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Got Questions on What are Education Loans? Here’s All You Need to Know About Them

Sep 10, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

A complete education loan covers all course related expenses like tuition fees, accommodation expenses, library fees, study material, exam fees, among other miscellaneous expenses.

 Thanks to growing expenses, a necessity like education is soon becoming a luxury that not many can afford. For parents who do not have financial resources, this can be a deterrent to provide their children with good, quality education.

While the government has made efforts to provide primary and basic education at subsidised prices, higher education is still beyond the reach of middle class people.

According to studies, the cost of education is rapidly increasing at a rate of 15% annually. An MBA degree that cost approximately Rs. 2.5 lakh, 15 years ago, now costs a whopping Rs. 20 lakhs. So, for instance, even if you start saving Rs. 2,000 per month at the rate of 12% for 15 years, you can save up to Rs. 9.5 lakh, but it still may not be enough.

Do not let financial constraints deny your bright children a coveted degree from leading Indian or international institutions. If you do not have sufficient savings or investments to fund their education, you can always avail of a loan.

The following information will cover all the basics you need to know about an education loan:

 What does an education loan cover?

A complete education loan covers all course related expenses like tuition fees, accommodation expenses, library fees, study material, exam fees, among other miscellaneous expenses. Some banks also provide additional covers like insurance protection.

Who can apply for the loan?

Any Indian student who has secured admission in any approved colleges can apply for the loan. The bank also demands a co-applicant with a good credit history and sufficient financial means who could be a parent, sibling, spouse or a guardian.

Types of courses covered

Educational loans are offered for full-time or part-time graduation, post-graduation, professional, vocational and technical courses. Management and engineering courses are also covered under educational loans. If you wish to take a loan for a course overseas, you must secure your admission before applying for the loan and check if the bank recognises the institution.

Eligibility, documents required

An Indian citizen who has completed his higher secondary level of studies is qualified to apply for an education loan. The student must have also secured admission in a recognised college or university approved by UGC, AICTE, IMC, AIBMS or such other authority in India or abroad. However, securing admission is not a prerequisite for a loan from some banks.

The RBI has not imposed any upper age limit of the student seeking a loan, but some banks might.

Your bank will require documents like an admission letter from the college/university, your mark-sheet from class 10, class 12, or graduation, whichever is the latest. Income documents like salary slips and income tax returns of the co-applicant are also required.

 Loan amount, collateral

The loan amount offered differs from bank to bank. Also, the amount of loan banks actually sanction is at their discretion. They could sanction 100% of the loan or less depending upon the amount and their internal policies. Banks also require a margin amount—amount to be financed by the applicant which is nil for a loan up to Rs. 4 lakhs. For studies in India and abroad, the margin requirement is 4% and 15% respectively.

Collateral also varies depending on the loan amount. Banks demand collateral for loans exceeding Rs. 7.5 lakh. For a loan, between Rs. 4 lakhs and Rs. 7.5 lakh, only a third-party guarantee is necessary. But, any amount less than Rs. 4 lakh requires neither a collateral nor a guarantee.

Interest rate and other charges

Banks determine an interest rate, generally ranging from 12%-16%. You can choose either a floating or a fixed rate of interest. Apart from the interest rate, be aware of other bank charges related to processing, pre-payment, late payment of EMIs, etc.


The student must repay the loan, generally between 5 to 7 years, which is extendable. The repayment period commences after the course is completed. However, sometimes banks also provide a relaxation period of a year after completion of studies or 6 months after getting a job.

During the course, the bank charges a simple rate of interest on the loan, thereby lessening the student’s future repayment burden.  

Tax benefits

Under Section 80 E, the entire interest amount is deductible from your taxable income. This deduction can be claimed by, students repaying the loan themselves, parents who have taken the loan for their children, spouse or the guardian of the student. The interest amount is deducted for a maximum of 8 years, but the principal amount is not deductible.


An education loan will probably be your first experience in the world of credit. If you are prompt and consistent with repayments, it will give you the opportunity to build a good credit score. This will be beneficial if you want to secure bigger loans like home loan in the future.

A great alternative to an education loan is a child education plan. With a child plan like Aegon Life’s iMaximize, you can invest for your child’s future early on. This child plan also offers Triple* Benefit pay-out option and caters to your child’s financial needs in your absence without the burden of an education loan.

Advt. no.: IA/Aug 2018/ 4344


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