Education Loans in India

How education loans work in India, including collateral rules, interest subsidies, the PM Vidyalaxmi scheme and the tax deduction on loan interest.

Higher education can be expensive, especially professional courses and study abroad. Education loans help many students pay fees and living costs.

How education loans work

Loans cover tuition, hostel fees, books, laptops and sometimes travel for study abroad.
Students are usually the main borrowers, with parents or guardians as co-borrowers.
There is typically a moratorium: repayment starts after the course ends plus a grace period, often six months to a year.
Interest usually accrues during the course and moratorium.

Collateral

Smaller loans can often be taken without collateral, supported by a government credit guarantee scheme for education loans.
Larger loans usually need collateral, such as property or fixed deposits.

Interest subsidies

The Central Sector Interest Subsidy Scheme covers interest during the moratorium for students from lower-income families studying in India.
PM Vidyalaxmi, launched in 2024, offers collateral-free, guarantor-free education loans to students admitted to top-ranked higher education institutions, with an interest subvention for students from families below an income threshold.

Applying

The government’s Vidya Lakshmi portal lets students apply to multiple banks and for government schemes in one place.

Tax benefit

Under the old tax regime, interest paid on an education loan can be deducted from taxable income under what was Section 80E, with no upper limit, for up to eight years from when repayment starts.

Borrow wisely

Borrow only what you need.
Compare interest rates and fees.
Consider how your expected earnings after the course compare with repayments.
Pay interest during the course if you can, to reduce the total cost.

The engineering loan

A student admitted to a top engineering college takes a collateral-free loan under PM Vidyalaxmi. Because her family's income is below the threshold, she receives an interest subvention. She starts repayment after graduating and getting a job.

Thinking education loans have no cost until you start repaying

Interest usually accrues during the course and moratorium, increasing the total amount owed.

Key takeaways

Education loans cover fees, living costs and equipment, with a repayment moratorium.
Smaller loans may be collateral-free with government guarantees.
PM Vidyalaxmi (2024) offers collateral-free loans for top institutions with interest subvention.
Interest on education loans is deductible under the old tax regime for up to eight years.