According to industry experts, lenders assess all relevant risks before approving education loans, evaluating students' future repayment capacity based on institutional reputation, course selection, and placement records. The credit profile of parents or co-borrowers is one of the key factors in loan applications, as reported by Business Standard. If the co-borrower has poor credit scores, weak repayment history, or high existing liabilities, lenders may reject applications regardless of academic credentials or institutional reputation. The lender also assesses the co-borrower's income and overall repayment capacity before making decisions.
Education loans typically cover tuition fees, books and study materials, hostel charges, travel expenses for overseas education, and essential academic expenses including mandatory equipment. Banks prescribe loan limits that vary for domestic and overseas studies, with funds generally disbursed against actual expenses after students submit bills, invoices, or supporting documents. As reported by Business Standard, some education-focused lenders may finance up to 100% of total education costs for eligible borrowers, making it important to compare loan terms carefully before applying.
The applicable interest rate depends on factors including the applicant's profile, co-borrower's creditworthiness, course selection, institution, and loan amount. Borrowers should check whether the loan carries a fixed or floating rate and compare overall borrowing costs across lenders rather than relying solely on headline interest rates, according to Business Standard. Education loans are not automatically more lenient than other loans, and every missed payment is reported to credit bureaus, affecting both students and co-borrowers.
Many students misunderstand margin money requirements, which is the borrower's share of total education costs while lenders finance the rest. The requirement varies by lender, loan amount, institution, study destination, and credit policy, as reported by Business Standard. Collateral is not mandatory for all education loans - lenders decide based on credit policy considering loan amount, applicant profile, course, and institution. Collateral serves primarily as a risk-mitigation tool rather than the sole determinant of loan approval.
Only the interest paid qualifies for tax deduction under Section 80E, not the principal amount, available for a maximum of eight years from repayment start or until interest is fully repaid, whichever is earlier, according to Business Standard. The moratorium period is often misunderstood as a repayment-free period, but while EMIs are deferred, interest typically continues to accrue during this time. Some lenders allow borrowers to pay interest during moratorium to reduce overall loan costs.
