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What Is A Student Loan And How Does It Work?

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January 16, 2023


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A student loan or an education loan can help you fulfill your dream of getting that degree in India or abroad. College is expensive, and the one way most aspiring students are dealing with this is by taking a loan. 

Getting a student loan in India is fairly easy. However, before you decide to apply for one, you need to know the finer details of these loans and how they work.

What is a student loan?

Also known as an education loan, a student loan is where the borrower avails a loan from a government or a private lender for the purpose of financing their education. The loan typically covers the basic fee charged for graduation, post-graduation, or other higher education courses. It may also cover other related costs, including accommodation, exam fees, and other charges related to the educational course. 

How does a student loan work?

Typically, the student who is going to be pursuing the course is the main borrower of student loans in India. Parents and guardians may sign on as co-borrowers. Repaying the loan only starts once the student has completed the course. Some banks may also offer a moratorium for a period of 6 months after the course completion date.

Do student loans require collateral?

Education loans or student loans in India can be secured or unsecured. The latter category of loans does not require any collateral, while the former does. Typically, the requirements for collateral and/or third-party guarantee for student loans from banks are as follows:

Tax implications of student loans in India

Student loan interest rates generally predetermined by the lender. The EMIs paid during a financial year for student loans in India qualify for tax benefits. The interest portion of the EMIs paid during the year can be deducted from your total income as per the provisions of section 80E of the Income Tax Act, 1961. There is no limit on the deduction you can claim. So, the total interest paid during a financial year is deductible. This benefit is available for a total of 8 years or until the interest is fully repaid — whichever is earlier.


Before you apply, make sure that you keep the collateral requirements and tax implications in mind. Don’t forget to compare different student loan interest rates to find the best option that works for you!

Frequently Asked Questions

1. What is a student loan in simple words?

A student loan is a of loan where you can borrow money from a private or a public lender to finance your education. Student loans in India can be availed for pursuing education at different levels, including graduation, post-graduation, and other higher education. The principal amount borrowed through a student loan needs to be paid back along with interest accumulated thereon. 

2. Is it worth it to get a student loan?

Depending on the financial circumstances you are in, a student loan can be a good idea. Higher education is an investment, but unfortunately, it can also be quite expensive. A student loan makes it easier to pursue your higher studies so that you can improve your career prospects over the long run. This is why it could be worth it to get an education loan. 

3. Do you have to pay back student loans?

Yes. Student loans or education loans need to be paid back over the repayment tenure chosen at the time of borrowing. Typically, this repayment tenure can go up to around 10 to 15 years, thereby giving you ample time to pay back the principal as well as the interest accumulated. 

4. Do student loans give you the money needed for education?

Yes, student loans are designed primarily to make it easier for students pursuing higher education to gain access to the funds needed to pay for the course. 

5. Can I spend my student loan on anything?

No, the money you borrow via a student loan can only be spent on the fees and costs involved in your education


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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