entrance exam results, admission or offer letter, a letter from the college, fee structure and details of the course.
Depending on the case, you may also need estimated hostel expenses, income documents of the co-applicant, bank statements and collateral documents.
For overseas education, passport, visa and university documents will also be required. Under PM-Vidyalaxmi, income proof and other documents may also be requested.
10. Why is a co-applicant or guarantor required?
Students generally do not have their own income. Therefore, a parent or an eligible family member is usually made a co-applicant or co-borrower.
Whether a guarantor is required depends on the loan amount, bank and scheme. For eligible QHEI loans under PM-Vidyalaxmi, there is no requirement for a guarantor or collateral.
11. How does your CIBIL score affect an education loan?
The bank may look at the student’s credit profile as well as that of the co-applicant.
A poor CIBIL score does not always mean the loan will be rejected. However, the bank may ask for additional security, a stronger co-applicant or a lower loan amount.
PM-Vidyalaxmi provides an exemption from collateral and guarantor requirements for eligible loans, but other credit checks still apply.
12. How long does it take for an education loan to be approved?
The time taken depends on the bank, documents, verification of the institution, collateral and the individual case.
Under PM-Vidyalaxmi, the target is to process a complete application and sanction the loan within 14 days.
Apply well before the fee payment deadline. If there is a delay, contact the bank branch or nodal officer and, if required, use the available grievance redressal mechanism.
13. What are the main reasons for rejection of an education loan?
Common reasons include the institution or course not being eligible, management quota admission, incomplete documents, unclear fee details, a weak academic record, poor repayment capacity or a weak co-applicant profile, problems with collateral, requesting a loan that is higher than required, or providing incorrect information.
If your application is rejected, ask the bank for the reason in writing, address the problem and then consider applying again.
14. How is the money disbursed after the loan is approved?
The entire loan amount is generally not given in cash at once. The money is released according to the fee schedule, usually year-wise or semester-wise.
Tuition fees are generally paid directly to the educational institution. Check the sanction letter and disbursement schedule carefully.
15. Can the loan amount be increased during the course?
Yes. If fees or other expenses increase, you can request an enhancement or additional loan.
For overseas education, a change in currency rates can also increase the overall cost. The bank may reassess the cost estimate, academic progress, repayment capacity and security before approving an increase.
The final decision depends on the bank’s policy.
16. What help is available for low-income families?
Families with low or agricultural incomes can also apply for an education loan. They will need to provide the relevant income documents.
Under PM-Vidyalaxmi, eligible students from families with an annual income of up to ₹8 lakh may get a 3% interest subsidy during the moratorium period on loans of up to ₹10 lakh.
A normal EMI does not begin during the moratorium period. It generally covers the course period plus one year after completion.
However, this does not mean the loan is interest-free. If the subsidy does not cover the interest, the interest may continue to accumulate.
For eligible CSIS cases, the government may provide this support as an interest subsidy.
17. How is the interest rate decided?
The interest rate depends on the bank’s benchmark-linked rate, loan amount, course, institution, security, risk and credit profile.
Government and private banks may offer different rates. With a floating interest rate, changes in the benchmark rate can affect both the interest payable and the EMI.
Compare the total cost of the loan rather than looking only at the headline interest rate.
18. When does the EMI start and how long do you get to repay the loan?
Usually, the EMI begins after the course and moratorium period are over.
The repayment period depends on the bank and the scheme. Under PM-Vidyalaxmi, repayment can extend up to 15 years after the moratorium period.
If you do not get a job immediately, the bank may offer relief depending on its policy.
19. Can you repay the loan early?
Yes. Education loans can generally be repaid before the scheduled end date.
Under applicable RBI rules, floating-rate personal term loans may not attract a prepayment or foreclosure penalty. For fixed-rate loans and other cases, check the bank’s terms.
Always check the sanction letter and Key Facts Statement before making a decision.
20. Can you take an education loan even after receiving a scholarship?
Yes. If the scholarship does not cover the entire fee, you can take a loan for the remaining fees and other eligible expenses.
However, interest subsidy rules may be different. For example, under CSIS, receiving another government scholarship or fee reimbursement can make a student ineligible for the interest subsidy.
21. What happens if you change your course or college, or drop out?
You must inform the bank immediately.
The bank will check the new institution or course, fee structure, amount already disbursed and repayment status. In some cases, the loan may be transferred, continued or sanctioned again with revised terms.
If you drop out, your loan liability does not end. Further disbursements may stop and any government subsidy may also be affected.
22. What if you cannot pay the EMI because you have not found a job?
Do not wait for the EMI payments to stop. Contact the bank immediately.
The bank may consider changing the repayment schedule, extending the loan tenure, providing temporary relief or restructuring the loan. This depends on the bank’s assessment and applicable rules.
Not getting a job does not automatically mean that the EMI will be waived.
23. What happens if you do not pay the EMI for a long time?
The credit history of both the student and co-applicant may be affected.
Under applicable rules, if the principal or interest on a term loan remains overdue for more than 90 days, the loan may be classified as a non-performing asset (NPA).
The bank may take recovery action and, in the case of a secured loan, may also take action against the collateral.
This can make it difficult to get loans or credit cards in the future. If you are facing repayment problems, contact the bank as soon as possible and ask about restructuring or other repayment relief options.
