Demystifying Education Loan Interest Rates - What You Need to Know

Demystifying Education Loan Interest Rates - What You Need to Know: In today's time, getting a good education has become expensive. If you want to study in India or abroad, then the fees, hostel, books, and other expenses can be very high. In such a situation, many students take education loans.

But one thing is very important while taking an education loan - the interest rate. If you do not understand the interest properly, then there may be trouble while repaying the loan later.

Many student search online for best student loans, college loans, student loans without cosigner, apply for student loan, graduate student loans and student loan companies etc.

In this article, we will understand in easy Hindi what is the interest of education loan, how it is decided, and what things should be kept in mind.

Demystifying Education Loan Interest Rates - What You Need to Know:

1. What is an education loan?

An education loan is a loan given to cover the expenses of a student's studies. This may include:

College/university fees

Books and study material

Hostel or living expenses

Travel expenses (especially if studying abroad)

Laptop, internet etc.

This loan is given by a bank or finance company to the student or his/her guardian. The loan amount and terms depend on the course, institute and student's profile.

2. What is the interest rate?

When you take a loan from a bank, you not only have to repay the loan amount but also pay interest on it. This interest is the bank's income.

Interest rate means how much interest the bank will charge on the loan amount every year.

Example:

If you take an education loan of ₹5 lakh and the interest rate is 10%, then the interest at the end of the first year will be:

5,00,000 x 10/100 = ₹50,000

If this interest keeps increasing year after year (compounding), then the total payment can be quite high.

3. How are education loan interest rates determined?

Interest rates may vary from bank to bank and financial institutions. Some of the factors that affect these rates are:

A. Type of interest rate:-

Floating interest rate: It keeps changing over time. It can fluctuate according to the Reserve Bank's repo rate.

Fixed interest rate: It remains the same for the entire loan tenure.

B. Bank's MCLR and repo-linked rate:-

Some banks fix interest based on MCLR (Marginal Cost of Funds based Lending Rate).

Many banks now charge interest based on Repo Linked Lending Rate (RLLR), which is linked to RBI's repo rate.

C. Course and Institute:-

If you are studying in a reputed institute (IIT, IIM, DU, etc.), you may get lower interest.

The interest may be slightly higher for studying abroad.

D. Loan amount:-

The interest rate is usually slightly lower on loans up to ₹4 lakh.

Loans above ₹7.5 lakh require a guarantor or property (collateral).

E. Subsidy schemes:-

The government gives interest subsidy to some students – like CSIS (Central Sector Interest Subsidy Scheme).

4. Common education loan interest rates in India:

(Note: These rates may change from time to time and bank to bank, these are for general information only)

Bank Name Interest Rate (approx.)

SBI 8.5% to 11%

HDFC Bank 9% to 13%

Axis Bank 10% to 14%

ICICI Bank 10.5% to 13.5%

Bank of Baroda 8% to 10.5%

PNB 8.4% to 11.5%

5. How is interest calculated?

Education loan interest can be charged in two ways:

A. Simple interest:-

During the studies (moratorium period), only simple interest is charged.

In this, interest is charged only on the principal.

B. Compound interest:-

When the loan starts getting repaid, then interest also starts getting charged on the interest.

This increases the total amount repaid.

6. What is the moratorium period?

The moratorium period is the time when you don't have to pay the loan EMIs.

Typically:

Course duration + 6 months to 1 year

During this time, you have the option to pay only the interest

Later, when you get a job or the moratorium ends, the EMIs start.

7. Ways to reduce interest:

If you want to reduce the loan interest, keep these things in mind:

Take advantage of government subsidy schemes

Like the CSIS scheme, which provides interest relief to poor families.

Pay interest on time

If you keep paying interest during the moratorium, the overall burden will be reduced.

Keep a good credit score

If the guarantor has a good CIBIL score, the bank can give less interest.

Take loan from government banks

Their interest rates are lower than private banks.

Choose floating interest rate wisely

When RBI's repo rate is decreasing, floating rate is beneficial.

8. Is there a tax exemption on interest?

Yes, you can get tax exemption on the interest of education loan under section 80E of the Income Tax Act.

This exemption is available only on interest, not on the principal

There is no upper limit on the exemption

This facility is available for a maximum of 8 years from the beginning of loan repayment

9. Loan repayment period:

Generally 5 to 15 years are given to repay the education loan.

If you want, you can repay it early (prepayment)

Many banks do not charge penalty for early repayment

10. Conclusion – Should you take an education loan?

Yes, if:

Your study plan is solid

You are getting admission in a good college

You will have the capacity to repay the loan in future

But before taking a loan, understand the interest rate, terms, moratorium, EMI and tax exemptions.

Final Words:

An education loan can be a good option if you want to strengthen yourself for the future. But always remember “taking a loan is easy, repaying it is difficult”. So understand the interest rate, compare, take advantage of government schemes and make an informed decision. If you take a loan with the right information and planning, it can become the best investment of your life. We hope you get all details related to best college loans, student loan interest rates, student loan rates and personal student loans etc. from this above article.