Many students dream of going to college, but with the increasing costs of tuition, living expenses, and educational materials, the financial burden is often challenging. Education loans for undergraduate programs provide the difference between your aspirations and affordability and will allow you to concentrate on your studies without fear of the cost of living.
Whether you intend to study medicine, engineering, law, management, or liberal arts in India or overseas it’s important to understand how education loans for undergraduate programs will work. Preparation is important, as you want to know about eligibility requirements, the amount of the loan, interest rates, repayment terms, and documentation before going through the process of applying for an education loan.
In this blog, we will guide you through the essential must-knows before applying for an education loan for undergraduate courses, so that you can feel positive in your financial planning, and able to navigate your future career.
Why Education Loans Are Important for Undergraduate Students
Education loans have been an important financial option for undergraduate students given the rising costs of quality education. Here are some reasons as to why they are important:
Access to Quality Education
Education loans allow students from all financial backgrounds to study at some of the best universities and colleges without having to worry about having the cash available up front.
Covers Comprehensive Expenses
Education loans cover not only the tuition but also living expenses, books, equipment, exam expenses and travel (if the education is abroad) so students can focus strictly on their education.
Reduces Financial Burden on Family
Taking an education loan allows students to secure their academic journey while not depleting their savings or having to sell a family house.
Builds Financial Discipline
paying back the education loan after graduation helps shape responsibility early in life through financial planning which ensures students learn how to manage money responsibly after they graduate.
Improves Career Opportunities
With ease of funds, students are able to choose career tracks & specializations that may have a higher cost up front but are likely to have better growth for the students long term.
Tax Benefits Under Section 80E
As a key benefit to students carrying an education loan, they are able to write off the interest on their tax returns which reduces the overall cost of funds providing the flexibility for more students to pursue education at a higher level.
Eligibility Criteria for Undergraduate Education Loans
Before applying for an undergraduate educational loan a student needs to satisfy certain eligibility conditions (expected by banks and institutions providing loans). All eligibility conditions can ensure that a borrower will likely have the ability to finish the course and repay the loan.
Basic Eligibility Requirements
Nationality: The applicant must be a citizen of India. While some banks offer education loans for NRIs, the majority of loans are for resident Indians.
- Age Limit: Typically, applicants between the ages of 16 and 35 are eligible; however, the exact age limit can vary between lenders.
- Academic Qualification: The student must have passed Class 12 or equivalent from a recognized Board.
- Admission Confirmation: The student is required to have gained admission via a recognized undergraduate program through merit-based selection (through entrance exams or qualifying exams).
- Inclusion of a Co-Borrower: The applicant needs a parent, guardian, or spouse to serve as a co-borrower in order to determine the repayment capacity.
- Good Academic Record: A student will have greater approval chances if the applicant has maintained a constant academic record, and the student has performed well in any entrance tests (if applicable).
- Income Proof (for Co-Borrower): Banks (especially for large amounts) will always ask the student for the co-borrower’s income to further determine the repayment capacity of the loan.
Types of Education Loans Available for Undergraduate Courses
When considering undergraduate study financing, it helps to know that there isn’t a standard education loan available for all universities, students, and courses. Banks and other financial institutions have a variety of education loans for different requirements, states, and courses. Below is a summary of the most common education loans:
1. Domestic Education Loans
- These are the most common type of loan for students studying for their undergraduate degree in India. The loan covers tuition fees, hostel fees, exam fees, library fees, and any additional education expenses.
- Banks may or may not ask for collateral if the loan amount is on the lower to medium side.
- The repayment of the loan will typically not start until after the completion of the course plus an additional grace time (moratorium).
2. Overseas Education Loan
- This type of loan is specifically designed for students studying for their undergraduate courses abroad.
- The education loan covers tuition fees, living expenses, travel expenses, exam fees, and health insurance expenses.
- A confirmed admission letter from a college or university overseas is required as part of the application. Loans are usually higher and may require collateral or a guarantor.
3. Loans Against Collateral (Secured Loan)
- This type of loan is secured and requires you to pledge or commit to an asset that can be converted into cash for a lender, for example, property, fixed deposit, or LIC policies.
- Loans against collateral deposit should typically easily surpass Rs.7.5 lakhs to Rs.1.5 crores depending on the lender.
- Interest rates are typically not as high because the lender is taking less of a risk.
4. Collateral-Free Education Loan (Unsecured Loan)
- No collateral needed, but there is usually a limit (Rs.4–Rs.7.5 lakhs for the most banks).
- The income of the co-borrower plays an important part in whether the loan is approved.
- Interest rates can be marginally higher than secured loans.
5. Government-Sponsored Education Loan Schemes
- Vidya Lakshmi Portal – a central portal a student can apply for and the student will be able to apply to multiple loan schemes that receive support from the government.
- Dr. Ambedkar Central Sector Scheme – provides interest subsidy for the economically weaker section for the robot period of the loan.
- These programs support the purpose of making education loans affordable to the disadvantaged section.
6. Specialized Education Loans
- Some banks and NBFCs will provide education loan targeted to specific courses (medicine, engineering, management, skill development, etc.)
- Will often have repayment scheduled or offer lower interest rates.
- Generally offer added value services (i.e.: student insurance and credit card offers).
Interest Rates and Repayment Terms for Undergraduate Education Loans
Understanding interest rates and repayment terms is crucial when choosing an education loan for undergraduate studies. Interest rates not only determine your overall cost of borrowing but also influence your monthly EMIs after the moratorium period. Below is a snapshot of some leading banks and NBFCs offering education loans in India:
| Provider | Interest Rate (Starting From) | Remarks |
|---|---|---|
| State Bank of India (SBI) | 8.15% p.a. | Base rates vary by scheme: Student Loan (9.15–10.15%), Scholar Loan (7.15–7.90%), Global Ed-Vantage (8.65–9.15%). SBI offers some of the most competitive rates for students applying to premier institutions. |
| ICICI Bank | 10.25% – 14.00% | Offers a broad range depending on applicant profile, co-borrower’s credit score, and selected scheme. |
| Axis Bank | 11.00% – 13.00% | Floating interest rates are aligned with the loan structure and market-linked benchmark rates. |
| HDFC Credila (NBFC) | 9.95% (secured); 11.25% (unsecured) | Offers customized education loan solutions. Floating rates with an additional 1–1.5% if you opt for fixed rates. |
| Avanse (NBFC) | 10% – 11% | Competitive rates focused on domestic and study abroad needs with flexible repayment options. |
| Bank of Baroda | 8.15% – 10.70% | Lower rates (~8.70%) for students enrolled in premier institutions; interest concession for timely repayment. |
Documents Required for Applying Education Loan for Undergraduate Courses
When applying for an education loan for undergraduate studies, you must provide a set of documents to verify your identity, academic background, and financial eligibility. Submitting complete and accurate documentation ensures faster approval and disbursal of your loan.
1. Identity and Address Proof
- Aadhaar Card / PAN Card
- Passport / Voter ID / Driving License
- Utility bills or rental agreement (for address proof, if required)
2. Academic Records
- 10th and 12th standard mark sheets and certificates
- Entrance exam scorecards (if applicable)
- Admission letter from the college/university
- Fee structure issued by the institution
3. Income Proof of Co-applicant / Parent (for repayment assurance)
- Most lenders require a co-borrower (parent or guardian) with a steady income.
- Latest salary slips (for salaried individuals)
- Income Tax Returns (ITR) for the last 2–3 years
- Bank statements for the last 6 months
- Form 16 (if applicable)
- Proof of business (for self-employed applicants)
4. Collateral Documents (if applicable)
- For loans above a certain threshold (usually Rs.7.5 lakh), lenders may require security.
- Property documents (title deed, tax receipts, valuation report)
- Fixed deposit receipts (if FD is offered as collateral)
- LIC policy papers (if pledged)
5. Other Supporting Documents
- Passport-size photographs of applicant and co-applicant
- Duly filled and signed loan application form
- Declaration or undertaking as required by the bank
Process to Apply for an Education Loan for Undergraduate Courses
Applying for an education loan for undergraduate studies is typically a detailed process that unfolds through a few crucial steps to get the approval and advisory to the borrow according to the loan contract before it gets put into the educational institution bank account to complete payment. It is beneficial to understand the process of applying for an education loan will consist of the following:
1. Submit Your Application
You will begin the process either online via the lender’s website or possibly offline to the lender’s nearest branch, by filling out an education loan application form. In the application, ensure you provide all requested details about your personal information, name of course you are looking to complete, where you are completing your studies and the amount you believe is required for an education loan.
2. Providing Documentation
Provide documentation with the application. Identity proof, academic records, admission letter, fee structure, and income proof of the co-borrower will all be required documentation. Missing or incorrectly provided documentation will result in delays for processing the application, so be sure to ensure it’s all there.
3. Loan Processing
The lender will review the application against many factors, including eligibility criteria, whether the borrower can repay the education loan on time and whether the co-borrower has the credit history needed to support the education loan. If the borrower’s education loan is going to be a secured education loan, the bank will also check if there is sufficient collateral in place as well (which is ideally a property of value show a value in the property deed, as an example).
4. Sanction Letter & Disbursal
Once the lender has approved the education loan application, the lender will request to sign the approval documents and possibly terms, and receive a loan sanction or contract letter giving the lender all conditions, terms, amount of loan approved, interest rate, repayment terms of the loan and subsequent instructions on how to disburse to the educational institution via bank transfer should meet the schools payment schedule.
FAQs: Education Loan for Undergraduate Courses
Q. Can I apply for an education loan before getting admission to a college?
A. Most banks and NBFCs require a confirmed seat before the loan application is reviewed but there might be cases in which you can get pre-approval for educational loan based on your profile also.
Q. What is the maximum loan amount I can get for undergraduate studies?
A. Banks usually sanction educational loans up to Rs.10 – Rs.15 lakhs for undergraduate courses in India, without any security. For a higher limit, you have to provide collateral security.
Q. Do I need a co-borrower for an undergraduate education loan?
A. Almost all distributors of education loans require a co-borrower (an individual usually a parent, guardian or spouse) to assume the repayment responsibility of the loan.
Q. When do I need to start repaying the education loan?
A. Students eventually start repayment after the moratorium period, which is duration of the course plus the grace period of up to 6 – 12 months after the course is complete. You can also choose to make simple interest payment during the course duration, in order to ease the EMI burden afterwards.
Q. Are there any tax benefits on education loans?
A. Under section 80E of the Income Tax Act, an individual (usually the borrower) is entitled to the deduction of interest paid for a period, without any upper limit of repayment for upto 8 years before its recovery.
Q. Can I apply for an education loan if my parents have a low credit score?
A. Bank may require additional collateral security, a third-party guarantor, or offer the loan at a slightly higher interest rate.
Q. What happens if I change or discontinue my course?
A. If you change your course but stay within an eligible program, your loan may still continue with updated documentation. If you discontinue the course, repayment starts immediately, and you will lose benefits like interest subsidy.
Q. Are government schemes available for undergraduate education loans?
A. Schemes like Central Sector Interest Subsidy (CSIS) are available for students from Economically Weaker Sections (EWS) pursuing professional or technical courses in India.