An education loan can make a good degree affordable, but the real cost depends on the moratorium, interest during study, collateral rules and repayment plan. Use this checklist before you sign.
Key takeaways
- Estimate the full cost of study — tuition, living, travel, insurance, equipment — not only fees.
- Interest usually accrues during the course and moratorium; paying it as you go reduces the final burden.
- Loans above a certain amount usually need collateral and/or a third-party guarantee.
- Interest paid on an education loan is deductible under the old tax regime for up to 8 years.
1. Work out the total cost
| Cost head | Include? |
|---|---|
| Tuition and exam fees | Yes |
| Hostel / accommodation and living costs | Yes |
| Books, laptop, equipment | Usually yes |
| Travel (for study abroad) | Usually yes |
| Health insurance and visa costs | Often yes |
| Caution deposit / building fund | Check with lender |
2. Understand the moratorium
The moratorium is the course period plus a grace period (commonly 6–12 months after the course). EMIs start after this, but interest usually accrues from the first disbursement. If unpaid, this interest is added to the principal.
Example: ₹10 lakh loan at 10% for a 2-year course plus 6 months. Simple interest accrued ≈ ₹2.5 lakh — your EMI will be calculated on about ₹12.5 lakh if you pay nothing during the course.
Paying just the simple interest during study keeps the principal at ₹10 lakh and saves a significant amount over the loan.
3. Collateral and co-applicant
- Parents or guardians are usually co-applicants.
- Smaller loans may be given without collateral (limits vary by lender and scheme); larger loans often need property, FDs or other security.
- Government schemes and credit-guarantee funds can support collateral-free loans for eligible students — ask your bank.
4. Compare lenders on these points
| Parameter | What to ask |
|---|---|
| Interest rate & benchmark | Fixed or floating? Linked to which benchmark? |
| Processing fee | Amount + GST; any refund if cancelled? |
| Margin money | Share you must fund yourself |
| Disbursement | Direct to institution in instalments? |
| Repayment tenure | Maximum years after moratorium |
| Prepayment | Any charges? |
| Interest subsidy | Eligible government schemes? |
5. Documents usually required
- Admission letter and fee schedule
- Academic records and entrance/test scores
- KYC of student and co-applicant (PAN, Aadhaar)
- Income proof of co-applicant (salary slips, ITR, bank statements)
- Collateral documents, if applicable
- For abroad: passport, visa/I-20/CAS, cost estimate
Tax benefit
Under the old tax regime, the entire interest paid on an education loan for yourself, spouse or children (for higher education) is deductible for up to 8 years from the year repayment starts. There is no upper limit on the amount. This deduction is not available under the new regime.
Your action checklist
- Check your credit report and fix errors at least a month before applying.
- Get the Key Fact Statement (KFS) with APR from at least two lenders.
- Keep total EMIs within about 40–50% of take-home pay.
- Read prepayment, foreclosure and penal-charge clauses before signing.
- Save the sanction letter, KFS and repayment schedule; collect the no-dues certificate when you close.
FAQs
Can I repay during the course?
Yes, and paying at least the interest is strongly recommended.
Does the loan affect my credit score?
Yes — timely EMIs build the student's credit history; missed EMIs hurt both the student and co-applicant.
What if I do not get a job immediately?
Talk to the lender before EMIs are due; some allow an extended moratorium or restructuring.
