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Education Loan


An education loan, also known as a student loan, is a type of financial aid designed to help students pay for post-secondary education expenses such as tuition, books, and living costs. It differs from other types of loans in the fact that the interest rate may be substantially lower and the repayment schedule can be deferred while the student is still in school. It’s provided by various lenders, including the federal government, private banks, or other financial institutions.


The phonetics of the keyword “Education Loan” is: ˌɛdʒʊˈkeɪʃn loʊn

Key Takeaways

  1. Financial Support for Higher Education: An education loan is financial support provided by various banks or financial institutions to help students pursue higher studies domestically or overseas when they cannot afford the education expenses.
  2. Interest Rates and Repayment: Education loans come with interest rates. These rates vary from one bank to another. Typically, repayment begins after the course completion and a certain grace period. It’s important to understand the loan’s repayment terms and conditions.
  3. Collaterals and Co-applicants: For higher amounts of loans, banks usually require collateral security or a co-applicant. The collateral could be a property, fixed deposits, or any other asset. It acts as a security for the bank if the borrower fails to repay the loan amount.


Education loans are vital because they provide students the financial support necessary to pursue higher education, which can be quite expensive. By bridge the gap between personal funding and the cost of education, they ensure that lack of financial means doesn’t become a barrier to education. This kind of loan is fundamentally an investment in human capital, enhancing the overall education level and skill set of a society which in long term can lead to economic growth. Not only that, repayment terms for education loans tend to be more forgiving, with deferred payments and lower interest rates, allowing graduates to repay once they establish their careers.


The primary purpose of an education loan, also known as a student loan, is to provide financial aid to individuals who want to further their studies but lack the necessary funding. The specific aim of this kind of loan is to cover various expenses associated with education, often including tuition fees, room and board, books, and other supplies needed for education in a school, university, or vocational training program. It alleviates the financial burden on students and parents by providing access to funds upfront, which are then repaid over a specified period of time after course completion. Education loans serve as an important facilitator in allowing accessibility to quality education for individuals who may not otherwise be able to afford it. They operate under the presumption that education is likely to enhance one’s earning potential, therefore enabling the borrower to repay the loan in due course. Additionally, it serves to foster a culture of financial independence among student borrowers by instilling a sense of financial responsibility and accountability early on, as they are legally responsible for repaying their loans along with accumulated interest after completing their education.


1. Sallie Mae Student Loans: Sallie Mae is one of the most well-known private student loan lenders in the US. They offer loans for undergraduate students, graduate students, and parents of students. For example, an undergraduate student who doesn’t have the financial means to pay for their tuition, books, or housing while in college could take out a Sallie Mae student loan to cover these costs. The loan will have to be repaid, with interest, after the student graduates or stops attending school. 2. Federal Student Aid (FAFSA): FAFSA is a government-run program in the US that provides funding for students to attend college or university. The loans offered through FAFSA are considered to be some of the best options for students because of their favorable repayment terms and lower interest rates compared to private lenders. A high school student who will be going to college and comes from a low-income family would qualify for a need-based loan through FAFSA. 3. HDFC Education Loan: HDFC is one of the largest banks in India which provides education loans for students who want to study in India or abroad. A student who got accepted into a prestigious university overseas could take HDFC’s education loan to fund their tuition and living expenses. The repayment of the loan would start only after the course period, plus a one-year grace period or six months after getting a job, whichever is earlier.

Frequently Asked Questions(FAQ)

What is an Education Loan?
An Education Loan, also known as a student loan, is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses.
Who can apply for an Education Loan?
Education Loans can be applied by students who are planning on attending or are currently enrolled in a degree or certificate program. The eligibility criteria may slightly vary depending on the lender.
What are the different types of Education Loans?
Education Loans can be categorized mainly into two types: Federal Student Loans and Private Student Loans. Federal loans are funded by the government, while private student loans are made by a lender, such as a bank or financial institution.
How is the interest on an Education Loan calculated?
The interest on an Education Loan is typically calculated using either a fixed or variable rate, depending on the type of loan. The exact calculation may depend on the specific terms of your loan agreement.
What is the repayment process for an Education Loan?
Education Loan repayments generally do not start until after the course of study is completed. Once the repayment period begins, you will need to make scheduled payments until the loan is paid in full. Repayment plans may vary based on the type of loan.
Can you get an Education Loan if you have a bad credit score?
Yes, you can still get an Education Loan with a bad credit score. Federal student loans do not require a credit check. However, private student loans usually do require a credit history check, and a bad credit score may affect your eligibility or the interest rate of your loan.
Is the interest paid on an Education Loan tax-deductible?
Yes, the interest paid on Education Loans is typically tax-deductible, but there are certain conditions to be met. It’s best to consult with a tax advisor for specific details related to your situation.
Can I prepay my Education Loan without any extra charge?
Most lenders do allow for prepayment of your Education Loan without any prepayment penalty, but it’s always wise to check with your lender before making any decisions.
Can I defer my Education Loan payments?
Yes, under certain conditions like financial hardship or further enrollment in school, you may be able to defer your loan repayments. Different loans have different rules for deferment.
What happens if I default on my Education Loan?
Defaulting on an Education Loan can have serious consequences, including legal action, wage garnishment, and damage to your credit score. If you’re having trouble making payments, consult your lender about alternative repayment plans.

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