Choosing to continue your studies in India or abroad can be a significant financial investment. Education loans are the link between a student’s needs and dreams. The interest rate associated with an education loan plays a critical role, as interest is one part of the overall repayment.
In India, education loans can be acquired from public sector banks (e.g., SBI, Bank of Baroda, and Canara Bank) or from private banks and non-banking financial companies (e.g., ICICI Bank, HDFC, Axis Bank, and Credila.) Public banks are usually preferred as they provide a government subsidy which results in lower interest rates, whereas private banks/NBFCs are sometimes viewed as better employers as they tend to process loans faster, have a more flexible approach, and provide more funds.
This blog aims to help readers understand the difference between public banks and private banks’ education loan interest rates, the pros and cons, and how to evaluate the academic and financial needs for best fit.
Public vs. Private Banks
When applying for an education loan, one of the biggest decisions students face is whether to approach a public sector bank or a private bank/NBFC. Both options come with their own benefits and limitations. Below is a comparison to help you decide:
| Factor | Public Banks | Private Banks / NBFCs |
|---|---|---|
| Interest Rates | Lower (starting around 7.5% – 9.5% p.a.) | Higher (generally 10% – 14% p.a.) |
| Government Subsidies | Eligible for schemes like Central Sector Interest Subsidy (CSIS) for EWS students | Usually not covered under government subsidy schemes |
| Loan Processing | Slower, more document-heavy | Faster, often digital-first with quicker approval |
| Loan Amount | Moderate limits (up to ₹20–30 lakhs for domestic; ₹1–1.5 crore for abroad with collateral) | Higher flexibility, can finance up to full cost of study, even without collateral (depending on profile) |
| Repayment Flexibility | Longer repayment periods with moratorium (course duration + 1 year) | Flexible repayment, but shorter tenures in some cases |
| Collateral Requirement | Required for higher amounts (usually above ₹7.5 lakh) | Some lenders provide collateral-free loans even for high amounts |
| Customer Experience | Traditional, less personalized | More student-focused, with dedicated relationship managers |
| Best Suited For | Students looking for low-cost loans and eligible for subsidies | Students needing quick disbursement, higher loan amounts, or studying at premium global universities |
Education Loan Interest Rates – Public Banks
Public sector banks in India are among the most trusted sources for education loans because of their lower interest rates, government subsidy eligibility, and student-friendly repayment terms. Below is a comparative overview of leading banks and their current education loan offerings:
| Bank | Interest Rates | Processing Fees |
|---|---|---|
| State Bank of India (SBI) | 7.15% p.a. to 10.15% p.a. | Loans up to ₹7.5 lakh – Nil |
| Punjab National Bank (PNB) | 4.00% p.a. to 11.85% p.a. | For India – Nil For Abroad – 1% (Min ₹10,000) PNB Pravasi Shiksha – 1% (Min ₹10,000) PNB Kaushal – Nil |
| Bank of Baroda | 7.10% p.a. to 10.70% p.a. | Baroda Vidhya – Nil Baroda Gyan – 1% above ₹7.5 lakh (Max ₹10,000) Baroda Scholar – 1% (Max ₹10,000) |
| Canara Bank | 7.60% p.a. to 10.35% p.a. | Minimal or Nil |
| Bank of Maharashtra | 7.10% p.a. to 10.30% p.a. | Nil |
| Indian Overseas Bank (IOB) | 8.75% p.a. to 9.00% p.a. | Contact Bank |
| IDBI Bank | 4.00% p.a. to 11.50% p.a. | India – Nil Abroad – 1% (Max ₹5,000) Management Quota – 1% + tax (Min ₹1,000) |
| Bank of India | 7.10% p.a. to 12.35% p.a. | Nil |
| UCO Bank | 7.15% p.a. to 11.20% p.a. | UCO Aspire – 0.50% (Max ₹10,000) + GST Other Schemes – Nil |
Education Loan Interest Rates – Private Banks
Private banks in India are an important alternative in terms of providing education loans (both internationally and domestically). Some of the advantages of taking an education loan from private banks, compared to public sector banks, are that they tend to process quickly while increasing the loan amount and providing an easier repayment option. However, in return for the convenience of taking a loan from a private bank, they tend to charge slightly higher processing fees and interest rates on the loan.
Some of the popular private banks for students studying abroad include HDFC, ICICI, Axis, Kotak Mahindra, and Federal Bank. Popularity is largely built around offering tailor made loan products, unsecured loan products and immediate disbursement. Interest rates will vary greatly depending on the amount of the loan, credit of the borrower and the course/institution chosen.
To make comparison of interest rates and processing fees for education loans, a snapshot is shown below from various private banks and some public sector banks.
| Banks | Interest Rates | Processing Fees |
|---|---|---|
| State Bank of India (SBI) | 7.15% p.a. to 10.15% p.a. | Loans up to ₹7.5 lakh – Nil |
| Punjab National Bank (PNB) | 4.00% p.a. to 11.85% p.a. | India – Nil; Abroad – 1% (Min ₹10,000); Pravasi Shiksha – 1% (Min ₹10,000); Kaushal – Nil |
| IDFC FIRST Bank | 9.50% p.a. onwards | Up to 1.5% of loan amount (scheme-based) |
| Bank of Baroda | 7.10% p.a. to 10.70% p.a. | Vidhya – Nil; Gyan – 1% above ₹7.5 lakh (Max ₹10,000); Scholar – 1% (Max ₹10,000) |
| Canara Bank | 7.60% p.a. to 10.35% p.a. | Minimal/Nil |
| Bank of Maharashtra | 7.10% p.a. to 10.30% p.a. | Nil |
| HDFC Bank | 10.50% p.a. onwards | Up to ₹7.5 lakh – Nil; Above ₹7.5 lakh – 1% |
| Indian Overseas Bank (IOB) | 8.75% p.a. to 9.00% p.a. | Contact Bank |
| ICICI Bank | 9.70% p.a. to 14.00% p.a. | Up to 2% of loan amount + GST |
| Karnataka Bank | 9.18% p.a. to 13.18% p.a. | Contact Bank |
| Tamilnad Mercantile Bank | 11.55% p.a. to 11.60% p.a. | India – Nil; Abroad – 1% |
| Karur Vysya Bank | 11.00% p.a. to 13.50% p.a. | Above ₹7.5 lakh: ₹5,000 + GST; 783 Product: ₹10,000 + GST |
| Axis Bank | 3.50% p.a. to 13.00% p.a. | Up to 2% of loan amount + GST |
| IDBI Bank | 4.00% p.a. to 11.50% p.a. | India – Nil; Abroad – 1% (Max ₹5,000); Mgmt Quota – 1% (Min ₹1,000 + tax) |
| Bank of India | 7.10% p.a. to 12.35% p.a. | Nil |
| UCO Bank | 7.15% p.a. to 11.20% p.a. | Aspire Scheme – 0.50% (Max ₹10,000) + GST; Others – Nil |
| Federal Bank | 11.25% p.a. to 15% p.a. | Contact Bank |
| Kotak Mahindra Bank | Up to 16% p.a. | Nil |
Disclaimer: The education loan interest rates and processing fees mentioned above are indicative and subject to change as per the respective bank’s policies. Students are advised to verify the latest details directly with the bank before applying for a loan.
Tips to Get the Lowest Education Loan Interest Rate
Student education loans are indeed a long-term commitment, and while it may be just a difference of 1% in interest rates, that can add up over 1, 3, or even 10 years. If student borrowers employ the strategies outlined below, they may be able to improve their chances of obtaining a student education loan sooner from a lender with a lower interest rate. Here are some ideas:
1. Maintain a Good Academic Record
When students apply for education loans, banks and lenders generally consider the applicants’ performance in their academic career. Good grades, good scores on standardized tests (for example: GRE, GMAT, or IELTS if students want to study abroad) and the acceptance to well-known schools will lend credibility to the student, and depending on their performance, influence discussions for lower interest rates.
2. Choose a Reputable School
While certainly not the only metric to assess employability, acceptance to government’s recognized or top-ranked universities/ colleges (whether in India or abroad) signals an improved future in terms of secure income. Moreover, lenders will see this as a sign of lowered risk (as lenders have no outward interest in your academic performance), which can also equate to a lower interest rate.
3. Choose to Borrow from a Public Sector Bank
Public sector banks are likely to offer a better fixed interest rate, and arguably with less volatility, than private lenders in the marketplace or even non-banking financial institutions (NBFC). Additionally, there are generally some interest subsidies available for students from low economic means with a legitimate education advancement in place (through government funded schemes).
4. Compare Multiple Lenders
Before finalizing, students should compare education loan options from public banks, private banks, and NBFCs. Online loan comparison tools make it easier to check interest rates, repayment tenures, and additional charges like processing fees.
5. Apply with a Co-Applicant or Guarantor (if possible)
Even if some loans are available without a guarantor, applying with a financially strong co-applicant (like a parent or guardian) can increase trustworthiness and often result in lower interest rates.
6. Utilize Government Subsidy Schemes
Central Sector Interest Subsidy Scheme (CSIS) and similar subsidisation programs offered by various states could help reduce the effective rate of interest, particularly for students coming from low-income families.
7. Maintain a Good Credit Score (for Co-applicants)
If one of the parents or guardians is a co-applicant, their credit score can be a big deal. A high credit score (750+) indicates a strong repaying history, increasing the chance banks may offer a better rate of interest.
8. Negotiate with the Lender
On occasion, banks are willing to negotiate, especially when applicants are accepted to top-rated universities, or if the co-applicant’s financial profile is strong and stable.
9. Choose Floating Interest Rates Carefully
Floating interest rates may initially be lower than fixed rates, but they do rise or fall in relation to market conditions. Therefore, students should assess the possible consequences of selecting a floating interest rate against their ability to meet debt commitment over time.
FAQs: Education Loan Interest Rates in India – Public vs. Private Banks
Q. Which banks offer the lowest education loan interest rates in India?
A. Public sector banks such as SBI, Bank of Baroda, and Canara Bank usually have lower and stable interest rates for educational loans in comparison to private banks.
Q. Why do private banks charge higher education loan interest rates?
A. Private banks provide faster processing times for loans, higher loan amounts and fewer restrictions on collateral; however, they not only need to compete with the products offered by public sector banks, they also need to balance the risk associated with these products, which leads to slightly higher interest rates across all private banks.
Q. Can I negotiate education loan interest rates with banks?
A. If you have been offered admission in one of the top ranked universities or your co-applicant has good credit history, you may be successful in negotiating lower rates on education loans with private banks.
Q. Are interest subsidies available on education loans in India?
A. Government of India provides schemes such as the Central Sector Interest Subsidy Scheme (CSIS). Students who come from the Economically Weaker Section of society are eligible for interest waivers during the moratorium period from the commencement of an educational loan.
Q. Do public banks charge processing fees for education loans?
A. Many public banks do not charge processing fees for loans up to ₹7.5 lakh and charge nominal amounts for larger loans. In comparison, private banks, and NBFCs, in most cases, charge processing fees of between 1% and 2% of the loan amount.
Q. Which type of bank is better for education loans – public or private?
A. It depends on your need. Public Banks better than private banks when it comes to lower interest rates, government assured subsidy and payment stability. Private Banks are prefered when it comes to fast processing of loan, higher loan amounts and flexible security
Q. Do private banks provide loans without collateral or guarantor?
A. Several private banks and NBFCs give education loans without security or guarantor but with limited amounts especially for students going abroad. The interest rates are higher as compared to secured loans.
Q. Is the interest rate fixed for the entire loan tenure?
A. Not all banks or lenders offer fixed interest rate over the loan tenure. Several banks offer fixed interest rate while others offer floating rates linked to external benchmarks (repo rate). Floating or moving are dependent on the changes in these benchmarks and may increase and decrease during the repayment period.