Education Loan in India: Eligibility, Interest and Tax Benefit
Short answer: An education loan funds tuition, hostel, books, equipment, travel and other costs of higher studies in India or abroad. Banks and RBI-regulated NBFCs lend to the student, with a parent or guardian as co-borrower; repayment usually starts after the course plus a moratorium. Interest paid is deductible under section 129 of the Income-tax Act, 2025 (formerly section 80E) for up to eight tax years, but only if you file under the old tax regime. Compare the KFS for rate, fees, collateral and moratorium terms before you sign.
Last updated: 13 October 2026.
What an education loan covers
Lenders generally finance the full cost of attendance as shown in the admission letter and fee schedule, minus any margin you are asked to contribute. Typical eligible expenses:
- Tuition and examination fees paid to the institution.
- Hostel or reasonable accommodation charges.
- Books, laptop and equipment required for the course.
- Travel for overseas study, and caution deposits or building funds where refundable.
- Insurance for the student, if the lender requires it (it should be shown separately in the KFS).
Some courses or colleges are on a lender’s approved list and get better terms. Vocational and short courses may be covered under separate skill-loan products.
Who is eligible
- An Indian student with confirmed admission to a recognised course in India or abroad, usually through an entrance test or merit-based selection.
- A co-borrower (parent, guardian, spouse or sibling) with income and a reasonable credit history. Lenders look at the co-borrower’s CIBIL score closely; see our credit and CIBIL score hub.
- For larger amounts, collateral such as property or fixed deposits, or a third-party guarantee.
- For study abroad, the visa, I-20 or offer letter, and proof of funds for the remaining costs.
Secured vs unsecured education loans
| Feature | Without collateral | With collateral |
|---|---|---|
| Typical amount | Smaller loans; limit depends on lender, course and institute | Higher loans, often for overseas study |
| Rate | Usually higher | Usually lower |
| Who decides | Course, institute ranking and co-borrower income matter most | Value of property or deposit also counts |
| Processing time | Faster | Slower, due to valuation and legal checks |
| Common lenders | Banks for listed institutes, NBFCs | Banks and NBFCs |
Banks can cover smaller collateral-free education loans under a government credit guarantee fund, and the PM-Vidyalaxmi scheme launched in late 2024 offers collateral-free loans and interest subvention for students at notified quality institutions from lower and middle-income families. Ask your bank about current limits and eligibility, which are set by the scheme guidelines.
Interest, moratorium and repayment
Most education loans have a moratorium covering the course period plus 6 to 12 months, or until you get a job, whichever is earlier. Interest usually accrues during the moratorium. Many lenders charge simple interest in this period and add it to the principal when EMIs begin; check whether yours compounds. Repayment tenure after the moratorium can run up to 10 to 15 years, depending on the amount and lender.
Education loans are usually linked to a benchmark (floating rate). Under RBI rules, lenders cannot charge prepayment penalties on floating-rate loans to individuals sanctioned or renewed from 1 January 2026, so you can prepay once you start earning.
Worked example: paying interest during the course
Illustrative: Priya takes ₹10,00,000 at 10% a year for a two-year master’s programme with a six-month moratorium after it (30 months in all). Repayment is over 7 years (84 months).
| Option A: pay nothing until EMIs start | Option B: pay simple interest monthly during the course | |
|---|---|---|
| During moratorium | ₹0 paid; about ₹2,50,000 simple interest added to principal | About ₹8,333 a month, ₹2,50,000 in total |
| Principal when EMIs start | ₹12,50,000 | ₹10,00,000 |
| EMI for 84 months | About ₹20,751 | About ₹16,601 |
| Total paid | About ₹17,43,100 | About ₹16,44,500 |
| Cost above ₹10 lakh | About ₹7,43,100 | About ₹6,44,500 |
Paying interest during the course, if the family can afford it, saves about ₹99,000 here and lowers the starting EMI by about ₹4,150. If your lender compounds interest during the moratorium, the gap is larger. Try your own numbers on the EMI calculator.
Tax benefit on education loan interest
From 1 April 2026, the Income-tax Act, 2025 replaced the 1961 Act. The education loan interest deduction, earlier section 80E, is now section 129 of the Income-tax Act, 2025. Key conditions:
- Only for an individual, for interest on a loan for higher education of self, spouse, children, or a student for whom the individual is legal guardian.
- The loan must be from a bank, another notified financial institution, or an approved charitable institution. Loans from relatives or unregistered lenders do not qualify.
- There is no upper limit on the interest amount; principal is not deductible.
- Available for the tax year in which you start paying interest and the next seven tax years (eight in total), or until the interest is fully paid.
- It is a deduction under the old regime. The new regime, which is the default, does not allow it, so compare both regimes before filing. See our income tax hub.
In Priya’s case (Option A), interest in the first year of EMIs is about ₹1,19,000. If her parent who repays the loan is in the 30% slab under the old regime, the deduction saves about ₹37,000 including cess for that year.
Documents usually required
- Admission letter and fee schedule from the institution.
- Mark sheets of the qualifying exam and entrance test scorecard.
- KYC of student and co-borrower: PAN and Aadhaar or other valid ID (see Aadhaar for loans and KYC).
- Co-borrower’s income proof: salary slips and Form 16, or ITRs and bank statements if self-employed.
- Collateral documents, where applicable.
- For study abroad: passport, visa or I-20 / CAS, and a cost-of-attendance statement.
Education loan or personal loan?
An education loan is almost always cheaper and comes with a moratorium and tax deduction. A personal loan makes sense only for small, short-term gaps, such as a deposit due before the education loan is disbursed, or a course a lender will not cover. Personal loan EMIs start immediately and the interest is not deductible. If you need one, check types of personal loans and the personal loan eligibility criteria.
Need to bridge a fee deadline? Compare offers from RBI-regulated lenders on FundsTiger.
Mistakes to avoid
- Comparing only the interest rate. Check processing fees, insurance, margin money and the moratorium interest method in the KFS.
- Missing payments during the moratorium if you agreed to pay interest; it is reported to credit bureaus.
- Ignoring the co-borrower’s existing EMIs, which reduce eligibility. Use the FOIR eligibility calculator.
- Borrowing from unregistered agents who promise ‘guaranteed’ admission loans for a fee.
Related reading: loans for medical students.
Every lender must give you a Key Fact Statement with the all-in APR before you sign, as required by RBI’s KFS rules. Keep it for your records.
Frequently asked questions
Can I get an education loan without collateral?
Yes, for smaller amounts and for students admitted to institutes on the lender’s approved list. Government-backed guarantees and the PM-Vidyalaxmi scheme support collateral-free lending, but the final decision and limit rest with the lender.
Who repays the education loan, the student or the parent?
The student is the main borrower and the parent is usually co-borrower, so both are liable. Either can repay, and the person who pays the interest from taxable income can claim the deduction if eligible.
Is the education loan interest deduction available in the new tax regime?
No. The section 129 deduction (formerly 80E) is available only if you opt for the old regime. Compare your tax under both regimes before deciding.
Does an education loan affect the co-borrower’s CIBIL score?
Yes. It appears on the co-borrower’s credit report too, and any late payment hurts both. It also counts towards the co-borrower’s existing obligations when they apply for other loans.
Can I prepay an education loan?
Usually yes. For floating-rate loans to individuals sanctioned or renewed from 1 January 2026, regulated lenders cannot charge a prepayment penalty. Check your KFS for fixed-rate loans.
Sources
- Income Tax Department: section 129, Income-tax Act, 2025
- RBI circular: Key Fact Statement for loans and advances
Disclosure: FundsTiger (Gatimaan Finance Advisors Pvt. Ltd.) is a loan marketplace and lending service provider for RBI-regulated lenders. Aparampaar Finance Pvt. Ltd. (Omozing), one of those lenders, is a related party of FundsTiger. This article is general information, not financial advice. Read your loan agreement and KFS before you decide.