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How Do Student Loans Work?

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Created on
May 24, 2023


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Higher education still remains exclusive to few. MBAs or other Master's level programmes from many reputed institutions can cost lakhs of rupees, making them quite inaccessible to most people. Banks and other financial establishments try to solve this problem by granting student loans for college tuition and other fees, accommodations, living expenses, books, study materials, etc. If you are curious about how student loans work, read ahead.

Facets of Student Loans

Student loans are not hard to get. However, many factors come into play when considering a student loan. It is better to have a complete understanding of how private student loans work before proceeding to take one for yourself.


First and foremost is the matter of eligibility. To be eligible for a student loan in India, you must be an Indian citizen. You must also be admitted to a recognised university in India or abroad. Most lenders don’t provide student loans unless you have already been admitted to an educational institution. Other requirements for the loan include minimum academic qualifications and, at times, a certain age limit.

Co-applicant and Collateral

Knowing how student loans work for the UK and other international destinations is important. A co-applicant is needed in most cases, especially when student loans are taken to study abroad. Usually, a parent or guardian will be jointly responsible for the loan repayment. Additionally, banks require collateral or security against the loan too. This can be in the form of property, fixed deposits, or other assets.

Loan Amount and Interest Rates

The loan amount and the interest rate greatly vary based on the lender of your choice. Student loan interest rates can be either fixed or floating. However, the borrowing sum depends on the course you are enrolling in and the institution you will attend. The funds are disbursed directly to your educational institution to cover tuition fees and other related expenses. However, you are given a portion of the loan for other expenses, such as books, accommodation, living costs, etc.

Moratorium Period

The moratorium period of a student loan is when you are not required to make any principal or interest payments. The moratorium period plays an important role in understanding how student loans work. It helps you focus on your education without worrying about loan repayment. It typically begins after the completion of the course. In some cases, an additional grace period of a few months is given to students to secure a job. However, some lenders may require interest payments or small EMIs during the study period.

Process of Getting a Student Loan

After researching your loan options and understanding their eligibility criteria, interest rates, repayment terms, etc., you must select a lender. You must present the lender with your mark sheets and passing certificates to get a student loan. Other than these, an admission letter from the respective college or university is necessary too. 

Other details like the fee structure of the course and your and your co-applicant's KYC details are also required. Once you fill out the loan application, the loan processing and approval might take a few weeks. The loan amount is disbursed to your designated bank account or educational institution.

Wrapping Up

In conclusion, student loans are an excellent way to finance their higher education dreams. It's not easy to get a student loan, but you can make the process smoother with a complete understanding of eligibility criteria, interest rates, loan amounts, and other factors. 

With the right approach and a clear understanding of the loan terms, students can obtain the financial support they need to achieve their educational goals. Fi Money provides instant loans that arrive directly in your account. These are pre-approved personal loans made available to select users with good credit scores. 

On Fi, this process is 100% paperless, and the loans are provided at competitive interest rates — where each user remains in control with complete visibility of all details. Plus, you can avoid EMI late fees by setting up automatic in-app payments. Our licensed partner bank assigns an eligible loan amount to each user (up to ₹5 lakhs).

Frequently Asked Questions

How long does it take to pay off student loans on average? 

This largely depends on several factors like the loan amount you have taken, interest rate and repayment plan. These determine how long it would take for you to pay off your student loan. However, banks and other financial institutes typically offer up to 10-15 years of repayment.

What happens if you don't pay your student loans?

Defaulting on student loans in India can have serious consequences. Additional charges and penalties may be levied upon you. Not paying the loan instalments will hurt your credit score. You won't be able to get loans in the future because of it. Legal action can also be taken against you by the lender.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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