In this article
Quick summary
- Banks check the course, the university, the student’s record and the co-applicant’s income.
- Budget for the whole course and living costs, not just the first year’s fees.
- Start early: sanction takes weeks, and visa dates don’t move.
For many Indian families, a degree abroad is the biggest expense they plan after buying a home. The admission letter arrives, the joy lasts about a day, and then comes the question: how do we pay for it? Most families turn to an education loan, and many hit surprises along the way: a missing document, a collateral demand, a delay that puts the visa date at risk.
Knowing what banks look for lets you prepare the file before you apply, and avoid the surprises. Here is how lenders think, what they ask for, and how to keep the total cost under control.
How a bank looks at an education loan
A lender sees a loan to two people at once: the student, who will earn later, and the parent or guardian, who earns now. It is the second person whose income, savings and credit score carry the most weight at the start, because the student has no income yet. The bank asks four questions.
- Is the course worth funding? A recognised programme at a well-regarded institution, with good job prospects, is looked on kindly. Lenders keep their own approved lists of universities and courses, and some rank them by tiers that decide the loan amount and the need for collateral.
- Is the student a safe bet? Marks, entrance and language test scores, and any work experience. A strong academic record helps with both approval and the rate.
- Can the family stand behind it? The co-applicant’s income, existing EMIs, savings and credit score. A score of 750 or above makes the process much smoother.
- Is there security if things go wrong? Smaller loans may be given without collateral. Larger ones usually need property, a fixed deposit or another guarantee.
Government schemes worth checking
The PM-Vidyalaxmi scheme, launched in late 2024, is meant for students admitted to the country’s top-ranked higher education institutions through merit. It offers collateral-free, guarantor-free loans, with a government guarantee of 75% on loans up to ₹7.5 lakh, and a 3% interest subsidy on loans up to ₹10 lakh for students from families with an income up to ₹8 lakh, subject to conditions. It covers institutions in India, so it is mainly useful if you are studying at home, but it is worth knowing about.
Work out the real budget
The most common mistake is to ask for the first year’s fees and forget the rest. Banks lend against a budget you present, so build it for the whole course. Include everything below, and add a cushion for surprises.
| Cost | What to include |
|---|---|
| Tuition and fees | Every year of the course, and any yearly rise the university has announced |
| Living costs | Rent, food, local travel, phone, utilities and books |
| Health | Mandatory student health insurance in the country you are going to |
| One-time costs | Visa and application fees, flights, deposits, laptop, winter clothes |
| Currency | Allow for the rupee weakening. The same fees can cost more rupees by the time you pay |
| Cushion | An extra 10% or so for what you couldn’t predict |
The documents banks ask for
- Admission letter, fee structure and your course details.
- Mark sheets, entrance and language test scores.
- KYC for the student and co-applicant: PAN, Aadhaar, passport.
- The co-applicant’s income proof: salary slips and bank statements, or tax returns for the self-employed.
- Details of any collateral, with ownership papers and a valuation.
- Your budget for the full course, in a simple table.
How repayment works
Most education loans come with a moratorium: you don’t have to pay EMIs while you study, and for six months to a year afterwards, so you can find a job. It sounds like free time, but interest keeps building up during it. If you don’t pay it, it is added to the loan, and you then pay interest on that interest.
Take a ₹30 lakh loan at an assumed 10% a year, with a 2-year course and a 6-month grace period. That is 2.5 years of interest before the first EMI, which comes to about ₹7,50,000 in simple terms.
| EMI after the course | |
|---|---|
| Interest left to build up, then added to the loan | ₹49,557 |
| Interest paid while studying | ₹39,645 |
| Difference every month | ₹9,911 |
If the family can manage it, paying even just the interest while the student studies keeps the final EMI, and the total cost, noticeably lower. If not, at least know what you are signing up for, so the first EMI after the course is not a shock.
Tax benefit on the interest
Under the old tax regime, the interest you pay on an education loan can be claimed as a deduction, with no upper limit on the amount, for up to eight years starting from the year you begin repaying, or until the interest is fully repaid, whichever comes first. It applies to loans taken for higher studies of yourself, your spouse or your children. It isn’t available in the new regime, and rules change, so check the current position before you file.
A timeline to follow
- As soon as you shortlist universities: check your credit report and your co-applicant’s, and fix anything wrong.
- Before applying: ask two or three lenders about their approved university lists, loan limits and collateral rules.
- On admission: gather documents and apply. Don’t wait for the visa.
- After sanction: ask how and when the money is released. Many banks pay the university directly.
- Before leaving: confirm the moratorium, the EMI start date and how to pay while abroad.
Mistakes to avoid
- Applying at the last minute, when the fee deadline is days away.
- Borrowing only for tuition and then taking a costly personal loan for living costs.
- Ignoring the interest that builds up during the moratorium.
- Choosing a lender only for the interest rate, without checking its list of approved universities and how it releases money.
- Not planning how the student will repay in rupees while earning in another currency.
The bottom line
Education loans reward early, organised families. Prepare your budget for the whole course, keep your credit clean, and ask lenders the right questions before you commit. And remember that the loan has to be repaid from the student’s first salaries, so be realistic about the amount. If you would like help comparing lenders for your course and country, we can do that for you before you apply.
Questions readers ask
It depends on the lender, the course, the university and the co-applicant’s income. Many lenders fund a large part of tuition and living costs, and some offer collateral-free loans up to a limit. Above that limit, expect to offer security such as property.
Not always. Smaller loans, and loans for admission to top institutions, can be given without collateral. Larger loans usually need security. Ask each lender for its rule.
Usually a parent, guardian or spouse with a steady income and a good credit score. The co-applicant is equally responsible for repaying the loan.
Usually after the course ends, with a grace period of six months to a year, or when you start earning, whichever comes first. Interest builds up in the meantime, and paying it during the course lowers your final EMI.
Yes, and that is the normal sequence. Most lenders need the admission letter. Apply as soon as you have it, so the sanction comes before your fee and visa deadlines.
