📅 March 2026 ⏱ 5 min read
Higher education costs in India are rising at 10–12% annually. An IIT B.Tech costs ₹10–14 lakh. An MBA from a private college costs ₹15–25 lakh. A medical degree can cross ₹50 lakh. For most families, an education loan is not optional — it is the only path. Here is everything you need to know.
Types of Education Loans in India
| Loan Type | Amount Range | Interest Rate | Collateral Required? | |
| Domestic UG/PG (PSU Banks) | Up to ₹7.5 lakh | 8.5% – 11% | No (under ₹4L) | |
| Domestic UG/PG (PSU Banks) | ₹7.5L – ₹20L | 9% – 12% | Third-party guarantee | |
| Abroad Education (PSU Banks) | ₹20L – ₹1 crore+ | 10% – 13% | Collateral required | |
| Private Banks / NBFCs | ₹1L – ₹75L | 11% – 16% | Depends on amount | |
| Vidya Lakshmi Portal Loans | Up to ₹6.5L | ~9.5% | No collateral | |
| 💡 PSU banks (SBI, Bank of Baroda, Canara Bank) typically offer the lowest rates. For amounts under ₹7.5 lakh, no collateral is needed under the IBA Model Loan Scheme. | ||||
How Education Loan Interest is Calculated
Education loans in India use simple interest during the moratorium period (study period + 6–12 months after course completion). After the moratorium, the loan converts to compound interest with monthly EMIs.
Use our Education Loan EMI Calculator to calculate your exact EMI based on loan amount, interest rate, and repayment tenure.
EMI Examples: ₹10 Lakh Education Loan
| Interest Rate | Tenure | Monthly EMI | Total Interest | Total Repayment |
| 9% pa | 5 years | ₹10,384 | ₹2,30,040 | ₹12,30,040 |
| 9% pa | 7 years | ₹8,028 | ₹3,44,352 | ₹13,44,352 |
| 11% pa | 5 years | ₹10,746 | ₹4,47,600 | ₹14,47,600 |
| 11% pa | 7 years | ₹8,462 | ₹5,10,488 | ₹15,10,488 |
| 14% pa | 10 years | ₹9,282 | ₹11,13,840 | ₹21,13,840 |
As you can see, longer tenure reduces EMI but increases total interest paid significantly. Always choose the shortest tenure you can comfortably afford.
Section 80E: Tax Benefit on Education Loan
This is the most underused tax benefit in India. Under Section 80E of the Income Tax Act, you get a deduction on the interest paid on education loans — with NO upper limit.
| Feature | Details |
| Who can claim? | The borrower (student) or parent who took the loan |
| What is deductible? | Interest paid (not principal) |
| Upper limit | No limit — full interest amount deductible |
| Duration | Up to 8 consecutive years from start of repayment |
| Tax regime | Only under Old Tax Regime |
| Eligible loans | Loans from banks / approved financial institutions only |
| 📌 Example: You pay ₹1.2 lakh as interest in FY2026. Your taxable income reduces by ₹1.2 lakh under Section 80E. At 30% tax bracket, that saves ₹36,000 in tax — effectively reducing your loan cost significantly. | |
Moratorium Period: What You Pay During Studies
Most education loans come with a moratorium period — you do not need to pay EMIs while studying. However, interest keeps accumulating. You have two options during this period:
- Pay simple interest monthly during moratorium — reduces total outstanding significantly
- Do not pay anything — interest gets added to principal (called ‘interest capitalisation’)
| Option | ₹10L Loan @ 10% for 4-year course | Interest Accumulated | Principal at Repayment Start |
| Pay interest monthly | ₹8,333/month during study | ₹40,000/year | ₹10,00,000 (unchanged) |
| No payment (capitalised) | ₹0 during study | ₹4,00,000 added | ₹14,00,000 |
Calculate what your loan grows to during moratorium using our Compound Interest Calculator.
Top Banks for Education Loans in India 2026
| Bank | Max Loan Amount | Interest Rate | Special Feature |
| SBI (Scholar Loan) | ₹40L (India) / ₹1.5Cr (Abroad) | 8.55% – 10.5% | 0.5% concession for girl students |
| Bank of Baroda | ₹80L (Abroad) | 9.15% – 11% | No processing fee for IITs/IIMs |
| Canara Bank | ₹40L | 9.25% – 11.5% | Vidya Turant — fast approval |
| HDFC Credila | ₹2 Crore | 11% – 13.5% | Door-step service, global coverage |
| Axis Bank | ₹75L | 13% – 15.5% | Instant approval for top institutions |
Tips to Get the Best Education Loan
- Apply at PSU banks first — rates are 2–4% lower than private banks
- Have a co-applicant (parent) with good income and CIBIL score
- Apply to the Vidya Lakshmi portal for government subsidy schemes
- Keep all academic documents ready — admission letter, fee structure, prospectus
- Pay interest during the moratorium period if possible — saves lakhs in long run
- Choose repayment tenure carefully — longer tenure = more total interest
Related Calculators
→ Education Loan EMI Calculator
→ Compound Interest Calculator
→ Income Tax Calculator — Check Section 80E savings
→ How Much to Save Monthly for Child Higher Education in 2035 — Related article on your site
Conclusion
An education loan in India is not just a necessity — it is also a tax-efficient tool thanks to Section 80E with no deduction ceiling. Choose PSU banks for lower rates, pay interest during moratorium if you can, and always use the shortest repayment tenure your budget allows. Your degree should be an investment that pays back — not a debt that drags you down for decades.
| 🎓 Start planning early. If you have a child today, check our article on saving for education costs in 2035 — the ₹1 Crore Degree — to understand why starting a SIP now matters more than any loan later. |