10 Myth vs Facts About Education Loan You Must Know

    Updated on: 07 Sep 2023

    Myths vs Facts about Abroad Education Loan

    Education loans help students to succeed in their careers by providing financial security while studying. In India, the total amount of education loans disbursed is increasing every year - it was INR 17,000 Cr in 2022 - 23, an increase of INR 1,000 Cr from INR 16,000 Cr in 2021-2022.

    As the scope is expanding, being informed is crucial if you are planning to finance your studies through a loan. One of the challenges for you is to identify the myths around them and figure out the facts. Here, we have compiled the top myths regarding education loans with corresponding facts to guide you through the process.

    1. Self-funding is better than education loans

    Many believe that self-funding is better than education loans. In fact, it can be a harrowing experience to exhaust the savings, sell the land, vehicle, or other properties, mortgage gold, or borrow from friends and relatives. An education loan keeps your savings intact for family or medical emergencies.

    An education loan is financially better than self-funding for the following reasons:

    • Interest benefits: You can invest your savings and earn interest, other than spending it at one shot to finance your studies. 
    • Tax benefits: According to the new TCS rules, self-funding has a 5% tax on the amount, while the same for education loans is 0.5%. There is a tax subsidy for the interest you pay for an education loan under section 80 E of the Income Tax Act.

    2. You need to always pledge collateral

    Students can get an education loan with or without collateral from different lenders. Education loans without collateral are provided against the co-borrower earnings and the student’s profile. Such loans amount to INR 40 - 50 Lakhs (INR 75 Lakhs for STEM degrees in the US) and cover 100% of the expenses with Simple or Partial Simple Interest payment during the moratorium period. 

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    3. You must have a credit history

    Many consider that having no credit history, hence no CIBIL scores, make them ineligible for an education loan. It is not true since many lenders opt for a student-friendly approach. Academic merits, future earning potential, entrance exam results, and the co-borrower’s income are scrutinized to provide education loans for students with no credit history. 

    4. Only the tuition fee is covered by education loans

    An education loan covers your academic and living costs, including the tuition and other fees, study materials, equipment, travel expenses, rent, food, etc. You will be providing proof for all the categories of funding. See the expenses covered by an education loan for more details. 

    5. No concerns about repayment while studying

    Since many lenders demand no repayment during the moratorium holiday (course years plus 6 - 12 months), students are often not concerned about repayment while they are studying. The interest is applicable for the moratorium period, and it will be accrued to the principal loan amount. It is better to start repaying the education loan while studying, even if there is no pressure from the lender’s side.

    6. Education loans fund only higher studies

    Education loans are available for varied academic and professional goals. They fund higher education, vocational training, and upskilling courses for students, working professionals, and anyone eligible. You must explore the offerings by different lenders for an education loan catering to your needs. 

    7. You and your friend can get the same education loan

    Education loan options available are not the same for all students but customized on a case-to-case level. Many factors, such as academic merit, university, course, country of study, entrance test scores, co-borrowers income, etc., influence the availability of education loans. 

    8. Co-applicant is always required for education loans

    A co-applicant is mandatory for an education loan from most lenders in India. Since the student would not be earning while applying for an education loan, it is provided against the financial assurance of the co-borrower income. The co-borrower must be a blood relative of the student, like the father, mother, or sibling.

    However, there are exceptions for international lenders like Prodigy Finance and MPOWER Financing, who do not require collateral or co-borrower for education loans. Also, education loans for working professionals often require no co-borrower since the applicant will be financially strong. Like experience based product of ICICI Bank, wheer applicants with minimum of 3 years of work experience can apply for education loan without any financial co-applicant. 

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    9.The education loan process is lengthy

    The processing time for education loans is not long if you submit the documents on time. NBFCs and international lenders take less than a week to process your loan application, while it is 14 days for private sector banks and up to 30 days for public sector banks. Often the lenders prioritize your case if your university fee deadline is around the corner.

    10. Repayment conditions are rigid for education loans

    Education loan repayment conditions are flexible and comfortable for students. Typically, 10 - 15 years are available for repayment that can be cut short or extended, and accordingly, you can plan the repayment. You can get the tax benefits in interest up to 8 years of their education loan repayment.

    In short, education loans are a great help, but securing one requires you to cross-check the facts before believing in them. 

    Don’t let yourself lose the opportunity to apply for an education loan just because you lack many things your friend or neighbor has. Explore the options, apply for the right one, and confidently kickstart your academic pursuits. Check your education loan eligibility with us and get guidance throughout the process.

    Read also:

    Frequently asked questions

    Is it wise to take an education loan? 

    An education loan offers you a higher amount with affordable interest rates, repayment holidays, longer tenure, and tax benefits. It lets you be financially independent while studying, without troubling your parents. These make an education loan a wise choice for students who are looking for safe financial options.

    Is it good to pay the education loan interest early? 

    Yes, it is good to pay the education loan interest early. It will improve your lender’s trust, and many lenders, like the Bank of Baroda, offer an additional interest subsidy (of 0.5%, typically) for those students who repay the interest early. 

    Are secured education loans better than unsecured ones? 

    Secured and unsecured education loans are better, depending on your situation and preferences. If you don’t have collateral, unsecured education loans will help you. On the other hand, collateral security increases your chances of getting an education loan from public and private sector banks that can be preferred for interest concessions, subsidy, and tax benefits.

    Is an education loan a risk for the borrower? 

    Education loans are not risky if you pay back the EMIs timely and make no default. If you miss payments, it will have a negative impact on your credit score. If the loan turns out to be a default, you will face issues in your future transactions. 

    Can I get a 100% education loan? 

    Yes, you can. Many Indian and international lenders, such as NBFCs, provide a 100% coverage of your expenses if you meet their eligibility requirements. 

    Do banks provide 100% coverage in education loans? 

    Typically, education loans by public and private sector banks do not cover 100% of the expenses. There will be a 5% - 15% margin money that the student must find.

    First published date: 16 Aug 2023

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Sahil Sahil khan

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GyanDhan is India's first education financing marketplace.

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