Already higher education is too expensive for most parents to bear, and they are not going to get any cheaper in the future. So, most parents are left with no alternative but to take an education loan for their children if they wish to educate them in good quality institutes and for popular courses which have a good potential for their children to make a lucrative career after completing studies. In most cases, parents try to save up for the higher education of their children, but it turns out to be insufficient, making taking an education loan imperative. On the other hand, some parents have fixed deposits which earn interest far less than they would pay for the interest of the education loan, if they take it. In such cases if would be better to break a fixed deposit and pay for your child’s higher education than take a loan at a higher education loan interest rate. However, other benefits of taking an education loan also have to be taken into account, such as education loan tax exemption. The main benefits of taking an education loan are as follows:

  • Education loan tax exemption: The person taking an education loan is eligible for an education loan tax exemption under the Income Tax Act’s Section 80E. This benefit can be claimed for interest paid on education loan for a period of up to 8 years.
  • Moratorium on loan instalments: EMIs on the education loan typically commence between 6 to 12 months after your child finishes studies. This can prove to be a big benefit as the child can start paying the EMIs after getting a job on completion of higher studies.
  • Parents’ savings can be protected:Availing an education loan for your child would protect your savings which you may have laboriously built for your retirement years, or perhaps for some medical contingency.
  • Coping with emergencies: If you take an education loan and leave your own savings undisturbed, then in the case of an emergency when immediate funds are required, it will not be so difficult for you to cope with the situation.
  • Proper repayment of loans builds good credit history: When you take an education loan and pay your EMIs regularly, it builds a good credit history for you, and in case of emergencies, banks will not hesitate in lending you money.
  • Education loans inculcate a sense of responsibility: Even if parents start off repaying the education loan in EMIs, eventually the child has to take over the burden after landing a job. This will obviously inculcate a sense of responsibility in the child.


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Education Loan Eligibility Criteria

Banks and non-banking financial institutions (NBFCs) generally disburse education loans to students who have obtained a confirmed admission from an institution of high repute in fields such as medicine, engineering, management,data science, etc.The education loan can be taken immediately after the student completes their 12th class board exam.The bank would generally look at the students’ performance track record, marks obtained in the 12th boards, and perhaps even extra-curricular achievements.Banks also take into account whether the student, or their co-applicant, can provide any collateral security in terms of fixed deposits, gold or property. Generally, education loans for an amount of up to Rs.7.5 lakhs do not need any collateral security. However, education loans of above Rs 4 lakhs need a guarantor. Education loans which are below Rs. 4 lakhs do not require any collateral security or a guarantor. A co-applicant, though, is required in all cases, and this person can be a parent, a guardian, a spouse, or any blood relative. Education loan interest rates generally range between 8% to 11%.


What Expenses Does an Education Loan Cover?

Education loans in India mostly cover the student’s tuition fee, boarding, exams and library fees, textbooks and equipment (such as a laptop), commuting expenses, and even other living expenses. The education loan is paid directly to the institution as when the payments become due.


What Are the Documents Needed to Get an Education Loan?


The documents needed to obtain an education loan are as follows:

  • A confirmed letter of admission from the college or institution
  • A full break-up of cost of education
  • A properly completed education loan application form and 2 passport-sized photographs
  • Mark sheets of the student and school leaving certificate
  • PAN card of the co-applicant
  • ID proof (driving license, passport, Aadhar, etc.) of the student and co-applicant
  • Residence proof (driving license, passport, electricity bill, etc.)
  • Bank statement for the last 6 months of the co-applicant
  • Proof of income (salary slips or ITR) ofthe co-applicant


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