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Education Loan Benefits : Advantages, Tax Benefits and Key Features
Education fees in India and abroad have risen fast, and few families can pay them all at once. That is where education loans and their benefits come in. A well-chosen loan spreads the cost over years, gives tax relief, and lets the student start building a credit record early. This guide explains what an education loan is and walks through its key benefits, from moratoriums and tax deductions to government subsidies and collateral-free options. It also covers extra perks for study abroad, how the loan compares with a personal loan or savings, the downsides to watch for, who benefits most, and how to get the best deal.
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Table of Content
What Is an Education Loan?
An education loan is money borrowed to pay for higher studies after Class 12, in India or overseas. Banks, NBFCs, and some government-backed schemes offer it. The student is the main borrower, and a parent or guardian usually joins as a co-applicant. Most loans follow the Indian Banks’ Association model scheme, which sets common rules on costs covered, security, and repayment. Knowing these rules makes it easier to see the real education loan benefits.
Key Benefits of an Education Loan
The main education loan benefits are listed below. Each one adds to the overall advantages of borrowing an education loan over other options.
Covers Tuition Fees and Other Education Expenses
A loan pays for much more than tuition. Under the IBA model scheme, banks also cover exam, library, and lab fees, books, equipment, a laptop if the course needs one, travel for studies abroad, student insurance, and refundable deposits. This keeps a student from scrambling for money halfway through a course.
Moratorium Period: Repay After Completing Your Studies
No EMI is due while the student studies. The education loan moratorium period usually lasts for the course period plus one year. Education loan repayment then runs in EMIs for up to 15 years. Students who pay even the interest during this period cut their total cost.
Competitive Interest Rates Compared with Personal Loans
Education loan interest rates are usually lower than personal loan rates. SBI’s Student Loan, linked to its external benchmark of 8.15%, costs 10.15% up to ₹7.5 lakh without collateral and 9.65% above that with collateral, from October 15, 2026. Its Scholar Loan for select institutes starts at 7.15%. Personal loans, in comparison, can run from about 10% to 24%.
Tax Benefits on Education Loan Interest Under Section 129
The Section 80E tax benefit on an education loan interest now sits in Section 129 of the Income Tax Act, 2025, which replaced the old law from April 1, 2026. The rules stay the same.
- You can deduct all interest paid in a year, with no upper limit.
- The deduction runs for the year repayment starts and seven more years.
- Only interest counts, not principal.
- The loan must come from a bank, financial institution, or approved charity.
This deduction is available only under the old tax regime. Someone in the 30% slab who pays ₹1.5 lakh in interest saves about ₹45,000 a year, plus cess.
Government Interest Subsidies for Eligible Students
Two central schemes reduce costs for lower-income families. The Central Sector Interest Subsidy pays the full interest during the moratorium for students with family income up to ₹4.5 lakh, on loans up to ₹10 lakh for technical or professional courses. This is the closest thing to an education loan at a zero interest rate during the study years.
PM Vidyalaxmi gives a 3% interest subvention during the moratorium for families earning up to ₹8 lakh, on loans up to ₹10 lakh, at top-ranked institutions. SBI prices PM Vidyalaxmi loans at 7.15%.
Helps Preserve Family Savings and Investments
Paying fees from savings can drain an emergency fund or force parents to break fixed deposits and mutual funds early. A loan lets that money stay invested. This is one of the most practical student loan benefits, since family wealth keeps growing while the loan is repaid, and it is among the education loan benefits parents value most.
Helps Students Build a Credit History
An education loan is often a young person’s first line of credit. A clear student loan advantage is that timely EMIs build a CIBIL record, which helps later with car, home, or personal loans. Missed payments hurt the score just as quickly.
Longer Repayment Tenure and Flexible Repayment Options
A tenure of up to 15 years after the moratorium keeps EMIs manageable for a fresh graduate. The IBA scheme carries no prepayment penalty. One benefit of refinancing student loans is the chance to move to a cheaper lender once the student has a stable job. SBI, for example, takes over existing education loans above ₹10 lakh.
Collateral-Free Education Loan Options
Banks give an education loan without collateral up to ₹7.5 lakh under the IBA model scheme, backed by a government credit guarantee. PM Vidyalaxmi offers collateral-free and guarantor-free loans at listed top institutions, with a 75% government guarantee on loans up to ₹7.5 lakh. SBI’s Global Ed Vantage lends up to ₹50 lakh without collateral for select foreign universities.
Interest Rate Concessions for Female Students
Many banks run women education loan schemes with a rate cut. SBI gives girl students a 0.50% concession on its Student Loan and Global Ed Vantage loans. On a ₹10 lakh loan, that small cut saves several thousand rupees over the tenure, which adds to the education loan benefits for women.
Benefits for Study Abroad Specifically (Proof of Funds, Pre-Visa Disbursement, Lower TCS)
Student loans for international students carry a few extra advantages of education loan financing.
- Proof of funds: Banks issue a sanction letter before the visa interview, which many embassies accept as proof of funds.
- Pre-visa disbursement: Some lenders release part of the loan before the visa is granted to pay deposits or first-term fees.
- Lower TCS: From April 1, 2026, foreign remittances for education paid from an education loan by a bank or notified institution carry no TCS. Self-funded payments above ₹10 lakh a year attract 2% TCS.
Education Loan vs Personal Loan vs Using Savings: Side-by-Side
The table below compares the three common ways to fund a degree. For most students, these education loan benefits make the loan the cheaper and safer route.
| Factor | Education Loan | Personal Loan | Using Savings |
| Cost | About 7% to 11% at banks | About 10% to 24% | Lost returns on savings |
| EMI during study | None, during moratorium | Starts next month | None |
| Tenure | Up to 15 years after moratorium | Usually up to 5 to 7 years | Not applicable |
| Tax benefit | Interest deductible under old regime | None | None |
| Collateral | Not needed up to ₹7.5 lakh | Not needed | Not needed |
| TCS on foreign fees | Nil | 2% above ₹10 lakh | 2% above ₹10 lakh |
The Downsides Nobody Mentions: Interest Capitalisation, Co-Applicant Liability, Currency Risk
Every loan has a cost, and these three can eat into education loan benefits if you ignore them.
- Interest capitalisation: Interest keeps running during the moratorium. If unpaid, it is added to the principal when EMIs start, so the loan grows before repayment begins.
- Co-applicant liability: The co-signer is equally responsible. A missed EMI hurts the parent’s credit score too.
- Currency risk: A loan in rupees for study abroad is fine, but if the student earns in rupees after returning, a weak rupee makes the original costs feel heavier. Loans taken in foreign currency face the reverse risk.
Who Can Benefit Most from an Education Loan?
The education loan benefits are strongest for these groups.
- Students from families earning up to ₹4.5 lakh or ₹8 lakh who qualify for interest subsidies.
- Students admitted to top-ranked institutes, who get lower rates and collateral-free loans.
- Families who pay tax under the old regime and can use the interest deduction.
- Students going abroad, who save on TCS and need proof of funds.
- Parents who prefer to keep savings invested.
How to Maximise the Benefits of an Education Loan
A few steps help a borrower get the most from education loan benefits.
- Apply through the PM Vidyalaxmi portal to check schemes and compare banks.
- Ask about concessions for girl students or premier institutes. SBI offers 7% to IIT, IIM, and similar students till December 31, 2026.
- Pay at least the interest during the moratorium to stop it from adding up.
- Keep interest certificates every year to claim the tax deduction.
- Revisit the rate after landing a job. The benefits of refinancing student loans are biggest when the outstanding amount is still large.
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Reviewed ByLast Updated: 3rd November 2026
Frequently Asked Questions (FAQ's)
What are the main benefits of an education loan?
The main education loan benefits include coverage of tuition and living costs, no EMI during studies, lower rates than personal loans, a tax deduction on interest, and a chance to build credit early.
How much tax can I save on an education loan?
There is no cap. Under the old regime, you can deduct the full interest paid in a year for up to eight years. In the 30% slab, Rs 1 lakh of interest saves about Rs 30,000, plus cess.
Is the principal repayment of an education loan tax deductible?
No. Only the interest is deductible. The principal does not qualify.
Is an education loan cheaper than a personal loan?
Usually yes. Bank education loans cost about 7% to 11%, while personal loans can go up to 24%. Education loans also give a tax deduction and a moratorium.
Does an education loan help build a credit score?
Yes. Timely EMIs build a credit history from a young age. This one student loan advantage helps when applying for bigger loans later.
Can parents claim the tax benefit on a child's education loan?
Yes, if the parent is the borrower and pays the interest. The deduction covers loans for self, spouse, children, or a student under legal guardianship.
Does an education loan reduce TCS on foreign remittances?
Yes. From April 1, 2026, remittances funded by an education loan from a bank or notified institution carry no TCS. Self-funded payments above Rs 10 lakh attract 2%.
What are the disadvantages of taking an education loan?
Interest adds up during the moratorium, the co-applicant is equally liable, and the debt starts right after graduation. Weighing these against the benefits of a student loan helps families borrow only what they need.
Who is eligible for government interest subsidy on education loans?
Students with family income up to Rs 4.5 lakh get full interest subsidy during the moratorium under CSIS. PM Vidyalaxmi provides a 3% subvention for incomes up to Rs 8 lakh at listed institutions.
