Education Loan Guide 2026: Eligibility, Subsidy, Tax

An education loan in India covers tuition and related costs for studies in India or abroad, with repayment usually starting after the course plus a moratorium of up to a year. Loans up to ₹7.5 lakh are generally available without collateral, students from families earning up to ₹8 lakh can get interest support under PM-Vidyalaxmi, and the interest you repay is fully deductible under the old tax regime. The biggest cost most families miss is the interest that quietly builds up during the study years.

What an education loan covers

Most bank schemes, based on the Indian Banks' Association (IBA) model education loan scheme, finance:

• Tuition and college fees
• Hostel and accommodation charges
• Examination, library and laboratory fees
• Books, equipment and a laptop where needed for the course
• Travel and passage money for studies abroad
• Caution deposits and building fund, where refundable
• Insurance premium for the student borrower, if offered

The student is the main borrower, with a parent, guardian or spouse as co-borrower. Lenders assess the co-borrower's income and credit score closely, because the student usually has none.

Eligibility basics

• Student: Indian national, with confirmed admission to a recognised course through an entrance test or merit-based selection
• Course: graduate, postgraduate, professional and many diploma courses in India; job-oriented courses at recognised universities abroad
• Co-borrower: an earning parent or guardian with a reasonable credit history
• Margin money: under the IBA model, typically nil for loans up to ₹4 lakh and a small percentage above that (higher for studies abroad); scholarships can count towards it

Collateral rules and loan limits

Some banks and NBFCs offer larger collateral-free loans for students admitted to listed premier institutions in India or abroad, usually at a higher rate. For a list of what banks charge, check each lender's site: rates on many bank education loans are linked to the repo rate, which RBI raised to 5.50% on 7 October 2026.

Government support schemes

PM-Vidyalaxmi

For students admitted to quality higher education institutions (QHEIs) on the scheme list, which the government said covered 1,425 institutions as of mid-2026:

• Credit guarantee: 75% government guarantee on loans up to ₹7.5 lakh, making banks more willing to lend without collateral
• Interest subvention: 3% interest subvention during the moratorium (course period plus one year) on loans up to ₹10 lakh, for students whose family income is up to ₹8 lakh a year, subject to an annual cap on the number of beneficiaries
• Applications: through the PM-Vidyalaxmi portal, which links to multiple banks

Central Sector Interest Subsidy (CSIS)

Students from families earning up to ₹4.5 lakh a year can get full interest subsidy during the moratorium for courses in India on eligible loans. A student cannot combine this with PM-Vidyalaxmi subvention or other government interest subsidy or fee reimbursement schemes.

Moratorium interest: worked example

Karan takes a ₹15 lakh loan at 10% a year for a two-year master's degree. His moratorium is the course period plus one year, so three years in total. Interest accrues as simple interest and he pays nothing during this time.

1. Interest accrued: ₹15,00,000 × 10% × 3 years = ₹4,50,000
2. Loan when repayment starts: ₹15,00,000 + ₹4,50,000 = ₹19,50,000
3. EMI over 10 years at 10%: about ₹25,769
4. Interest paid during the repayment years: about ₹11.42 lakh

Now suppose Karan's parents pay the interest as it accrues, about ₹12,500 a month during the three years. The loan stays at ₹15 lakh and the EMI over 10 years falls to about ₹19,823, nearly ₹6,000 lower every month for a decade. Paying even part of the moratorium interest is one of the most effective ways to reduce the total cost. Model your own case in our EMI calculator.

Tax benefit: Section 129 (old Section 80E)

The Income-tax Act, 2025, which replaced the 1961 Act from 1 April 2026, carries the old Section 80E deduction into Section 129:

• Deduction for the entire interest paid on a loan for higher education, with no upper limit
• Available to an individual for their own education or that of a spouse, children, or a student for whom they are the legal guardian
• Loan must be from a bank, financial institution or approved charitable institution, not from a relative or employer
• Claimed for the year repayment of interest begins and the seven following years, so up to eight years
• Principal repayment is not deductible
• Available only under the old tax regime; the default new regime does not allow it

For a borrower in the 30% slab under the old regime, ₹1.5 lakh of interest paid in a year saves about ₹46,800 in tax including 4% cess. Whether the old regime suits you overall depends on your other deductions; see our new vs old tax regime comparison.

Studying abroad: extra points

• TCS: Since 1 April 2025, there is no tax collected at source on foreign education remittances funded by a loan from a specified financial institution. Self-funded education remittances above ₹10 lakh in a financial year can attract TCS.
• Disbursement: fees are usually remitted directly to the university; living expenses may be sent to the student's account.
• Currency risk: if the rupee weakens during the course, you need more rupees to pay the same fees.
• Admission and visa: lenders often give a sanction letter before the visa interview, with disbursement after the visa is granted.

Documents required

• Student's and co-borrower's PAN and Aadhaar
• Admission or offer letter and fee schedule from the institution
• Academic records: Class 10, Class 12 and degree mark sheets, plus entrance test or language scores
• Co-borrower's income proof: salary slips and Form 16, or ITRs for self-employed
• Six months' bank statements of the co-borrower
• Collateral documents, if the loan exceeds the collateral-free limit
• Passport and visa copies for studies abroad

Repayment tips

1. Pay simple interest during the course if you can. It prevents the loan from growing.
2. Start repaying early once you get a job, even before the moratorium ends.
3. Prepay with bonuses. Under RBI's prepayment directions, floating-rate loans to individuals for non-business purposes sanctioned from 1 January 2026 cannot carry prepayment charges. Our guide to prepayment: reduce EMI or tenure explains how part-payments cut interest.
4. Keep the co-borrower informed. A missed EMI hurts both credit scores. If you face difficulty, our guide on what to do if you can't pay your EMI lists the options.

Key takeaways

• Loans up to ₹7.5 lakh generally need no collateral; larger loans usually need security.
• PM-Vidyalaxmi offers a 75% credit guarantee up to ₹7.5 lakh and 3% interest subvention up to ₹10 lakh for family incomes up to ₹8 lakh.
• Moratorium interest can add lakhs to the loan; paying it as it accrues sharply cuts the EMI.
• Interest is fully deductible for up to eight years under Section 129 (old 80E), only in the old tax regime.
• Loan-funded education remittances abroad attract no TCS.