The Pros and Cons of Taking Education Loans

In today’s rapidly evolving world, education plays a vital role in shaping our professional paths and opening doors to countless opportunities.

However, the rising cost of education often poses a significant financial barrier for many individuals. This is where education loans come into the picture, offering a way to finance higher studies and bridge the gap between aspirations and affordability.

In this article, we’ll cover:

  • Advantages of education loans
  • Disadvantages of education loans
  • Factors to consider before taking a loan
  • FAQs about education loans in India

What Is an Education Loan?

An education loan helps students and families finance tuition, hostel, travel, and other costs for higher education. This included both in India and abroad. Most loans offer flexible repayment options, and some come with tax benefits under Section 80E.

Use our 👉 College Cost Calculator to estimate how much you’ll need.

Advantages of taking an education loan

Education loans offer several advantages that make them a viable option for individuals seeking financial assistance to pursue higher education. Here are some key advantages to consider:

AdvantageWhat it Means
Access to Quality EducationMakes it possible to study in top universities without upfront funds.
Flexible Repayment OptionsRepay after graduation or opt for EMIs suited to your income.
Builds Credit HistoryTimely loan payments improve your credit score.
Tax BenefitsInterest on education loans is tax-deductible in India (Section 80E).
Less Financial Pressure on ParentsReduces immediate financial stress on your family.
  1. Accessibility to Education: Education loans make education accessible to a broader range of students who may not have the immediate financial means to fund their studies. By providing funds to cover tuition fees, books, accommodation, and other related expenses, education loans enable individuals to enroll in desired courses and institutions.
  2. Flexible Repayment Options: Most education loans offer flexible repayment options, allowing borrowers to start repayment after completing their studies or opt for affordable installment plans. This flexibility provides students with the necessary time and resources to focus on their education and secure employment before beginning loan repayments.
  3. Building a Positive Credit History: Taking an education loan and making timely repayments can help individuals build a positive credit history. This can be advantageous in the future when applying for other financial products, such as mortgages or car loans, as lenders often consider creditworthiness.
  4. Potential Tax Benefits: In some countries, education loan interest may be tax-deductible, offering potential tax benefits for borrowers. This reduces the overall cost of borrowing and provides additional financial relief.
  5. Focus on Education: By obtaining an education loan, individuals can focus on their studies without the constant worry of managing immediate financial obligations. This allows students to dedicate their time and energy to academic pursuits, maximizing their learning experience and increasing their chances of academic success.

Disadvantages of taking an education loan

While education loans provide an avenue for individuals to finance their education, it is important to consider the potential disadvantages that come with borrowing. Here are some key points to be aware of:

DisadvantageWhat it Means
Debt BurdenRepaying large loans can take years.
Interest AccrualInterest adds up over time, increasing total repayment.
Repayment PressureEMIs may affect your ability to save or invest.
Risk of DefaultMissed payments hurt your credit score and financial health.
Limited Career FlexibilityYou may feel forced to take higher-paying jobs to repay loans.
  1. Accumulating Debt: Taking an education loan means accumulating debt that needs to be repaid. Depending on the amount borrowed and interest rates, this debt burden can be significant and may take years to pay off, impacting an individual’s financial situation for an extended period.
  2. Interest Accrual: Education loans typically accrue interest over the repayment period, adding to the overall cost of borrowing. Higher interest rates can significantly increase the total amount repaid, making education more expensive in the long run.
  3. Repayment Obligations: Loan repayments can be a financial burden, especially for individuals who are just starting their careers or facing other financial obligations. Monthly loan payments can limit financial flexibility, affecting one’s ability to save, invest, or pursue other life goals, such as homeownership or starting a business.
  4. Risk of Default: Failing to meet loan repayment obligations can lead to serious consequences, including damage to credit scores and potential legal action. Defaulting on an education loan can have long-lasting effects on an individual’s financial health and future borrowing opportunities.
  5. Dependency on Income: Loan repayments are often tied to income, which means that individuals may be required to allocate a significant portion of their earnings toward loan repayment. This dependency on income can limit career choices and job flexibility, as individuals may feel compelled to prioritize higher-paying jobs to meet their repayment obligations.

Education Loan Interest Rates in India

LenderInterest Rate (Approx.)Loan Type
SBI8.5%–10%Domestic/Abroad
HDFC Credila11%–13%Abroad
ICICI Bank9.5%–11%Domestic/Abroad

Considerations for Taking an education loan

Before committing to an education loan, it is essential to consider various factors to ensure a well-informed decision. Here are some key considerations to keep in mind:

  1. Financial Planning: Evaluate your current financial situation and future earning potential. Create a budget to determine the amount you can comfortably borrow and repay without compromising your financial stability.
  2. Alternative Funding Options: Explore scholarships, grants, part-time work, or employer-sponsored education programs as alternatives to borrowing. These options can help reduce the amount of debt you need to take on.
  3. Loan Terms and Conditions: Thoroughly research and compare loan options from different lenders. Pay attention to interest rates, repayment terms, fees, and any hidden charges. Understand the implications of deferment, forbearance, or early repayment.
  4. Future Career Prospects: Consider the potential return on investment(Go for step up SIP) for your chosen field of study. Research the job market and earning potential to ensure that your education loan is aligned with your future career prospects.

Ultimately, by carefully considering the advantages and disadvantages, individuals can make informed decisions and strike a balance between financing their education and managing their long-term financial well-being. 

When approached responsibly, education loans can be a valuable tool in achieving academic dreams and building a brighter future.

Have a look at education inflation rate in india.

Alternatives to Education Loans in India

Taking an education loan isn’t your only option. Honestly, sometimes borrowing money just adds stress. Good news? There are other ways to pay for college without loading up on debt. Here’s what I mean:

1. Scholarships and Grants

Think of scholarships like a gift. You don’t have to pay them back.

When I was applying for my MBA, I spent a whole weekend just looking up scholarship options. It felt boring, but guess what? It saved me almost ₹1.5 lakh.

Where to look:

  • College websites
  • Government portals like National Scholarship Portal
  • Private organizations and NGOs

2. Family Savings and SIPs

If your family started saving early, even small amounts add up. Kind of like filling a bucket, one drop at a time.

Example:

  • ₹5,000/month SIP invested for 10 years
  • At 12% return, that’s over ₹11 lakh. Enough to cover tuition at many colleges in India.

3. Part-Time Work and Freelancing

When I was in college, a friend of mine earned ₹20,000/month just from freelance writing. No loan needed.

Options:

  • Internships
  • Online work (design, writing, coding)
  • Tutoring juniors

Sure, balancing work and study isn’t easy. But even earning ₹10,000–₹15,000/month can cover books, rent, and food.

Pros of Taking an Education Loan from EduFund

BenefitEduFund Offers
🎓 Wide CoverageTuition, living, travel, and books – all covered
Quick ApprovalsGet approval in as little as 72 hours
💰 Flexible RepaymentStart EMIs post-graduation
🌍 Global CoverageLoans for top colleges in India & abroad
📱 100% OnlinePaperless process from application to sanction
  1. Accessibility to Education: EduFund’s education loans make higher education accessible to a wider range of students by covering not only tuition fees but also living expenses, travel costs, and study materials. This comprehensive coverage ensures that students can focus on their studies without financial stress.
  2. Flexible Repayment Options: EduFund offers flexible repayment plans that allow borrowers to start repayments after completing their education. This flexibility helps students manage their finances better as they transition into the workforce, giving them time to secure employment before beginning to repay their loans.
  3. Quick Approval Process: EduFund prides itself on a streamlined online application process, with approvals often granted within 72 hours. This efficiency allows students to secure funding quickly, ensuring they can meet admission deadlines and other financial commitments
Education loans

FAQs

What is the interest rate for education loans in India?

Interest rates vary between 8%–13% depending on the lender, course, and collateral.

Do I need a co-signer or collateral?

Yes, most lenders require either a co-applicant (usually a parent) or collateral for loans above ₹7.5 lakhs.

Can I get a loan for studying abroad?

Absolutely. EduFund partners with top lenders offering loans for UG, PG, MBA, and STEM courses abroad.

When do I start repaying my education loan?

Repayment usually begins 6–12 months after graduation (called the moratorium period).

Is the loan interest tax-deductible?

Yes, under Section 80E of the Income Tax Act, you can claim a deduction on interest paid for up to 8 years.