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Are you aware of these 7 hidden charges on your student loan? A checklist!


Funding for your education can be costly. And sometimes, you don’t even have the corpus if the education is higher and exclusive. In such cases, student loans come as a friend in need! In India, a student loan can be availed at an early stage of Nursey to higher degrees. They are flexible and easily available. However, student loans come with a host of charges that one needs to be aware of.

Explaining in detail, Ankit Mehra CEO and Co-founder of GyanDhan said, the cost to finance higher education piles up faster than you can comprehend. Scholarships, personal funds, and education loans help mitigate the requirement of funds, out of which, education loans provide the biggest relief. 

However, he also said, they come at a cost that lenders communicate explicitly, while some charges might be implicit.

If you are applying for an education loan any time soon, you should be aware of the implicit costs that come with an education loan, as per Mehra. Here’s what these charges are:

1. Processing fees: A processing fee is charged by the lender to process the education loan application. A common charge that most lenders mention upfront, can be a fixed amount or a percentage of the loan amount. However, a few lenders add a service charge to the processing fee that increases the cost of the loan.

2. Prepayment charges: Prepayment charges are levied whenever the borrower wants to repay and close the loan account before the agreed-upon tenure. Education loans generally do not come with prepayment charges. However, be sure to read the terms and conditions to verify if there are any foreclosure charges levied by the lender. As per the RBI guidelines, no bank levies prepayment charges.

3. Late payment: As the name suggests, a late payment fee is charged when the borrower fails to make a timely EMI payment. Most lenders charge 2%-3% of the EMI amount plus GST.

4. Loan insurance: Loan insurance helps borrowers protect themselves from unexpected events that may prevent them from repaying a loan. Lenders can increase your interest rate if you do not get loan insurance. In government banks, it’s up to 0.05% – 0.25%, and in private banks, it’s up to 2%.

5. Mortgage Creation Charges: Whenever borrowers take an education loan with collateral, banks levy these charges that can be 0.25% to 0.5% of the loan amount. Some state governments waived off these mortgage charges, specifically for the education loan. One such example is Karnataka.

6. Property Insurance: If the property pledged by the borrower is old, banks will require you to take property insurance in case of property collapses and fire accidents. Any unforeseen damage to the property poses high risks for the banks.

7. Supplementary Insurance: Often lenders ask borrowers to take supplementary insurance, like health insurance or travel insurance. Taking these insurances is not mandatory, and borrowers have the option to refuse the same. In case, the university or the embassy requires you to take this kind of insurance, make sure you get it from the lender itself, as it will be adjusted in the loan amount.

Mehra said, “the true cost of an education loan can be higher than what it seems on paper. However, being aware of these charges will help students estimate the cost accurately.”


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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