When it comes to pursuing higher education, many students and parents still hesitate to consider education loans due to widespread misconceptions. This is due to all of the various myths about education loans, including the complicated process of approval or confusion about repayment terms. The myths actually preventing deserving students from accessing quality education.
The reality is that education loans are further growing to be more flexible, adjustable and student-friendly in today’s modern financial era. With the developing programs, a mixture of government direct and subsidized loans, along with any public bank or non-banking financial company (NBFC), education loans are not going to be a financial burden to a student while they finance their studies whether in India or abroad.
In education loan information, virtually all experts in the education loan have maintained, time and time again, the importance of the information behind the myths will greatly assist in the process of financing education. Knowing the basics of who qualifies, what allotments they may receive, when their repayment starts and how it reverts back to the simplified truths, education loans are useful and incredible ways of resolving the financial strife of education.
In this blog, you will get to learn about the top 5 most common myths and from the expectations of education loans, where you may determine if or how much these educational loans may be warranted for your academic and professional goals.
5 Common Myths About Education Loans
Education loans have become a important tool for students aspiring to pursue higher studies in India or abroad. However, many still shy away from applying due to half-truths and outdated information. Let’s break down the five most common myths about education loans and uncover the reality behind them.
- Myth 1: Education Loans Are Only for Students from Low-Income Families
- Myth 2: Collateral Is Mandatory for All Education Loans
- Myth 3: You Need to Start Repaying Immediately After Disbursement
- Myth 4: Education Loans Cover Only Tuition Fees
- Myth 5: Getting an Education Loan Is Complicated and Time-Consuming
Myth 1: Education Loans Are Only for Students from Low-Income Families
Many students and parents believe that if their family income is not very low, they won’t qualify for an education loan. The common idea is: banks and NBFCs lend only to those from economically weaker backgrounds, and if your family is better off, you might be refused or not get favorable terms.
The Reality (Busted)
Education loans are available to many types of students, not just those with low socioeconomic status. Most of the eligibility criteria (besides socioeconomic status) is determined by whether the student has been accepted to a qualified school, prior academic records, loan repayment ability (often via the income/credit profile of a co-applicant), or potential lender requirements, instead of a student’s or family’s financial status.
Here are some points with recent data and facts backing the reality:
- According to the Ministry of Education (India), Rs 36,448 crore worth of education loans were disbursed in 2023-24 by banks. This huge figure includes students from across income strata, not just low-income families.
- The growth of foreign education loans (which are often large ticket amounts) also indicates that students whose families can afford moderate to high costs are availing these loans. For example, in FY 2023-24, the average loan ticket size for overseas education was estimated around ₹40-₹60 lakh.
- NBFCs and private lenders frequently offer collateral-free or unsecured loans for amounts up to certain thresholds (e.g. ₹7.5 lakh or more), provided the co-applicant (or the student) meets income, credit score, or academic eligibility criteria. These options are not limited to low income earners.
Myth 2: Collateral Is Mandatory for All Education Loans
Numerous students think that any student loan requires putting down collateral, such as land, fixed deposits, property, etc. This thought process discourages people who do not own property or some other valuable asset, from applying at all.
The Truth (Busted)
The truth is, not all student loans require collateral! Based on the amount of the loan in question, the institutional lender (i.e. Bank versus NBFC), the institution you have been admitted to, and sometimes your academic profile or your co-applicant’s credit worthiness, will determine if you need to pledge collateral as a security.
Here are key facts from recent, verified sources:
- RBI / Government Policies
- According to the Credit Guarantee Fund Scheme for Educational Loans (CGFSEL) banks can lend up to ₹7.5 lakh without requiring collateral security or third-party guarantee.
- For loans up to ₹4 lakh both the margin money is nil and would not require collateral.
- Bank Policies for Collateral-Free Loans
- Many major banks allow collateral-free loans up to ₹7.5 lakh under standard schemes. For example, SBI, BoB, PNB, etc., have collateral-free thresholds at this level.
- Some banks go even higher for premier institutions or under special arrangements. For example, State Bank of India may offer collateral-free loans up to ₹40 lakh for premier Indian institutes.
- NBFCs & Private Lenders
- Private lenders and NBFCs are often more flexible. They sometimes offer unsecured loans (no collateral) for larger amounts, depending on academic merit, institution’s reputation, and the co-applicant’s financial strength.
- Credit Guarantee Scheme
- Under the CGFSEL, not only are loans up to ₹7.5 lakh given without collateral, but these are also guaranteed by the National Credit Guarantee Trustee Company (NCGTC), reducing the risk to the bank.
Myth 3: You Need to Start Repaying Immediately After Disbursement
Many students think that once their education loan is disbursed whether for tuition, hostel, or study-abroad costs, they are required to begin repayment right away. The assumption is: you get the money, so you must pay EMIs from the next month. This misconception causes anxiety and financial worry, because most students don’t have income right after disbursement, especially if they are studying full-time.
The Reality (Busted)
In truth, repayment does not begin immediately after disbursement. Lenders provide a moratorium period (sometimes also called a “grace period”) during which students are not required to start repaying the principal (and often not even interest, or the interest is optional). Repayment typically starts after the course is completed, plus a further grace period (often 6 months to a year), or sometimes earlier if the student secures a job.
Here are some current, verified guidelines and examples:
- As per the policy on repayments, SBI’s Student / Scholar Education Loans defer EMIs for 12 months after you have graduated from the course or 6 months after you have secured a job, whichever comes first.
- SBI’s Global Ed-Vantage (which is their overseas education loan product), on the other hand, defers repayment for 6 months after completing your course.
- RBI’s Model Education Loan Scheme 2022 also provides a similar moratorium period of course period + 6 months to 1 year after completing the course, thus providing some time to students to secure employment.
Myth 4: Education Loans Cover Only Tuition Fees
Many applicants assume that an education loan only pays for tuition or university/college fees and nothing else. This leads to surprise or financial stress later, when expenses like books, travel, living costs, and equipment mount up during the program.
The Reality (Busted)
In truth, most banks, NBFCs, and study-abroad loan products cover a wide range of expenses beyond just tuition. The exact components and limits differ by lender and the course (domestic vs abroad), but it’s fairly standard that non-tuition costs are included. Below are verified examples and data points.
- Avanse Overseas Education Loans
- Avanse loans cover up to 100% of your tuition fee; in addition, they provide for living expenses, book/equipment costs, refundable deposits, and even travel expenses (passage money) up to ₹75,000 when you’re studying abroad.
- ICICI Bank Education Loans
- According to ICICI’s education loan description, the loan can fund not only tuition fees but also hostel/accommodation charges, lab & library fees, books, study materials, laptops/computers, and other course-related expenses (such as project work, study tours).
- Model IBA & Government-Backed Guidelines
- The IBA / RBI / bank scheme guidelines state that education loans cover “tuition fees, hostel fees, examination fees, insurance premium (if applicable), purchase of books/computer/laptop, travel expenses, refundable deposits, and other expenses required for course completion.”
- Examples from Banks Like SBI, Axis, etc.
- State Bank of India & other major lenders have specific provisions for living expenses, hostel, laboratory/library costs, equipment, etc., as part of their education loan schemes.
Myth 5: Getting an Education Loan Is Complicated and Time-Consuming
Numerous students think that the education loan process includes extensive periods of waiting, sleepless nights with paperwork, endless visits to branches, prolonged periods of verification, and little to no proper communication. Many students are so fearful of bureaucrats that they never apply for loans, or begin the process too late.
The Reality (Busted)
Education loans used to take more time and effort than loans to fund a car or home, but in recent years, developments in regulations and with lender procedures, this is quickly changing. Many banks or NBFCs provide slightly shorter turnaround times than before for education loans and several will allow this, job, physical paperwork, conditionally based; electronic applications; additional paperwork/no paperwork card responsible are no longer important. Below are verified facts and data points that show how things are improving as of 2025:
- Government Mandate for Faster Processing
- The Indian Finance Ministry has instructed Public Sector Banks (PSBs) to clear education loan applications within 15 days, including approvals in standard cases, provided all documents are in order.
- Backlogs up to May 2025 have also been ordered to be cleared.
- Average Processing Times
- After submission of all required documents, many lenders (public banks, NBFCs) take 7 to 21 days to sanction a loan.
- For example, Bank of Maharashtra takes about 10-15 days to verify documents and sanction the loan; after sanction, disbursement can happen in 24-48 hours.
- Karnataka Bank processes loans in 7-10 days, subject to document completeness.
- Simplification of Documentation / Digital Advances
- From 2024-25 onward, RBI has proposed systems that would allow digital admission letters as part of admissible documentation, reducing the need for physical papers.
- Many lenders and loan portals now allow online application submission, e-KYC or digital identity proof, and digital disbursement directly to educational institutes reducing delays. (E.g. banks aligning with the Vidya Lakshmi portal, centralized credit processing for PSBs).
FAQs: 5 Common Myths About Education Loans
Q. Is collateral always required for an education loan?
A. Students can avail of collateral-free loans up to ₹7.5 lakh under the Credit Guarantee Fund Scheme for Education Loans (CGFSEL) and similar initiatives. For loans exceeding ₹7.5 lakh, collateral may be needed, but it will ultimately depend on the bank or lender, your course, and the type of institution.
Q. Do I need to start repaying the loan immediately after it is disbursed?
A. Repayment will begin after the moratorium, which is the life of the course and 6-12 months after you have completed your education. Depending on your agreement with the loan, you may only have to pay simple interest during the moratorium period, or the interest will be added to the loan after you complete the course.
Q. Does the loan only cover tuition fees?
A. Education loans cover a lot more than simply tuition fees. They can be used to pay for your hostel fees (if you live in accommodation provided by the school), exam fees, library fees, travel, books, a laptop and even a living allowance. Most banks will utilize the RBI’s Model Education Loan Scheme which can provide coverage for all essential educational costs.
Q. Does applying for an education loan affect my credit score negatively?
A. Your credit score will have no negative impact by applying for an educational loan or availing of one. In fact, your credit will be positively affected as long as you are responsible in your repayment, which creates a good credit profile and enhances your desirability for loans like a home loan or car loan.
Q. Can I apply for an education loan without a co-applicant?
A. Most lenders have a co-applicant who is typically a parent or responsible care-giver for students who are not employed currently. For students looking to go to a ranked institution (IIT, IIM or abroad) some banks and NBFCs may consider not having a cosigner or may consider your loan with partial collateral.
Q. Are government banks the only option for education loans?
A. Government banks are known for their attractive interest rates and government backed schemes, however, there are other competitive educational loan options from several private banks and NBFCs. These competitors provide attractive repayment terms, have quicker disbursement timelines, and can also lend for an international educational loan.
Q. Do all education loans have the same interest rate?
A. Different education loan providers offer different interest rates related to factors like course of study, institution, the credit score of the co-applicant, and the amount of loan. The interest rate on education loans tends to range between 8% to 13% p.a with some concessions for female students and those planning to attend a higher ranked institution.
Q. Can I apply for multiple education loans at the same time?
A. You can apply for more than one loan only under specific conditions—for example, a separate loan for higher studies after completing a previous degree. However, multiple loan applications for the same course may affect your creditworthiness.