Public Vs. Private Education Loan Providers for Study Abroad

9 mins read20.7K Views 1 Comment
Anumika Bahukhandi
Study Abroad Expert
Updated on Jul 31, 2023 23:35 IST

Education is widely regarded as one of the most integral parts of our lives. It can open many doors for a person and it shapes the path they take in their future. Education has been seen as a source of wealth and those who have the capability to attain quality education are often very successful in their lives. The biggest wealth one generates through education is knowledge, however, it is not just education but quality education that matters. In order to get a quality education, more and more students are going abroad. According to recently released data from RBI, spending on tuition and hostel by Indian students going abroad has increased 44% from $1.9 billion in 2013-14 to $2.8 billion in 2017-18 and is expected to increase by 1.8 million approximately by 2024 academic session. The exorbitant increase proves that people are preferring to pursue skill education abroad.

Check: Everything You Need to Know About Education Loan

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Acquiring quality education is becoming expensive day by day. Arranging for funds to finance an education abroad is one of the biggest challenges one faces. People overcome this hurdle with the help of student loans. Also, there are numerous institutions one can think of while taking an education loan. The biggest chunk of the market is with public sector banks, however, private banks and NBFCs (non-banking financial companies) are also catching up rapidly. Public sector banks offer low-interest rates, no pre-payment charges, and low processing fees. Whereas, private sector banks provide enhanced customer service, high-interest rates (as compared to public sector banks) and faster processing. Contact India’s leading education loan providers through Shiksha Study Abroad.


 (Source: Reserve Bank of India)

Government Banks vs. Private Banks for Education Loans to Study Abroad

There is a huge difference when taking a student loan from a public sector bank or a private sector bank. The interest rates are the very first thing we consider when discussing student loans. The interest rates supplied by public banks are consistently lower than those offered by private lenders, as individuals who have done their homework on school loans may already be aware. Additionally, we may bargain with private lenders about processing costs and loan insurance percentages in addition to interest rates. Students without good negotiating abilities can pass on a better offer. Private lenders almost always demand greater processing costs than public institutions. Public banks may levy a processing fee for an international student loan that might be anything between zero and ten thousand rupees. In this article, we’ll compare the difference between taking a student loan from a government bank (SBI, PNB, Canara, Syndicate Bank) or a private bank (ICICI, Yes Bank, Kotak Mahindra Bank, HDFC).


Government Banks

Private Banks

Interest Rates

Any change in repo rate by the central bank gets a transfer to the customers with immediate effect.

The change in the Repo rate does not result in a decrease of interest rates even for the existing customers.

Prepayment Charges

There is a huge advantage as it comes to prepayment charges, as public sector banks do not charge levy any prepayment charges.

If the borrower wants to prepay the loan then private banks generally charge 2% of the remaining loan amount as they do not want to lose out on the interest they are earning.

Prepayment Period

Generally, there is no such condition. The borrower can repay the complete loan amount whenever he/she arranged it.

Usually, the borrower cannot repay the loan before completing 6 months of his/her loan.

Processing Fees

The processing fees charged by banks range between 0.5% to up to 1% of the total loan amount or any fixed amount. The processing fee charged by the government banks is generally low compares to the private sector banks as they do not promote selling through agents.

Private banks can charge up to 2% of the loan amount. Many times, private banks have to give commissions to their agents in order to bring customers, so, the processing fee is higher in private banks.

Trust Factor

Although this factor doesn’t affect your loan in any way, it is one of the most important factors one considers before taking a student loan.

It is said that public sector banks have more transparent policies in comparison to private sector banks.

It is a general thought among customers that private banks have various kinds of hidden charges that they don’t disclose at the time of disbursing the loan.

Their policies are driven by profit-making, so, it is always better to read the complete terms and conditions in advance before taking any decision.

Also Read: How to choose your bank for Education Loan to Study Abroad

Top Banks for Study Abroad Education Funding

In order to be eligible to apply for an education loan from an Indian government bank, the applicants applying should take the following information into consideration


  • The applicant must be an Indian citizen who lives in India or abroad or is an NRI, OCI, or PIO.
  • While an employed candidate must be at least 45 years old, a non-employed applicant may be as young as 35.
  • They are eligible to apply for any level of study - undergraduate, graduate, doctoral, etc. in any nation.
  • The institution must be either public, private, professional, or international for the student to be enrolled.

Documents Required:

  • Admission letter from the institution
  • Previous Education Marksheets
  • Completed application form with signature
  • Indian ID Proof - Aadhar Card / Pan Card
  • Bank Statement 
  • Address Proof
  • Salary Slips
  • ITR Proof
  • Passport sized photograph
  • Visa proof
  • Valid Passport

Top Banks with Interest Rates Offering Indian Students an Education Loan

As per the revaluation in interest rates in 2022, the interest rates have risen since 2020 quarter. Check: Indian Banks offering Education Loans for Studying Abroad

The following table elaborates a brief estimate upon how much Indian students would be charged while studying abroad:

Indian Public / Private Banks Interest Rates Minimum Loan Amount Loan Tenure
Indian Public Banks
PNB Educational Loan 8.80% to 9.50% Based on the requirement or need based 15 years
SBI Education Loan 10.90% Above 7.50 lakhs 15 years
Axis Bank Education Loan 13.70% to 15.20% INR 50,000 15 years
Bank of Baroda Education Loan 10.10% to 10.45% INR 12,50,000 -
Private Banks
Kotak Mahindra Bank Loan Upto 16% INR 7,50,000 5-7 years
Federal Bank Education Loan 11.95% INR 10,00,000 15 years
HDFC Bank Education Loan 9.55% to 13.25% INR 30,00,000 15 years
Union Bank of India Education Loan 8.8% to 10.05% INR 4,00,000 15 years

Note: The interest rates are subject to change as per the regulations of the bank. 

A lot of banks (both public and private) have a clause for collateral that is, property or other immovable assets to be submitted with the bank against the loan taken till repayment. In case you're finding it difficult to apply for an education loan, you may also apply for loan through Shiksha website.

Also Check:

Apart from the public and private sector banks, NBFCs (non-banking financial companies) are also active in the education loan segment. The average loan amount of the NBFCs is more than what the banks disburse as it is their main source of income generation. 90% of the NBFC's education loan portfolio is over INR 10 lakh i.e. they are preferred for big-ticket loans.

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While deciding on a student loan, always consider the above-stated facts and then take your decision wisely. Calculate the overall amount you have to return after adding both the principal and the interest then go for the one which is not heavy on your pocket. And in case you need faster and better service then go for the private sector banks.

Note: Always consult an expert before taking the final decision.

Calculator for Educational Loan EMIs

Before you apply for a loan, figure out how much you can borrow by using the education loan EMI calculator to calculate your monthly payments and the loan's overall cost. Enter some loan-related details, including the loan amount, length, interest rate, and processing costs to get an estimate of your equivalent monthly payment (EMI). The total interest due and a thorough amortisation chart that breaks down your EMIs into principle and interest payments on a monthly and annual basis are important data.

Quick links:

Education Loan to Study in USA

Education Loan for Studying in Canada

Education Loan for studying in France

Education Loan for Studying in Singapore


Q. Should I choose a private bank or a public bank for an education loan to study abroad?

A. You should go to a private bank for an education loan to study abroad if you are keen to get the same as soon as possible. The advantage of getting a loan from a private bank is that with an easy process, your paperwork reduces as well as a pre-approved loan is provided. The processing of the loan becomes easier with private banks as compared to public banks as the former is more digitized. On the other hand, public banks are quite strict with their set eligibility due to which loan processing may get delayed.

Q. What will happen if I forgot to pay back my education loan on time?

A. If you’re thinking of applying for an education loan to study abroad, keep in mind that forgetting or delaying paying your loan will not be beneficial for you. Even if you obtain a job overseas after completing your studies, you will have to pay back your loan timely. In case you fail to do so, it will act as a black spot on your credit history and your credit scores will drop down. Due to this taking any loan in the future will become difficult.

Q. What are the points which I should be careful about while applying for an education loan to study abroad?

A. When applying for an education loan to study abroad, make sure that the higher education institution for which you have applied is a recognized one. This is so because in case it isn’t recognized and the same shuts down in the future due to any issue, you will not get your spot. Not only this you will also have to keep servicing your loan. Another thing is that you should not take an extra loan for commuting or living or buying a laptop, etc. As your education loan already covers these, taking an extra loan will only increase your debt.

Q. Why should a student apply for an education loan?

A. There are many students who are good at studies and wish to go abroad to some reputed higher education institution. But due to low family income or resources, they have to cancel their plans. In order to assist such students with the necessary finance, banks and other financial agencies are present. One can pay either a part or the entire amount of their education through these student loans. Those who get their loans sanctioned are easily able to complete their education without worrying about the fees time and again. 

Q. What are collateral loans?

A. Collateral loans are items of value which are secured and which are promised by the borrower to the lender in exchange for the loan amount. They have the right to sell the collateral if payments are not made on time. Government and commercial banks in India are the best sources of collateral loans.
About the Author
Anumika Bahukhandi
Study Abroad Expert

Holding an overall experience of 5 years, Anumika Bahukhandi has worked in the field of Journalism as a reporter/journalist, feature writer, and senior sub-editor with renowned media houses. She has been associated ... Read Full Bio





a year ago

For education loan, can the student take loan from any co-operative bank (RBI approved) ??



Piyush Kohli

a year ago

Hi Kavita, you need to check with the bank whether they are offering an education loan for studying abroad, as not all co-operative banks offer student loans for pursuing higher education abroad.

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