Education loans have become a normal part of student life in India, but many learners sign the documents quickly, focusing only on admission, visa, or the next semester fee. They often realise much later how much they actually owe and how long repayment will affect their choices. This note aims to help students understand how these loans work and how to avoid getting trapped in unnecessary debt.

In India, education loans are mainly provided by public sector banks, private banks, and nonbank financial companies. Most products share common features: a loan amount that typically covers tuition and may also include hostel fees, exam charges, books, a laptop, or foreign trips; a principal amount on which interest is calculated; and an interest rate that may be fixed or floating. A parent or guardian usually joins as coborrower, their income and credit record influencing both approval and pricing. Smaller loans for domestic courses may not require collateral, but larger loans, especially for higher education, often need property or fixed deposits as security. Lenders may also ask for margin money, where the family contributes a small percentage of the total cost, and they specify a tenure that usually spans the study years plus several years of repayment.

Two aspects tend to confuse students the most: interest and moratorium. The interest rate is the price paid for using borrowed money, and even a small difference can matter over seven to ten years of repayment. A moratorium period, covering the course duration and a short time after, is often misunderstood as a “free” period. In reality, in most loans interest continues to accrue during this time. In some cases, simple interest is charged during the moratorium and added to the principal later; in others, interest is added periodically to the outstanding amount, increasing the burden. If a student borrows for a twoyear course and pays nothing during that period, the amount to be repaid after graduation can be substantially higher than the original loan. Whenever feasible, paying at least the interest during study can significantly reduce future EMIs.

A better approach is to compare a few options on key points: look beyond the headline interest rate and ask about processing fees, documentation charges, bundled insurance, prepayment penalties, and late fees. Clarify whether the rate is fixed or floating and which benchmark it follows. Understand the moratorium terms what, if anything, must be paid during the course and when full EMIs begin. Check repayment flexibility, such as maximum tenure, stepup EMI options, and rules around early closure. Know at what loan amount collateral is required, what forms of security are accepted, and how the coborrower’s profile affects terms. Lastly, ask what support is available if there is a delay in getting a job or if income is lower than expected. Before signing, every student should be able to answer three simple questions in their own words: roughly how much will be repaid in total, what the first year’s EMI will look like, and what happens if a few EMIs are missed.

Some practices can push students towards debt traps. Offers promising instant approval with minimal explanation may hide higher interest, heavy fees, or unnecessary bundled products. Phrases like “zero cost” or “no interest during study” may conceal charges in other components. Pressure to sign immediately, with claims that an offer is available “only today,” is a red flag. Adding a parent or relative as coborrower is not just a formality; any default can damage their credit history and future borrowing ability. Overborrowing, taking the maximum sanctioned amount rather than what is genuinely needed can lead to EMIs that restrict life choices later. Debt problems usually build slowly from small, uninformed decisions taken at the beginning, not from a single event.

Used wisely, an education loan can be a sound investment in one’s own skills and future earning power. Responsible borrowing means matching the loan amount to realistic career prospects, estimating future income, and avoiding piling other consumer loans on top of education EMIs. Helpful habits include tracking monthly expenses while still studying, paying at least the interest during the moratorium if the family can manage it, and communicating early with the lender if repayment difficulties are likely.

As a faculty member who interacts with students regularly, I see both the opportunities and the pressures created by education loans. They make quality programmes and better campuses accessible, but they can also become a source of stress when the terms are not fully understood. At Ramaiah Institute of Management Studies, Gokula, Bengaluru, we regularly engage with students planning higher studies and observe how informed financial choices can ease their academic journey. Before signing any loan document, students are encouraged to discuss the details with their families, read the terms slowly, ask all their questions, and, when needed, seek guidance from a faculty member or financial counsellor so that today’s decision supports tomorrow’s peace of mind.

For more details and support visit: https://rimsbangalore.in/