7 Questions to Ask Your Banker Before Signing an Education Loan Agreement

7 Questions to Ask Your Banker Before Signing an Education Loan Agreement

A sanction letter feels like the finish line, but the signature on the loan paperwork is where the real commitments begin. An education loan agreement can run for fifteen years, it binds the co-applicant as much as the student, and its small print decides what the loan costs. Seven plain questions put to the banker before signing the education loan agreement can prevent most of the unpleasant surprises.

Each question comes with the rules and published figures that sit behind it, so that a family knows what a good answer looks like. Where lenders differ, the differences are shown rather than smoothed over.

Why read the education loan agreement line by line?

Rules now give borrowers a head start. The Reserve Bank of India (RBI) requires lenders to hand over a Key Facts Statement (KFS) for retail term loans sanctioned on or after 1 October 2024, covering banks and non-banking financial companies (NBFCs). The RBI circular says the statement must be valid for at least three working days for loans of seven days or longer, which gives a borrower time to read the education loan agreement before signing.

The KFS carries the annual percentage rate (APR), which includes all the charges the lender levies, and an amortisation schedule showing how each instalment is split between principal and interest. The same circular says fees not stated in the KFS cannot be charged at any stage of the loan without the borrower's explicit consent.

So a family reading the education loan agreement should compare it with the KFS. If a fee, a rate or a repayment term appears in one and not the other, ask why before signing. Put differently, the education loan agreement should never contain a surprise that the KFS did not mention.

1. Is the interest rate fixed or floating, and what moves it?

A fixed rate stays the same, while a floating rate changes when the lender's benchmark changes. Many education loans float. The State Bank of India (SBI) education loan rate page, effective 15 October 2026, says rates are linked to its external benchmark and will be floating for the entire period of the loan. That benchmark equals the repo rate of 5.50 percent plus a spread of 2.65 percent, which makes 8.15 percent.

Credila, a specialist education lender, describes its loans as floating and says it can change the rate at its discretion without prior notice. Both pages show why the question matters: the rate in the sanction letter is a starting point, not a guarantee, so look for the clause in the education loan agreement that explains how a change is communicated.

An illustration shows the stakes. These are simple calculations on ₹25 lakh over 15 years, ignoring the moratorium. At 9.65 percent the instalment is about ₹26,330 a month. If the rate rises by one percentage point to 10.65 percent, it becomes about ₹27,870, or roughly ₹1,540 more every month. Ask the banker what the benchmark is, how often the rate resets, and whether the borrower can choose to extend the tenure or raise the instalment when it does.

2. What is the processing fee, and what other charges apply?

The headline interest rate is only part of the cost. SBI's Student Loan page shows no processing fee up to ₹10 lakh, ₹5,000 plus GST between ₹10 lakh and ₹20 lakh, and 0.50 percent above ₹20 lakh, capped at ₹25,000 plus GST. GST means Goods and Services Tax.

SBI's Global Ed-Vantage scheme charges 0.50 percent of the loan, with a minimum of ₹10,000 and a maximum of ₹50,000, plus GST. HDFC Bank lists nil processing fees up to ₹7.5 lakh and 1 percent above that. Credila's rate and charges page lists a processing, or origination, fee of 1.25 percent of the sanctioned amount plus applicable taxes.

On a ₹30 lakh loan, the plain percentages work out to about ₹15,000 under Global Ed-Vantage, ₹30,000 at HDFC Bank's 1 percent and ₹37,500 at Credila's 1.25 percent, before taxes. That illustration assumes each percentage applies to the whole sanctioned amount, which the lender should confirm.

Ask for every charge in the education loan agreement in one list: processing, legal and valuation, insurance, document and any penalty. Check Credila's page or any lender's own, and compare the total with the APR in the KFS.

3. How does the moratorium work, and does interest build up?

The moratorium is the repayment holiday during the course and for a period after it. During this time, the instalments usually do not start, but interest does not stop.

Lenders differ. SBI's Student Loan page shows repayment starting one year after the course ends, with interest accrued during the course and moratorium added to the principal unless it is paid before repayment starts. On its Global Ed-Vantage page, SBI says repayment begins six months after the course ends and simple interest is charged during the course and moratorium.

HDFC Bank's page separates a principal moratorium, where only the principal is paused, from an interest moratorium, where interest is paused as well. It defines the period as the course plus one year, or six months after getting a job, whichever is earlier.

Here is an illustration. A ₹20 lakh loan at 9.65 percent with a two-year course and six-month moratorium collects simple interest for 2.5 years. If the whole amount were drawn on day one, that interest would be about ₹4.83 lakh, and repayment would start on roughly ₹24.8 lakh. Staged disbursement lowers the real figure. Ask whether paying the interest during the course is allowed, and where the education loan agreement records that option, because it keeps the balance from growing.

4. Who is liable under the education loan agreement?

Security means collateral, a co-applicant, or both. The Indian Banks' Association (IBA) model scheme, published by Canara Bank, says the loan is granted jointly with the student's parent or guardian in every category. For the security, it includes assignment of the student's future income.

Joint means that the co-applicant is as responsible for repayment as the student, and the education loan agreement makes that explicit. If the student cannot pay, the lender can ask the co-applicant. Ask the banker to explain this in plain words and, if collateral is taken, who owns it and what documents will be held.

The common thresholds are worth confirming. Under the IBA scheme, loans up to ₹7.5 lakh in the merit quota need no collateral, while larger loans do. Ask when the collateral will be released after the loan is cleared, and in what form the documents come back.

5. Can the loan be repaid early, and at what cost?

Early repayment saves interest, so any charge for it matters. The RBI's pre-payment directions say lenders, including NBFCs, cannot charge pre-payment penalties on floating-rate loans to individuals for non-business purposes, for loans sanctioned or renewed from 1 January this year. The RBI directions also say any pre-payment charges must be clearly disclosed in the sanction letter and the loan agreement, and that undisclosed charges cannot be levied.

Individual lenders go further on their pages. ICICI Bank says there are no foreclosure charges, Credila lists foreclosure as nil, and the IBA model scheme says there is no prepayment penalty during the repayment period.

Older loans and fixed-rate loans can follow different rules, so ask the banker to point to the clause of the education loan agreement that says what applies. The answer should be in writing.

6. When is the money disbursed, and in whose name?

Disbursement affects both interest and the course itself. Under SBI's Global Ed-Vantage scheme, margin, which is the family's own contribution, is brought in year by year as disbursements are made, and scholarships count towards it. Ask how many instalments of disbursement there will be, whether fees are paid straight to the institution, and how long each release takes after the request.

The education loan agreement should describe the release process. A delay in release can mean a late fee at the university, and an early release can mean interest on money that sits idle. Ask for an expected calendar and a contact person.

7. What does the education loan agreement say about a missed payment?

Everyone hopes not to need this answer. The RBI's circular on penal charges says a penalty for breaching a loan term must be levied as a penal charge and not added to the interest rate, and that there should be no capitalisation of penal charges, so no further interest is computed on them. The amount and reason must be disclosed in the loan agreement and the KFS, so the education loan agreement is the place to look.

The penal charges circular came into effect on 1 January 2024. Ask what the charge is, when it starts, and what restructuring options exist if income is delayed after graduation. Ask also what is reported to credit bureaus and when.

What should a family do before signing the education loan agreement?

Collect the KFS, the sanction letter and the draft education loan agreement together. Read the lender's most important terms and conditions document, if one is provided, because it collects the key terms that bind the borrower. Compare each figure in the education loan agreement with what the banker said, and ask for corrections in writing.

Keep copies of everything signed, and note the date each document was received. If something looks different from what was promised, say so before signing rather than after.

Which questions come up most often?

Is the interest on an education loan tax deductible?

Section 129 of the Income-tax Act, 2025 replaced Section 80E, according to Credila's explainer. It allows a deduction on the interest portion for up to eight consecutive years. Whether it is available depends on the tax regime chosen, so check with a tax adviser.

Can the rate be negotiated?

Lenders set rates by scheme, collateral and institution, so the room varies. Asking before the education loan agreement is signed costs nothing, and comparing offers gives a family something to point to.

Does the sanction letter replace the agreement?

No. The sanction letter sets terms, while the education loan agreement is the binding contract. Compare them line by line.

FundMyCampus is an education loan advisory platform founded by an alumnus of the Indian Institute of Management Bangalore. It is not a bank, and its website says it does not charge students any fee. It offers free tools such as an equated monthly instalment (EMI) calculator, an eligibility checker and a loan comparison tool, and works with more than 12 banking partners.

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