How does a student loan work?

Quality of education is necessary for a successful life. Graduating from a top college is one way to have a secure career. Statistics show that in the last 15 years, education costs have increased by 15℅ per year. Fifteen years back, the cost of studying MBA was 2.5Lakh, and in 2022, the cost will be more than 20 Lakh. To provide quality education, most parents are seeking loans.


Types of courses covered under the loan


Suppose you’re pursuing full-time or part-time graduation and post-graduation in management, engineering, commerce, medical, journalism, design, etc. Congratulations, you can apply for a loan.


Eligibility, documents required.


There is some factor that banks consider while giving you a loan:

  • Students who are applying for the loan should be Indian citizens.
  • The college in which the applicant will take admission ought to be authorized by India.


There is no upper age limit for applying for a loan as per RBI guidelines, but some banks may have it.


Banks demand documents such as a letter of admission, fees structure of the college, parents’ income certificate, permanent address, passbook, Aadhaar card of the applicant, and bank account details. They can also ask for their educational background, which includes class Xth or Xiith mark sheet.


A Co-applicant is necessary for applying for the loan. It can be your parents, spouse, or guardian.


Loan financing and collateral


In this scheme, students can get loans up to 4 Lakh. There is a moratorium period for this scheme which is one year or six months after the completion of the course ( it can be extended to 5 to 7 years).


The interest rate for the loan is 4℅, but there is a special provision for women, disabled people, and transgender people. The interest rate is only 1℅.


If you want to take a loan above 7.5 Lakh, the bank needs your house, property, insurance, or fixed deposit as collateral.


Repayment policy


After the end of the moratorium period, loans less than 2 Lakh can be paid maximum in 60-month installments, and more than 2 Lakh can be paid maximum in 84 months installments. If students pay before the maximum period, they will get a discount of 0.25℅ on their loan.


If a borrower or, in this case, a student fails to back the loan because of no income source, then their loan repayment will be adjourned, but the student has to submit the letter to the DRCC office at the end of December, which includes due to there is no income source.


If they fail to submit the letter, the PDR act (Public Demand Recovery Act) will be applied against them.


Benefits under Income-tax Act


Section 80E I-T Act gives a deduction in interest. Applicants can deduct all interest rates from their taxable income. The maximum time for which deduction is valid is up to 8 years.


How to apply for an education loan?


  1. To apply, one must fill out the application form in which you need two passport-size photos, KYC documents (voter id card, Aadhar card, or PAN card), your signature, and your parent’s income.
  2. When the applicant completes the application form, there is a round of personal discussion in which bank members ask a few questions about the loan.
  3. Before the bank considers your loan, applicants must submit a letter of admission.
  4. A co-applicant is mandatory for the loan approval.
  5. After completing all the processes, the bank will pay the loan to the college directly.




Every child deserves a good life which can be through proper education, and parents work hard to provide the best education for their children. But in some cases, the children do not get the proper education due to a lack of money.


The article will explain to us the concept of lone that will help children to get the education they want. Besides, the article let us know about the different types of lone that a student can pursue in their life to get a proper education. The article also acknowledges the legalities needed to pursue alone. Moreover, the article will acknowledge us with the process of applying for an education loan.

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