A degree abroad can cost tens of lakhs of rupees, and many families fund it with a loan. The terms vary a lot between lenders. The type of loan also changes your tax deduction and the TCS your bank collects when fees go abroad. Here is what to check before you sign.
Secured vs unsecured education loans
Many banks follow the Indian Banks' Association (IBA) model education loan scheme. Bank of Maharashtra's version, for example, works like this:
| Loan amount | Security | Margin for study abroad |
|---|---|---|
| Up to ₹4 lakh | None; parents join as co-borrowers | Nil |
| Above ₹4 lakh up to ₹7.5 lakh | None, covered by a government credit guarantee fund; parents as co-borrowers | 15% |
| Above ₹7.5 lakh | Tangible collateral equal to the loan; parents as co-borrowers | 15% |
Bank of Maharashtra lends up to ₹20 lakh for study abroad under this scheme and considers more on merit. Larger bank schemes go further. SBI's Global Ed-Vantage scheme, as listed on its site on 21 October 2026, lends above ₹7.5 lakh up to ₹3 crore against tangible collateral, and without collateral up to ₹50 lakh for select premier institutions.
Unsecured loans from some banks and NBFCs depend heavily on the university, the course and the co-applicant's income and credit score. They are quicker to get, but usually cost more, so compare them against a secured option.
Collateral usually means a residential or commercial property, or bank fixed deposits. SBI also accepts security from a third party other than the parents. The lender will run a title search and valuation on property, much as for a home loan.
The co-applicant
A parent, spouse or guardian is almost always a co-borrower. Lenders look at their income proof (salary slips, Form 16 or ITRs) and an asset-liability statement on larger loans. Their credit score matters as much as the student's admission. See our guide to CIBIL scores and loans before you apply.
Margin, moratorium and repayment
- Margin is the share your family pays. Under the model scheme it is 15% for study abroad on loans above ₹4 lakh. Scholarships count towards it, and SBI lets you bring it in year by year as fees are paid.
- Moratorium is the gap before EMIs start: typically the course period plus up to one year. SBI starts repayment 6 months after the course ends.
- Interest during the moratorium is usually simple interest. If you don't pay it, it is added to the principal when EMIs start. Paying it as you go keeps the EMI lower, and some banks give a rate concession for doing so (Bank of Maharashtra offers 1%).
- Repayment runs up to 15 years after the moratorium.
What the loan covers
SBI's list is typical:
- fees to the college, school and hostel
- travel for study abroad
- examination, library and laboratory fees
- books, equipment and a computer, up to 20% of the total tuition fees
- refundable deposits, up to 10% of the course's tuition fees
- life or credit-life insurance premium on the loan
Living costs outside the hostel are treated differently by each lender, so ask for the sanction in writing, broken down by item.
Tax deduction on interest: section 129 (old section 80E)
From 1 April 2026, the new Income-tax Act, 2025 replaces the 1961 Act, and old section 80E becomes section 129. The rule is the same:
- An individual can deduct the interest paid in a tax year on a loan for higher education of themselves, their spouse or children, or a student for whom they are the legal guardian.
- The loan must be from a bank or other notified financial institution, or an approved charitable institution. Loans from relatives don't count.
- The deduction is for the first tax year you pay interest and the next 7 years, or until the interest is fully paid. Only interest counts, not principal, and the section sets no rupee cap.
- It is a deduction you can claim only if you opt for the old regime. Under the default new regime (section 202), deductions of this kind are not allowed.
Example: a parent in the old regime's 30% slab who pays ₹3 lakh of interest in a year saves about ₹90,000 in tax, plus cess.
TCS when fees are sent abroad
When your bank sends money abroad under the Liberalised Remittance Scheme (LRS), it collects tax at source (TCS) under section 394 of the 2025 Act. From 1 April 2026:
| Remittance for education | TCS |
|---|---|
| Financed by a loan from a financial institution | Nil, whatever the amount |
| From your own funds | Nil up to ₹10 lakh in a year across all purposes, then 2% on the excess (5% until 31 March 2026) |
Example: you send ₹15 lakh of your own money for fees in one year and nothing else under LRS. TCS is 2% of ₹5 lakh, or ₹10,000. TCS is not an extra tax: you can set it off against your tax or claim it as a refund in your return, but it does block cash until then. Tell the bank when a remittance is loan-funded, and keep the sanction letter handy.
How to compare lenders
- Rate and benchmark: repo-linked, MCLR or fixed, and the spread over it
- Margin and collateral needed for your loan amount
- Processing fee (SBI's is 0.50%, minimum ₹10,000 and maximum ₹50,000, plus GST)
- Moratorium length and how its interest is treated
- Disbursement: paid directly to the university each term, and how foreign-currency fees are converted
- Prepayment: RBI bars prepayment charges on floating-rate loans to individuals for non-business purposes, for loans sanctioned or renewed from 1 January 2026
Loan against property as an alternative for parents
If the family owns property, a loan against property (LAP) in a parent's name is another route:
- It is not tied to the course. You can fund fees, living costs and the margin together, and LAP tenures are often long.
- But EMIs start right away, the property is at risk if repayment fails, and a LAP is generally not an education loan. Don't assume the section 129 deduction or the nil-TCS route will apply. Check with your CA before choosing it.
Often the better structure is a secured education loan using the same property as collateral. It keeps the moratorium and the tax benefit.
How Biz Corp Solutions helps
We help parents raise funds against their property through banks and NBFCs with our loan against property service, including when the property is to be pledged as collateral for a child's studies. Our education funding service is for schools and colleges, not individual students. If you are weighing a LAP against an education loan, call us to compare the options.
This article is based on bank scheme pages, the Income-tax Act, 2025 and RBI directions as available up to 21 October 2026. Loan terms are set by each lender and can change; for tax, consult your chartered accountant.