Education loan vs student loan: Know the difference before you borrow

When it comes to financing higher education, the terms education loan and student loan are often used interchangeably. However, they have key differences in scope, eligibility, and repayment terms.

Education loans cover a broad range of academic expenses, including tuition, accommodation, books, and even international studies. These loans can be taken by students themselves or co-signed by their parents. In contrast, student loans are typically granted directly to students and may offer special repayment benefits, such as deferment until after graduation. Understanding these distinctions is essential for selecting the most suitable financial assistance for academic pursuits.

In India, while both terms are commonly used as synonyms, their differences are significant.

Brijesh Samantaray, Co-founder of Propelld, explains, "An education loan is a broader financial product that covers not only tuition fees but also expenses like accommodation, books, travel, and other academic costs. These loans are generally availed for higher education in India and abroad, with repayment beginning after course completion, often with a moratorium period."

He further elaborates, "A student loan, on the other hand, is typically more specific, primarily covering tuition fees and sometimes excluding additional expenses like living costs. Repayment terms, interest rates, and eligibility criteria for student loans may differ—some require immediate repayment or have shorter tenures."

Another key distinction lies in collateral requirements. "Education loans for higher amounts often require collateral, whereas smaller student loans may be unsecured. Additionally, education loans are typically provided by banks and NBFCs under structured government schemes, whereas student loans may sometimes be offered by private institutions or alternative financing models," adds Samantaray.

For students and parents, understanding these differences is crucial in making an informed financial decision. Choosing the right loan depends on factors such as the total cost of education, repayment flexibility, and eligibility criteria.