Interest-Free & Low-Interest Education Loans: How to Get One?

In 2025, the cost of higher education, especially for students aspiring to study abroad, has seen a significant rise. For students and their families, financing this education can be a major challenge. However, there are ways to lessen the financial burden through interest-free or low-interest education loans. These financial options make it easier for students to pursue their dreams of higher education without having to worry about hefty repayments. In this blog, we will explore how students can avail of interest-free or low-interest education loans, the eligibility criteria, benefits, and the role of government scholarships for students in India in making education affordable.

What Are Interest-Free & Low-Interest Education Loans?

Interest-free education loans are loans where the borrower is not required to pay any interest on the principal amount. These types of loans are usually provided by government schemes or certain charitable organizations aiming to support students from economically weaker sections. Low-interest education loans are loans where the rate of interest is significantly lower than what is typically offered by banks. These loans are often provided by government bodies or public sector banks to encourage students to pursue higher education.

Why Choose Interest-Free or Low-Interest Education Loans?

The primary benefit of these types of loans is that they make education more affordable by significantly reducing the financial burden on students. Without interest charges, students don’t need to worry about repaying more than the borrowed amount, making it easier for them to manage finances after completing their education. Low-interest loans, while not completely free from interest, reduce the total repayment burden compared to standard loans, offering more manageable monthly payments.

Government Scholarships for Students in India: A Complement to Education Loans

One of the key components to making education affordable in India is the availability of government scholarships for students. These scholarships, especially those aimed at students from marginalized or economically disadvantaged backgrounds, can make a substantial difference. Combining government scholarships with interest-free or low-interest education loans can ensure that students are not financially overwhelmed while pursuing higher education.

Popular Government Scholarships for Indian Students

Government scholarships are essential for providing financial aid to deserving students. Some of the notable scholarships include:

National Overseas Scholarship Scheme: Designed to assist students from economically weaker sections to pursue higher education abroad, this scheme provides a full or partial waiver of tuition fees and living expenses.
Post-Matric Scholarships: These scholarships are for students pursuing post-secondary education in government-approved institutions. They cover tuition fees and living expenses.
Government of India Fellowships: For postgraduate and doctoral students, these fellowships provide substantial financial assistance, often covering all costs of education.
Indira Gandhi Scholarship for Single Girl Child: Offered by the University Grants Commission (UGC), this scholarship provides financial support for the education of a single girl child who is pursuing higher education.
Dr. Ambedkar Scholarship Scheme: Offered by the Indian government, this scholarship targets students from Scheduled Castes (SC) and Scheduled Tribes (ST) backgrounds to assist with education expenses.

By securing a government scholarship, students can reduce their financial needs, making it easier to manage an education loan or even reduce the amount they need to borrow.

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How to Avail Interest-Free or Low-Interest Education Loans?

While interest-free education loans are rare, low-interest education loans are much more common. Below, we discuss some options and steps to get such loans:

1. Government-Sponsored Education Loans

Various government schemes offer interest-free or low-interest education loans to students. Some government-backed education loan schemes include:

Pradhan Mantri Vidya Lakshmi Karyakram: A government initiative to make education loans more accessible, the scheme provides loans at low-interest rates for higher education both in India and abroad. The scheme offers up to ₹10 lakh for education within India and ₹20 lakh for studying abroad.
Central Sector Scheme of Scholarship for College and University Students: This scholarship provides financial assistance to students from economically weaker backgrounds pursuing higher education. The scheme also offers a component that reduces the financial burden on students in the form of partial education loans at low-interest rates.
National Merit-cum-Means Scholarship Scheme: Aimed at students from underprivileged backgrounds, this government scheme provides interest-free loans to students pursuing higher education in various fields.

How to Apply for Government-Sponsored Loans:

To apply for government-sponsored interest-free or low-interest education loans, follow these steps:

Eligibility Check: Review the eligibility criteria for each government scheme. Government loans and scholarships often require students to have specific academic qualifications, economic status, or educational goals (e.g., pursuing undergraduate, postgraduate, or doctoral programs).
Fill Out the Application: Most government schemes require you to submit an online application through designated portals, such as the Vidya Lakshmi Portal or the National Scholarship Portal.
Document Verification: Ensure that you provide all required documents, including your academic records, income certificate, admission letter, and bank account details.
Loan Sanction: Once the loan application is processed, you will receive a sanction letter, and you will be required to submit collateral (if applicable).

2. Public Sector Banks Offering Education Loans at Low Interest Rates

Public sector banks in India are well-known for providing low-interest education loans to students pursuing higher education within the country or abroad. These banks offer loans with interest rates that are significantly lower than those provided by private banks. Some prominent public sector banks offering these loans include:

State Bank of India (SBI): SBI offers education loans under the SBI Student Loan Scheme at competitive interest rates starting at 7.9% p.a.
Bank of Baroda: Offers the Baroda Scholar Loan at interest rates starting at 9.25% p.a. for students pursuing higher education abroad.
Punjab National Bank (PNB): Provides education loans under the PNB Udaan Scheme, with interest rates ranging from 7.90% to 9.30% p.a.

These banks offer flexible repayment options, allowing students to start repaying after completing their course or securing employment. Additionally, many banks also provide a moratorium period, which means you don't need to start repaying the loan until a year after your course ends.

How to Apply for Low-Interest Education Loans from Public Sector Banks:

Research the Loan Scheme: Before applying, it’s important to research the various education loan schemes offered by different public sector banks. Pay attention to the interest rates, eligibility criteria, and loan amounts.
Online Application: Most public sector banks offer online applications. Fill out the application form and submit necessary documents such as academic certificates, admission letters, and income proof.
Approval and Sanction: Once the loan is approved, you will receive a sanction letter that specifies the loan amount, interest rate, repayment terms, and the required collateral (if applicable).

3. Private Banks Offering Low-Interest Education Loans

Some private banks also provide low-interest education loans, though the interest rates are usually slightly higher than those offered by public sector banks. However, private banks are known for their faster processing times and more personalized loan services.

4. Educational Institutions Offering Zero-Interest or Low-Interest Loans

Several educational institutions, especially in collaboration with the government, offer zero-interest or low-interest loans to students. These loans are designed to help students who are enrolled in specific courses at select institutions. It’s essential to inquire at the specific educational institutions about such options.

The Role of Government Scholarships in Reducing Loan Burden

Government scholarships for students in India can significantly reduce the amount of education loan that a student needs. By applying for scholarships, students can cover a significant portion of their tuition fees and living expenses, reducing the total loan amount.

For instance, if a student secures a government scholarship, the amount they receive can be used for tuition fees or as a living stipend, thus decreasing the burden on education loans. By securing government scholarships and combining them with interest-free or low-interest loans, students can reduce their financial stress and focus more on their studies.

Conclusion

In 2025, securing an interest-free or low-interest education loan is more accessible than ever, thanks to the availability of government-sponsored schemes, public sector banks, and private banking institutions. By combining these loans with government scholarships for students in India, students can reduce their financial burdens and take the first step toward achieving their academic goals without being overwhelmed by debt.

For students considering studying abroad or pursuing higher education in India, exploring all available options for student financial aid, scholarship programs, and education loan options will ensure that they receive the support they need to succeed academically.