Higher education, whether in India or abroad, is often expensive. To manage these costs, students typically rely on two main financial aids: education loans and scholarships. While both aim to reduce the burden of funding, they work in very different ways. Understanding the difference between an education loan and a scholarship enables students and parents to make more informed financial decisions for their academic journey.
What is an Education Loan?
An education loan is a financial product offered by banks, NBFCs, or international lenders to fund a student’s higher studies. It covers expenses such as tuition fees, living costs, travel, exam fees, books, laptops, and insurance.
- Repayment Required: Yes, after the moratorium (course period + 6–12 months).
- Types: Secured (with collateral) and Unsecured (without collateral).
- Loan Amount: Ranges from ₹50,000 to ₹1.5 crore, depending on the type of lender.
- Interest Rate: Generally, 8%–15% p.a. based on collateral, course, and university.
- Tax Benefits: Under Section 80E, interest paid on education loans is tax-deductible for a period of 8 years.
Best for: Students who don’t get enough scholarships/grants or need full-cost coverage for high-budget programs.
What is a Scholarship?
A scholarship is a financial award provided by governments, universities, or private organisations to support students based on merit, need, or category. Unlike loans, scholarships don’t need to be repaid.
- Repayment Required: No, scholarships are free aid.
- Types:
- Merit-based: For students with excellent academic, sports, or extracurricular achievements.
- Need-based: For students from low-income families.
- Category-based: For minority, female, or reserved community students.
- Destination-specific: Many countries offer scholarships to attract international students (e.g., Chevening, Fulbright, DAAD).
- Coverage: Can include tuition, living allowance, airfare, and research grants.
- Amount: Partial (₹50,000–₹5 lakh) or full (covers 100% cost of study).
Best for: High-achieving students, or those applying to universities/countries that offer financial aid.
Key Differences: Education Loan vs Scholarship
|
Factor |
Education Loan |
Scholarship |
|
Repayment |
Must be repaid with interest after the course + moratorium |
No repayment, free financial aid |
|
Eligibility |
Based on admission, the co-applicant’s income, collateral, and credit score |
Based on merit, financial need, category, or destination country |
|
Funding Amount |
₹50,000 – ₹1.5 crore (depending on lender) |
Varies – from small grants to full tuition + living |
|
Coverage |
Tuition, living, travel, books, laptops, insurance |
Tuition + living allowance, sometimes airfare and research |
|
Source |
Banks, NBFCs, and international lenders |
Government bodies, universities, NGOs, private organisations |
|
Tax Benefit |
Interest deductible under Section 80E |
No tax benefits |
|
Guarantee |
Approval depends on documents, income, and collateral |
Competitive, limited seats, not guaranteed |
|
Processing Time |
1–5 weeks, depending on loan type |
Varies – can take months, application deadlines matter |
Which Should You Choose?
If you’re a top performer with strong academics, → Go for a scholarship (free aid, no repayment).
If you don’t qualify for scholarships or need full coverage, → Choose an education loan (guaranteed funding).
If you have partial aid but not full coverage, → Use a combination (scholarship + loan together).
Conclusion
Both education loans and scholarships play a vital role in helping students achieve their academic goals. Scholarships are the most desirable because they don’t require repayment, but they are competitive and limited. Education loans, on the other hand, guarantee funding for almost any recognised program, provided eligibility conditions are met, though repayment with interest is mandatory.
