Pursuing higher education, especially in India or abroad, is a major milestone—but it also comes with a financial burden. To ease this, many students and parents rely on education loans offered by banks and NBFCs. While an education loan is a great way to fund your dreams, not planning it properly can lead to financial stress later.
Many students and families make avoidable mistakes while applying for or managing an education loan. In this article, we highlight the top 10 common mistakes and how you can avoid them for a smoother loan experience.
1. Not Comparing Loan Options from Multiple Lenders
✅ Why It Matters:
Different lenders offer different interest rates, repayment terms, processing fees, and moratorium periods.
❌ Common Mistake:
Many students take a loan from their existing bank without checking what others offer. This could lead to paying higher interest or facing stricter conditions.
💡 What to Do:
Compare loan offers from public banks (like SBI, Bank of Baroda), private banks (like Axis Bank, ICICI), and NBFCs (like HDFC Credila) before deciding.
2. Ignoring the Total Loan Cost
✅ Why It Matters:
The EMI is not just about the principal and interest. There are additional costs such as:
- Processing fee
- Margin money
- Forex charges (for abroad studies)
- Insurance premiums
❌ Common Mistake:
Borrowers often focus only on the interest rate and ignore these hidden charges.
💡 What to Do:
Ask for a loan amortization schedule and calculate the total repayment amount over the loan tenure, including all charges.
3. Borrowing More Than Required
✅ Why It Matters:
Education loans usually cover tuition fees + living expenses + travel + insurance. While it’s good to cover all costs, borrowing more than you need can lead to unnecessary interest burden.
❌ Common Mistake:
Students often take the maximum eligible amount, thinking they can use the surplus for other expenses.
💡 What to Do:
Borrow only what is necessary, and try to fund part of the expenses through scholarships, part-time work, or family support.
4. Not Understanding the Moratorium Period
✅ Why It Matters:
The moratorium period is the time during which you are not required to repay the loan (usually course period + 6 to 12 months after the course ends).
❌ Common Mistake:
Students assume that they won’t have to pay anything during this period, but some banks charge simple interest or partial EMIs during the moratorium.
💡 What to Do:
Check whether interest is charged during the moratorium and decide whether you can pay partial interest during the course to reduce future burden.
5. Not Checking the Repayment Flexibility
✅ Why It Matters:
After you start earning, your EMI should suit your monthly budget. Some lenders allow step-up EMIs, prepayment without penalty, and loan tenure extension in case of hardship.
❌ Common Mistake:
Borrowers don’t review these features while signing the loan agreement.
💡 What to Do:
Choose a lender that provides flexible repayment options, especially if your future income is uncertain.
6. Ignoring the Impact of Currency Fluctuations (For Abroad Studies)
✅ Why It Matters:
If you’re studying in the USA, UK, Australia, or other foreign countries, the cost in INR can increase significantly due to currency exchange rates.
❌ Common Mistake:
Borrowers underestimate the impact of currency changes on tuition fees and loan repayments.
💡 What to Do:
- Consider taking loans in foreign currency (if income after studies is in foreign currency).
- Or factor in forex margin and currency volatility while planning the loan amount.
7. Not Checking College or Course Eligibility
✅ Why It Matters:
Banks only approve education loans for recognized courses and approved institutions.
❌ Common Mistake:
Students secure admission into unapproved or low-ranking institutions and later face rejection from banks.
💡 What to Do:
Always check with the bank for the list of approved courses and institutions, especially for loans above ₹7.5 lakh or for studies abroad.
8. Weak Documentation and Application Errors
✅ Why It Matters:
A properly filled loan application with valid documents ensures faster approval and less back-and-forth.
❌ Common Mistake:
Incomplete forms, mismatched income proofs, or invalid identity documents can lead to delays or rejection.
💡 What to Do:
Keep all documents ready:
- Admission letter
- Fee structure
- Identity/address proofs
- Income proof of co-applicant
- Academic certificates
9. Not Having a Suitable Co-applicant or Guarantor
✅ Why It Matters:
For most education loans, especially above ₹4–7.5 lakh, banks require a co-applicant (usually a parent or guardian) with a stable income and good credit score.
❌ Common Mistake:
Students apply without checking their co-applicant’s eligibility, leading to loan rejection.
💡 What to Do:
Ensure your co-applicant has a regular income, CIBIL score above 700, and is ready to take joint liability.
10. Not Understanding the Loan Terms and Conditions
✅ Why It Matters:
Loan documents include clauses about late payment charges, prepayment rules, interest calculation, and legal action in case of default.
❌ Common Mistake:
Borrowers blindly sign the agreement without reading or clarifying important terms.
💡 What to Do:
- Read the loan sanction letter and agreement carefully.
- Ask questions about unclear clauses.
- Clarify if interest is compounded monthly, floating or fixed, and penalties for missing EMIs.
Bonus Tip: Keep Track of Your Credit Score
Education loan repayment affects your CIBIL score. A good repayment history helps you in future loan applications like home or car loans.
Conclusion
Taking an education loan is a responsible step towards building your future. However, making uninformed choices can lead to financial stress, loan rejection, or repayment struggles later on. By avoiding these 10 common mistakes and planning wisely, you can ensure a smoother loan journey.
Always compare lenders, understand the terms, and borrow within your capacity. Remember, an education loan is not just about funding your course—it’s also about building your financial discipline and credit history for the future.
