For most Kerala families, the biggest question about studying abroad isn't "which university?" It's "how will we pay for it?" The good news is that you don't have to fund everything from savings. Education loans exist precisely for this purpose, and thousands of students from Kerala use them every year to study overseas. This guide covers the basics in plain language so you know what to expect before you approach a bank. For anything specific to your situation, our team at Cliftons Study Abroad is happy to guide you personally.
What Is an Education Loan for Studying Abroad?
An education loan is money borrowed from a bank or financial institution to pay for your studies, with repayment starting only after your course ends. For overseas study, you usually take the loan in your name, with a parent or guardian as a co-applicant. The lender mainly assesses two things: the strength of your admission (the university and course) and your co-applicant's repayment capacity.
The key feature that makes education loans different from ordinary personal loans is the moratorium period. This is a grace period, usually covering your course duration plus a few months afterwards, during which you are not required to pay full EMIs. Repayment generally begins once you have had time to find work.
What Does the Loan Usually Cover?
Lenders typically finance the major costs of studying abroad, including:
- Tuition and course fees
- Accommodation and living expenses
- Health insurance
- Travel and airfare
- Books, laptop, and course materials
- Exam and lab fees
How much of the total cost a lender will approve depends on the lender, your university, your course, and your co-applicant's finances. Not every lender covers every item, so it's worth checking what's included before you apply.
Where Can You Get an Education Loan?
There are three main types of lenders, and each suits different situations.
Public sector banks (such as SBI and other nationalised banks) generally offer lower interest rates and are a common first choice for families. They tend to follow stricter documentation requirements and may take longer to process, but their rates are often the most affordable.
Private banks can offer faster processing and sometimes more flexible terms, though rates may be slightly higher.
NBFCs (non-banking financial companies) that specialise in education loans often approve quickly and may offer higher loan amounts, including options with less or no collateral. The trade-off is that interest rates are usually higher than those of public sector banks.
There is no single "best" lender. The right one depends on how much you need to borrow, which university you've been admitted to, and what your family can offer as security.
Collateral: Secured vs. Unsecured Loans
This is the part families worry about most, so here is the simple version.
A secured loan is backed by collateral, commonly property such as land or a house, or sometimes fixed deposits. Secured loans can allow higher loan amounts and may carry lower interest rates.
An unsecured (collateral-free) loan doesn't require you to pledge any asset. Many lenders offer collateral-free loans up to a certain limit, and some offer higher limits for students admitted to top-ranked universities. Government-backed credit guarantee schemes also exist in India to help banks lend without collateral up to defined limits, but the rules differ depending on whether you study in India or abroad, so don't assume a scheme applies to your case without checking.
If you're planning a high-cost programme, you will likely need a mix of strong admission credentials and a well-prepared co-applicant to get the amount you need without collateral.
Basic Eligibility
Requirements vary by lender, but most ask for the following:
- Indian citizenship, with the student holding an admission offer from a recognised overseas university
- A co-applicant, usually a parent or guardian, with a stable income and a good credit history
- A good academic record, which supports your application
- Admission to a recognised course, as lenders prefer well-known universities and job-oriented programmes
Your co-applicant's credit score matters more than most people realise. A low score or existing unpaid loans can reduce your approved amount or lead to rejection, so it's wise to check this early.
Documents You'll Usually Need
Keep these ready before you apply, as missing paperwork is the most common cause of delay:
- Admission or offer letter from the university
- A cost breakdown showing tuition and estimated living costs
- Identity and address proof (Aadhaar, PAN, passport) for the student and co-applicant
- Academic mark sheets and certificates
- Test scores such as IELTS, GRE, or GMAT, where applicable
- Co-applicant income proof (salary slips, Form 16, income tax returns, bank statements)
- Collateral documents, if you are applying for a secured loan
- Passport-size photographs
Lenders may ask for additional documents depending on their policy.
The Application Process, Step by Step
- Estimate your total budget. Add up tuition, living costs, insurance, and travel for the full course, not just the first year.
- Secure your admission offer. Most lenders only process a loan once you have an offer from a university, though some provide an early indication of eligibility.
- Compare lenders. Look at interest rates, processing fees, loan limits, moratorium terms, and collateral requirements side by side, not just the headline rate.
- Apply. You can apply directly at a bank or lender, and public sector bank applications can also be made through the Vidya Lakshmi portal.
- Document verification. The lender reviews your documents, your co-applicant's finances, and your admission details.
- Sanction letter. If approved, you receive a sanction letter stating the loan amount, rate, and terms. This is often useful as supporting evidence of funds for your visa, though visa requirements differ by country.
- Loan agreement and disbursement. After signing the agreement, tuition is usually paid directly to the university, while living expenses are released to your account in instalments.
Processing time varies widely from lender to lender, so it's best to start well before your payment deadlines and visa appointments.
Interest Rates, Moratorium, and Repayment Basics
Interest rates on study abroad loans differ by lender type, loan size, and your profile. Public sector banks are generally lower, while private banks and NBFCs are generally higher, and rates are often linked to benchmark rates that change over time. Because published rates shift regularly, always confirm the current rate directly with the lender.
Two more things are worth understanding upfront:
- Interest during the moratorium. Even though you aren't required to pay full EMIs during your course, interest usually keeps accruing. Some lenders let you pay just the interest during the course, which can reduce the total cost later, and some offer a small rate concession for doing so.
- Repayment tenure. Repayment commonly stretches over many years after the moratorium ends, which keeps EMIs manageable, though a longer tenure means more total interest paid.
Government interest subsidy schemes exist for some categories of students, but eligibility depends on factors such as family income, the institution, and whether the course is in India or abroad. Don't count on a subsidy until a lender confirms it applies to you.
Tax Benefit on Education Loan Interest
In India, the interest you pay on an education loan can be claimed as a tax deduction for a limited number of years, which can meaningfully reduce the effective cost for the person repaying it. Income tax law was restructured recently, so the section references and exact conditions may have changed. Confirm the current rules with a tax professional before relying on this benefit in your financial planning.
Common Mistakes to Avoid
- Starting too late. Loan approval can take weeks, and delays can clash with university payment deadlines or visa timelines.
- Underestimating total costs. Borrowing only for tuition and forgetting living costs, insurance, and travel leads to funding gaps abroad.
- Comparing only interest rates. Processing fees, collateral rules, moratorium terms, and prepayment charges all affect the real cost.
- Ignoring the co-applicant's credit history. An unresolved credit issue can derail an otherwise strong application.
- Applying to many lenders at once without a plan. Multiple credit enquiries in a short period can affect credit scores.
- Assuming a scheme applies to you. Subsidies and guarantees often have conditions that exclude certain courses or countries.
Need More Than the Basics? Talk to Cliftons Study Abroad
This guide covers only the fundamentals. Real loan decisions involve more detail: which lenders suit your university and course, how much collateral you may need, how to structure your application, how to line up loan approval with your visa timeline, and what repayment will realistically look like. Those answers depend on your specific profile, and getting them wrong can be costly.
At Cliftons Study Abroad in Kochi, we guide Kerala students through the whole journey, from choosing the right course and university to understanding how to plan your finances for it. If you'd like to talk through your funding options, our counsellors can help you understand where you stand and what to do next.
Planning to study abroad and wondering how to fund it? [Contact Cliftons Study Abroad today for a free consultation.]
