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10 things to consider before applying for a student loan

Updated: Jun 18, 2021

This topic contains

  1. Tax benefits

  2. Eligibility and documents

  3. Costs covered

  4. Moratorium extension

  5. Prepayment terms

  6. Loan processing time

  7. Total cost over EMI

  8. Services charges

2021 is onboarding and the amount charged by many of the prestigious institutions is shooting the sky. Everyone wants to pursue the best quality of education. However, the financial crisis appears as an obstacle. Education loans play an important role in such scenes as they have easy terms and conditions. Students who manage to decide that an education loan is the next right step in their life are encircled by the innumerable choices provided by various banks. Education loans can turn out to be good only when chosen correctly. So, here are a few things to be considered before applying for an education loan:

  • Interest rate

  • Tax Benefits

  • Eligibility and documents

  • Costs covered

  • Moratorium Extension

  • Prepayment Terms

  • Loan processing time

  • Total cost over EMI

  • Services charges

  • Interest Rates

The most crucial aspect of an education loan is the interest rate charged by the bank as even the smallest difference would result in saving a considerable amount. Get knowledge about floating and a fixed rate of interest, compare these rates charged by the various banks, and choose the most cost-effective alternative.

Tax Benefits

Under Section 80E of the Income Tax Act of India, 1961 the scheduled Indian Banks and other gazetted financial institutions can provide education loans but need to deduct the interest. You can avail yourself of the notion of the tax deduction for 8 years in a row including the year you are granted the loan or till the interest is laid off completely, whichever happens before.

Eligibility and Documents

Banks and financial institutions determine your eligibility to apply for a loan through an evaluation process. It may include a thorough analysis of your academics, co-applicant details, creditworthiness, family income, etc. Disbursement of the loan amount depends on various factors like the university to which you have applied, the nature of the course, and the probability of your employment after course completion. Also, not every bank provides a loan for every other course, so it is advised to check your eligibility beforehand.

Also, you should prepare a checklist of all the required documents so that you have enough time to gather missing documents before your application for the loan. Documents like address proof, photocopies of your mark sheets, photographs, etc are required by the banks. Some of the banks offer loans before you get a call letter from University and some of them don't require you to submit anything as such.

Costs Covered

Disbursement of the amount of loan depends on various factors like co-applicant’s credit history, the reputation of the college, etc. Some banks cover the whole cost of your education, while some of them cover just a portion. Before you apply for an education loan, make sure you know the expenses covered under the loan. This may include your lab fees, tuition fees, library fees, etc.

Moratorium Extension

Banks provide you with a grace period for repayment of the amount which usually ranges between six months to a year after you are done with your course. This prepayment is known as a moratorium. This period is meant to give students a considerable duration to become financially stable to repay the main amount. However, some banks may extend this grace period if you are unable to get a job or due to some unexpected financial commitment. You should be aware of the policies and charges for the extension of the moratorium duration.

Prepayment Terms

The faster you clear the loan, the more you recoup on the interest that collects on your principal. Gain knowledge about your lender asking for any penalty on prepayment. Then, you can plan a strategy for repaying the loan. Read all the terms and conditions of all the lenders before you make a decision.

Loan Processing Time

If you are applying to a foreign university, it becomes mandatory to meet the deadline. You are required to show the loan sanctions letter necessarily as proof of economic resources while applying for a visa and university. It is crucial to know the time needed to process the loan to complete your application.

Total Cost over EMI

Education loans are paid back in EMIs that are disseminated uniformly through the loan term. Some people prefer extended loan tenures to reduce the proportion of the monthly installment. This option is convenient when a short term is considered, though the total expense of your loan will reach higher with every year you add up to your loan tenure. Choose the lender who provides you with the best fate of interest during a loan tenure to make your deal cost-effective.

Service Charges

Apart from the loan, other charges are also applicable. This may include, processing fee, prepayment charges, moratorium extension fee, etc. Avoid any miscommunication and ask them about all of these expenses.


India has numerous banks providing education loans so it is crucial to analyze the terms and conditions of each one of them. Apart from gaining knowledge through the web, it is also advised to discuss issues with people who have already availed of an education loan. Also, compare various packages as per your financial situation and requirements.

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