Which Bank Has the Lowest Interest Rate on Education Loan?

What is Education Loan Interest?

Education loan interest is the yearly cost you pay on the money borrowed for tuition, hostel, and living expenses. Banks offer two types of loan interest rates: 

• Fixed Rates: Stay the same for the entire loan.
• Floating Rates: Can change with RBI rates, usually 0.5–1% lower than fixed, but may rise later.

Banks with Lowest Interest Rates on Education Loan:

• Public Banks: 6.6%–10.5%
• Private Banks: 9%–14%
• NBFCs: 10%–16%

Many banks also offer extra benefits like lower rates for girls or students at top institutes like IITs or IIMs.

Banks with Low Effective Interest Cost (EIC):

• EIC shows the real cost of your loan, including interest, fees, and charges. It is a better measure than the headline rate. 
• SBI and Bank of Baroda give lower EIC for large loans or overseas studies because of their flexible terms and subsidies.

Top Banks with the Lowest Education Loan Interest Rates in 2026

Here is a consolidated list of banks and NBFCs that offer lower interest rates on education loans in India:

*Education loan rates are floating, linked to RLLR/Repo at 6.75%, and may vary after applicable concessions.

Key Factors to Decide Education Loan Rate by Banks/ NBFCs

Several factors decide the final or effective interest rate you pay, beyond what banks advertise:

• Loan Amount Tiers: Bigger loans often get better rates. For example, loans above ₹7.5 lakh may see rates slightly lower (SBI: 10.25%–10.50%).
• Collateral/Security: Secured loans backed by property or FDs can reduce rates by 1–2%. Unsecured loans, usually capped at ₹40 lakh, can go above 12%.
• Course/Institute: Students joining top institutes like IITs or ISB can get a 0.5–1% discount. Loans for abroad studies may add 0.25–0.5% depending on the bank.
• Repayment Tenure: Most banks allow up to 15 years post-moratorium (course duration + 6–12 months). Shorter tenures reduce total interest paid.
• Processing Fees: Public banks like SBI and Bank of Baroda often charge no fees, while private banks may levy 0.5–1% of the loan amount.

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Eligibility Criteria for Education Loan in India

Before applying for an education loan, you must fulfil these basic requirements:

• Nationality & Age: Must be an Indian citizen, aged 16–35.
• Academic Criteria: Minimum 60% marks and an admission letter from a recognised institute.
• Co-Applicant: Parent or spouse with a stable income of ₹3–5 lakh per year.

Documents Required for Education Loan in India

Here are the key documents required to get an education loan:

• Student KYC: Aadhaar, PAN, Voter ID, Passport (for abroad studies)
• Academic Documents: Marksheets (10th–Graduation), Admission Letter, Fee Structure, Bonafide Certificate
• Co-applicant Documents:
  • PAN, Aadhaar, 6 months bank statements
  • Salaried: Form 16 / ITR (2 years)
  • Self-employed: ITR + CA Certificate
• Financial Documents: Loan Application Form, Fee Receipts / Schedule
• Other Documents: 2 Passport-size photos, Gap Affidavit (if >2 years post-12th)

Tax Benefits of Education Loan in India for 2026

You can avail of the following tax benefits on education loans in India: 

• Section 80E Deduction: The entire interest on education loans qualifies for a deduction for up to 8 years, helping reduce tax liability significantly.
• Combined Relief: You can achieve the biggest tax savings by claiming both the Section 80C tuition fee deduction (up to ₹1.5L) and the Section 80E deductions.
• Criteria for Tax Benefits: Loans for full-time undergraduate or graduate studies from authorised banks or NBFCs are eligible. There is no limit on when the course can begin.

Important Tips to Get the Lowest Education Loan Interest Rate

Here are some important, lesser-known factors that can help you save on education loan interest:

1. Interest Rates Follow RBI Movements

   Education loan rates are not fixed and can change with the Reserve Bank of India’s repo rate. In 2025–26, many banks reduced their retail and education loan rates to align with RBI trends, giving borrowers better deals.

2. Personalised Negotiation Can Save Money

   Talking directly to your bank branch, especially if you are joining a premier institute, can sometimes get you a lower interest rate than the standard published rate — a tip that many guides fail to mention.

3. Smart Concessions You Can Claim:

   • Female Bonus: Public sector banks (PSBs) offer 0.5% lower interest (e.g., SBI drops to 8.40%).
   • Government Subsidies: Schemes like PM Vidyalakshmi provide subsidies for eligible students; The Credit Guarantee Fund Scheme for Education Loans (CGFSEL) caps rates at 10.95%.
   • Extra Tip: Bundling with e-Shram or Credit Guarantee can reduce your rate by an additional 1%.

Which Bank to Choose for Your Education Loan?

Here is how you can decide the right bank or a Non-Banking Financial Corporation (NBFC) for your situation, instead of just picking the lowest rate:

1. Studying in India

   • Public banks like PNB, Bank of Maharashtra, and Union Bank usually offer the lowest starting rates.
   • Consider processing speed and convenience when choosing a bank.

2. Studying Abroad

   • Public-sector banks still offer good rates, but ICICI and Indian Bank are also strong options to get loans for overseas education.
   • When comparing EMIs, look at the size of the loan. Sometimes, a slightly higher interest rate with lower fees lowers the total cost.

3. Need Quick Disbursal

   • Before making a choice, you should weigh the speed against the slightly higher loan rates.
   • Private banks and Non-Banking Financial Companies (NBFCs) are preferable for loans that need to be paid back quickly because they can provide money faster, usually within 90 days.

Pro Tips:

• Public Sector Banks (PSBs): Best choice for low Effective Interest Cost (EIC) in most cases, ideal for domestic loans or large education loans.
• EIC Tip: Canara Bank is good for smaller loans, while SBI is better for high-value or large education loans.

How to Secure the Lowest Education Loan Rate in 2026?

• Compare banks in one place: Use the Vidyalakshmi portal to see all banks’ rates, concessions, and benefits at once.
• Check your real loan cost: Calculate the Effective Interest Cost (EIC) to know the true expense instead of just trusting advertised rates.
• Claim tax benefits: Use Section 80E to deduct the full interest you pay for up to 8 years and save on taxes.
• Offer collateral or FDs: Give property or fixed deposits to reduce your interest rate by up to 1%.
• Apply early with complete documents: Submit your loan application before admission with ITRs, fee receipts, and collateral papers.
• Negotiate rate resets: Ask the bank for quarterly rate resets to lower future interest.
• Prepay without extra fees: After the moratorium, pay up to 5% of your loan per year without charges to cut total interest.

Conclusion

In 2026, public sector banks like Punjab National Bank, Bank of Maharashtra, and Union Bank of India will give the lowest interest rates for long-term loans in India. For studying abroad, Indian Bank and ICICI Bank offer a good mix of low rates and global support. Focus on the total loan cost, benefits, and available concessions instead of just the interest rate to lower your repayment and make a smart choice.