Education Loan Interest Rates

Education Loan Interest Rates by Regional Rural Banks

Regional Rural Banks (RRBs) are scheduled commercial banks in India that are owned by the government. Here is a list of RRBs in India that are offering various education loan schemes at competitive interest rates: 

Note: RRB loans may also be eligible for government interest subsidy schemes like the Central Sector Interest Subsidy (CSIS). For further details, you can check with your bank. 

NBFC Education Loan Interest Rates

Traditional banks often reject applications from first-time borrowers due to issues like insufficient collateral or a co-applicant with a weak credit profile. In such situations, NBFCs such as Bajaj Finance and Tata Capital can serve as an alternative, providing faster approvals and more flexible eligibility, but at higher interest rates which are as follows:

Types of Interest Rates in Education Loans

Education loans mainly come with two types of interest rates: 

1. Fixed interest rate: This rate remains unchanged throughout your entire loan tenure. Your EMI remains the same, which makes it easier to plan your monthly budget. If you want stability, then this is a good option for you. 
2. Floating interest rate: This rate is linked to your bank's benchmark (like MCLR), which can change over time. Your EMI or loan tenure may increase or decrease depending on interest rate movements. It can be cheaper in the long run, but there are some uncertainties.

Types of Education Loan

Here are the types of education loans as follows: 

Considering Location 

1. Loan for Domestic Education 

This kind of loan is available to those who want to study in India. Only if the applicant is accepted into an Indian school and satisfies all other lender requirements will the loan be authorized. 

2. Loan for International Education 

These loans enable students to fulfill their ambition of enrolling in the program of their choice at a foreign university. For students who want to study abroad, the loan only pays for their tuition, lodging, and airfare if they meet the requirements. 

Depending on the Course

1. Loans for Undergraduates 

Students who need financial assistance to finish their undergraduate degrees can apply for this kind of education loan. Typically, an undergraduate degree program lasts three to four years with a variety of specializations. An undergraduate degree makes it easier for people to start making money and get a good career. 

2. Graduate Loans 

Many undergraduates want to pursue postgraduate studies, which typically last two years in India. To gain deeper understanding in the field of interest, an advanced degree is preferred. 

3. Loans for Career Development 

To boost their employment prospects, many professionals who work for a few years in corporate roles would rather take a break from their careers and enroll in professional courses and training. These people would work hard to gain admission to reputable technical and business schools to hone their abilities and advance in their careers. 

Considering Collateral 

1. Loan Secured by Securities, Deposits, and Real Estate 

To obtain the funds required to pursue education, you can pledge fixed deposit certificates, recurring deposits, gold deposits, bonds, debentures, equity shares, and real estate, including residential and agricultural land, apartments, houses, and more. 

2. Third-Party Assurance 

The student may be able to obtain an education loan with the assistance of a guaranteed letter from a home bank or bank employee. 

Courses Covered Under Education Loans

Education loans can be availed for the following courses: 

• Professional, technical, and diploma courses offered by accredited universities or institutions under UGC, IMC, AICTE, government, AICTE, AIBMS, or CMR 

• Autonomous institutes like IIM, IIT, IISc, XLRI, NIFT, NID, ICWA, CA, CFA, and others offer regular degree or diploma programs 

• Regular degree or diploma programs certified by the Director General of Civil Aviation, Shipping, or other regulatory bodies include pilot training, aviation, shipping, and more 

• Professional and technical job-oriented courses for graduation, post-graduation, or diplomas, such as MBA, MCA, or MS programs offered by the Chartered Institute of Management Accountants (CIMA) in London or the Certified Public Accountant (CPA) in the United States 

• Loans for improvement of skills. 

How to Get a Lower Interest Rate on Your Education Loan? 

You can get a lower education loan interest rate if you plan smartly and meet certain conditions. Here are some simple ways by which you can reduce your loan cost: 

1. Study at a top-ranked institution: If you get admission to well-known colleges like IITs, NITs, or top foreign universities, then banks may offer lower interest rates. This is because lenders trust that students who have passed from these institutions have better job opportunities. 
2. Provide collateral for higher loans (above Rs.7.5 lakh): If you give security like property or fixed deposits, the loan becomes less risky for the bank. In return, they usually offer a lower interest rate.
3.  Strong co-applicant: A co-applicant with a good income and credit score (like parents) helps in improving your loan terms. Having a strong co-applicant makes the lender feel safer due to which they may reduce the interest rate.
4. Opt for a government scheme: Some government education loan schemes offer subsidies or lower interest rates for eligible students. These can reduce your overall repayment burden. 
5. Negotiate with the bank: Public sector banks sometimes have flexibility in pricing. If you have a good profile or offers from other banks, you can request a better rate. 

How to Calculate Your EMI on Education Loans

The formula that is used to calculate your education loan Equated Monthly Installment (EMI) would be:

EMI Amount = [P x R x (1+R)^N]/[(1+R)^N-1]

P = Principal amount

R = Rate of Interest

N = Number of months for repayment (this is calculated in months)

For Example: If you borrow Rs.10 lakh at 9% annual interest for 10 years, then your monthly EMI would be approximately Rs.12,668. 

Don’t want to do math? You can use our online Education Loan EMI Calculator. You just need to enter your loan amount, interest rate, and repayment tenure to instantly see your monthly EMI and total interest payable. 

Tax Benefit on Education Loan Interest (Section 80E) 

Under Section 80E of the Income Tax Act, you can get a tax benefit on the interest paid for your education loan. There is no upper limit on the amount of interest you can claim as a deduction. This benefit is available for up to 8 years or until the loan is fully repaid, whichever comes first. It helps in reducing your taxable income and lowers your overall tax burden. 

Eligibility Criteria for Education Loan 

Before applying for an education loan, it is very important to know the basic eligibility criteria set by banks. On the basis of these requirements, lenders decide whether you qualify for the loan and at what interest rate. The eligibility criteria is given as below: 

• Approved undergraduate programs, postgraduate programs, PhD programs, diploma programs lasting six months or more, job-oriented courses, and technical/professional courses are all eligible for loans 

• Candidates should be enrolled in or pursuing admission to internationally recognized colleges and universities as well as government, professional, and accredited institutions 

• For an undergraduate program, candidates must have finished the 10+2 (12th standard), and for a postgraduate program, they must have earned a degree. 

Documents Required for Education Loan Application

The following are some of the documents that you will require to complete your loan application: 

• KYC documents (identity and address verification) 

• Mark sheets for entrance examinations, graduation, and grades 10 and 12 

• The educational institution's letter of admission 

• Fee schedule and any other costs incurred by the school 

• Co-applicant KYC, six months' worth of bank statements, and evidence of income. 

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