Riya finished her MBA two years ago and now works at a mid-sized firm in Pune. She has an outstanding education loan of ₹12 lakh, taken at an interest rate of around 11%. The monthly EMI takes a considerable part of her salary. After paying rent, groceries and other expenses, she has very little left to save.
A colleague suggests taking a personal loan to close the education loan. Another friend recommends transferring the existing loan to a different bank.
Both options may sound reasonable, but which one actually makes more financial sense?
Many Indian graduates face a similar situation when they begin repaying their education loans. As they start earning, they may find that the EMI puts pressure on their monthly budget. Exploring a lower interest rate or a more manageable repayment plan can help.
There are two options borrowers commonly consider:
● Education loan balance transfer: Moving an existing education loan to another lender, potentially at a lower interest rate or with better repayment terms.
● Personal loan: Taking a new personal loan and using the funds to repay the outstanding education loan, subject to the lender's terms.
Although both options involve borrowing from a new lender, they are not the same. They can differ in interest rates, repayment periods, fees, collateral requirements and tax treatment.
Before choosing either option, compare the total borrowing cost, including interest, processing charges, repayment tenure and any applicable tax benefits. A lower EMI or advertised interest rate does not automatically mean a cheaper loan.
What Is an Education Loan Balance Transfer?
An education loan balance transfer, also known as a loan takeover, allows you to move your outstanding education loan to another eligible lender. The new lender takes over the remaining loan amount, and you repay it under the revised interest rate and repayment terms, subject to approval.
Borrowers generally consider this option to explore lower interest rates, better repayment terms or reduced EMIs.
How the process works
The process generally involves the following steps:
1. Approach a new lender: Contact a bank or financial institution that offers education loan takeovers.
2. Submit your application: Provide details of your existing education loan, outstanding balance and repayment history.
3. Complete the lender's assessment: The new lender reviews your credit profile, income, repayment record, original loan details and collateral, where applicable.
4. Receive the loan offer: If approved, the lender provides a sanction letter with the proposed interest rate, tenure, charges and other conditions.
5. Close the existing loan: The new lender follows its takeover process to pay the outstanding amount to your current lender.
6. Start repayment: Once the old loan is closed, you begin paying EMIs to the new lender according to the revised terms.
The exact process and documentation requirements vary between lenders.
Why borrowers consider it
Borrowers may consider an education loan balance transfer for several reasons:
● The original loan was taken at a relatively high interest rate.
● Their income and credit profile have improved since they first applied for the loan.
● Another lender is offering a more competitive education loan rate.
● They want a repayment tenure that better suits their current financial situation.
● They want to explore better repayment flexibility or prepayment terms.
How a new lender evaluates an existing loan
A lender will assess whether you meet its requirements before agreeing to take over your education loan. It may review:
● The outstanding loan amount
● Your existing loan's repayment history
● Your credit score and credit report
● Your current income and employment stability
● The course and institution for which the original loan was taken
● Details of the co-applicant or guarantor, if applicable
● Existing collateral and whether it meets the new lender's requirements
A good repayment record and stable income may strengthen your application, but approval is always subject to the lender's policy.
Benefits of switching lenders
An education loan balance transfer may offer several benefits:
● Potentially lower interest rate: A lower rate can reduce the interest payable over the remaining repayment period.
● Lower monthly EMI: Your EMI may decrease if the new lender offers a lower rate or a longer repayment tenure.
● Better repayment terms: You may find a loan with repayment conditions that suit your current financial situation.
● Potential interest savings: Keeping the remaining tenure unchanged or making additional repayments may help reduce the overall cost.
However, compare the new loan's total cost with the cost of continuing your existing loan. Processing fees and other charges can reduce the savings.
Eligibility and documents
Eligibility requirements differ between lenders. Generally, the new lender will expect an existing education loan that meets its takeover criteria, a satisfactory repayment record and evidence that you can manage the repayments.
Some lenders may also require a co-applicant or collateral. The documents required are discussed in Section 8.
A simple example
Arjun has an outstanding education loan of ₹10 lakh with a public sector bank at an interest rate of 11.5%. After two years of work, he has a stable income and a good repayment record.
He approaches another lender that offers to take over his loan at a hypothetical rate of 9.5% for the same remaining tenure.
If the new lender approves the application and the associated charges are reasonable, Arjun may reduce his interest cost by switching. However, he should also check whether the new loan qualifies for the education loan tax deduction under Section 80E. A transfer does not automatically guarantee that the deduction will continue without meeting institutional criteria.
What Is a Personal Loan for Education Loan Repayment?
A personal loan is a type of borrowing that individuals can use for various personal expenses, such as medical bills, travel, weddings or debt repayment.
Most personal loans are unsecured, which means borrowers generally do not need to pledge property or other assets as collateral. However, approval depends on the lender's eligibility criteria, income assessment, credit profile and other conditions.
Can you use a personal loan to repay an education loan?
A borrower may be able to use personal loan funds to repay an existing education loan, depending on the personal loan agreement and the lender's permitted-use conditions.
The process involves taking a new loan and using the funds to close the outstanding education loan. Once the education loan is closed, the borrower is responsible for repaying the personal loan.
However, this changes the nature of the borrowing. A personal loan is not automatically treated as an education loan simply because the funds are used to repay education-related debt.
Assume an outstanding education loan of ₹10 lakh, with the following comparison illustrating the impact of different interest rates and repayment tenures on EMIs.
Illustrative calculations using monthly reducing-balance interest, excluding fees.
A personal loan might have a shorter tenure and therefore a much higher EMI, even if the borrower is eligible.
How does the process work?
The process generally involves these steps:
1. Apply for a personal loan: Submit an application with the required identity, income and employment documents.
2. Complete the credit assessment: The lender reviews your credit score, income, existing EMIs and repayment capacity.
3. Receive the loan amount: If approved, the lender disburses the funds according to its process.
4. Repay the education loan: Use the funds to clear the outstanding education loan, after checking the closure amount and applicable charges.
5. Collect the closure confirmation: Obtain a loan closure letter or other confirmation from your education loan lender.
6. Repay the personal loan: Start paying EMIs according to the personal loan agreement. Eligibility requirements
Personal loan eligibility varies across banks and financial institutions. Lenders commonly consider:
● Minimum age requirements
● Monthly income and repayment capacity
● Employment status and stability
● Credit score and credit history
● Existing loans and monthly EMI obligations
● The loan amount requested
There is no single credit score, income level or debt-to-income ratio that applies to every lender. Check the specific requirements before applying.
Why some borrowers choose it
A personal loan may be considered when:
● Their current education loan lender does not offer a suitable takeover option.
● The outstanding loan amount does not meet another lender's takeover requirements.
● They want to avoid pledging collateral for the new borrowing.
● They receive a competitive personal loan offer based on their current income and credit profile.
● They can comfortably manage the personal loan's repayment period and EMI.
Advantages
● Generally unsecured: Most personal loans do not require property or other assets as collateral.
● Flexible usage: Funds may be used for debt repayment, subject to the lender's terms.
● Potentially quicker processing: Some lenders offer a relatively simple application and disbursal process for eligible applicants.
Disadvantages
● Potentially higher interest rates: Personal loans are generally unsecured, and their pricing depends on the borrower's credit profile and the lender's risk assessment.
● Shorter repayment tenure: Personal loans often have shorter repayment periods than education loans, although the actual tenure varies.
● Higher monthly EMI: A shorter tenure can increase the monthly repayment amount.
● Processing charges: The lender may charge a processing fee and applicable taxes.
● Different tax treatment: Interest on a personal loan does not qualify for the education loan interest deduction under Section 129, even if the funds are used to repay an existing education loan.
Education Loan Balance Transfer vs Personal Loan: Key Differences
What these differences mean in real life
● Purpose: An education loan balance transfer moves an existing education loan to another lender. A personal loan creates a separate borrowing arrangement, and the borrower uses the funds to close the education loan. This distinction directly affects the tax treatment of the interest paid.
● Interest rates: Education loan rates depend on the lender, loan scheme, course, institution, collateral and borrower profile. Personal loan rates are also profile-dependent and may be higher because most personal loans are unsecured. However, actual offers should be compared rather than assuming one type of loan will always be cheaper.
● Collateral: An existing education loan may have been approved with a parent or guardian as co-applicant and, in some cases, property or other collateral. A new lender may have its own security requirements for a takeover. Personal loans are generally unsecured, which can make them attractive to borrowers who do not want to pledge assets.
● Tenure: Education loans may offer longer repayment periods, depending on the scheme and lender. Personal loans often have shorter tenures. A shorter repayment period can result in a higher monthly EMI.
● EMI: Your EMI depends on the outstanding amount, interest rate and repayment tenure. A lower EMI does not necessarily mean you will pay less interest overall.
● Eligibility: For an education loan takeover, lenders may assess the existing loan, repayment record, course and institution details, income and collateral. For a personal loan, the borrower's current income, employment and credit profile are important factors.
|● Tax benefits: Interest paid on an eligible higher education loan may qualify for a deduction under Section 80E, subject to conditions. Interest on a personal loan does not qualify just because the money was used to repay an education loan.
● Processing costs: Both options may involve processing fees and other charges. Check the existing lender's closure statement and the new lender's charges before making a decision. Also check whether RBI's prepayment rules apply to your existing loan.
Interest Rates: Which Option Can Help You Save More? How education loan rates are set
Education loan interest rates vary across banks and financial institutions. The rate offered to a borrower may depend on:
● The lender and the specific education loan scheme
● The course and institution
● The loan amount
● Whether collateral is provided
● The borrower's and co-applicant's credit profile
● Applicable interest concessions
● The lender's benchmark and spread
Some education loans have floating interest rates linked to an external benchmark. In such cases, the applicable rate may change when the benchmark or the lender's spread changes, according to the loan agreement.
For example, SBI's published education loan rates include different rates for its student, scholar and takeover schemes. Its standard student loan takeover rate for loans above ₹10 lakh with collateral is listed separately from other schemes. These are lender-specific rates, not a market-wide range or a guarantee of the rate a borrower will receive.
Always check the latest rate applicable to the exact loan scheme before comparing offers.
How personal loan rates differ
Personal loans are generally unsecured, so lenders assess the risk of lending without collateral. The interest rate offered depends on factors such as:
● Credit score and repayment history
● Monthly income
● Employment and job stability
● Existing financial obligations
● Loan amount and tenure
● The lender's pricing policy
Some borrowers may receive competitive personal loan offers, while others may be quoted considerably higher rates. Do not assume that a personal loan will be cheaper or more expensive without checking an actual offer.
What affects the rate you get
● Credit score: A stronger credit history may improve your chances of receiving a competitive rate.
● Income and job stability: Lenders assess whether your income is sufficient to support the proposed EMI.
● Existing repayment history: Missed or delayed payments may affect your credit profile and loan offer.
● Loan amount: The amount requested and the lender's product limits can influence pricing.
● Lender policy: Banks and other regulated lenders may have different interest rates, eligibility criteria and loan conditions.
Fixed vs floating
With a fixed interest rate, the rate remains unchanged for the agreed fixed-rate period, subject to the loan agreement.
With a floating interest rate, the rate changes in line with the applicable benchmark and the terms of the loan. This may affect your EMI, repayment tenure or both, depending on the lender's policy.
Most banks and NBFCs offer floating interest rates on education loans. Fixed interest rates may be around 1-2% higher than floating rates, although the difference varies between lenders and loan products.
Floating rates can fall when the benchmark decreases, but they can also rise. Personal loans are generally offered at fixed interest rates, while education loans may have fixed or floating rate options.
Before choosing, compare the interest rates, applicable benchmarks and repayment terms. Check the loan agreement to understand how and when your interest rate can change.
Compare effective cost, not advertised rates
A loan with a lower advertised interest rate may not always be the cheapest option once fees and other costs are included. Compare the following before making a decision:
● Interest rate and whether it is fixed or floating
● Processing fee and applicable GST
● Foreclosure and part-prepayment charges, where applicable
● Insurance or other add-on costs
● Any charges for transferring the existing loan
● Applicable tax benefits, if eligible
Also compare the total amount you will repay over the remaining tenure, not just the monthly EMI.
An illustration on the same loan and tenure
Consider an outstanding loan amount of ₹10 lakh to be repaid over five years. The following rates are hypothetical and are used only to illustrate how interest rates affect repayment.
In this example, the lower interest rate results in approximately ₹1.05 lakh less interest over the same five-year tenure, before fees and any tax impact are considered.
The actual savings will depend on the lender's final offer, charges and repayment schedule. EMI and Repayment Tenure: Which Option Is Easier to Manage? How tenure affects EMI
Your Equated Monthly Instalment (EMI) depends on three main factors:
1. The outstanding loan amount
2. The applicable interest rate
3. The repayment tenure
If you spread the same loan amount over a longer period, the monthly EMI generally decreases. If you repay it over a shorter period, the EMI increases.
However, a longer tenure may result in more interest being paid over the life of the loan.
Why personal loans can feel heavier
Personal loans often have shorter repayment periods than education loans. This means borrowers may need to repay the principal over fewer months.
Even when the difference in interest rates is not very large, a shorter tenure can result in a higher monthly EMI.
Before choosing a personal loan, check whether the EMI fits comfortably within your monthly budget after accounting for rent, household expenses, savings and other loan repayments.
How a balance transfer can change your monthly burden
An education loan balance transfer may reduce your EMI if the new lender offers a lower interest rate for the same remaining tenure.
If the new lender also allows a longer repayment period, the monthly EMI may decrease further. This can provide some breathing room in your monthly budget.
However, extending the tenure means you may pay interest for a longer period. Therefore, compare the total repayment amount before choosing a longer tenure.
Does a lower EMI always mean more savings?
No. A lower EMI may simply mean that you are repaying the loan over a longer period.
Tax Benefits: Does Either Option Offer an Education Loan Interest Deduction?
Tax treatment is an important factor when comparing an education loan balance transfer with a personal loan.
What is Section 129?
Under the Income-tax Act, 2025, Section 129 provides a deduction for eligible interest paid on a loan taken for higher education.
The deduction applies only to the eligible interest paid on a qualifying higher education loan. It does not cover the principal repayment.
Who can claim it?
The deduction is available to an individual who has taken an eligible loan for: ● Their own higher education
● The higher education of their spouse
● The higher education of their children
● The higher education of a student for whom they are the legal guardian The loan must meet the conditions specified under the income-tax provisions.
What counts as an eligible education loan?
Under Section 129 of the Income-tax Act, 2025 the loan must be taken from a qualifying financial institution (such as a public or private bank or notified financial institution) or an approved charitable institution for higher education.
Higher education generally refers to any course of study pursued after passing the Senior Secondary Examination or its equivalent, including vocational and professional courses.
A loan taken from a friend, relative or an ordinary lender outside the specified categories does not qualify.
How long can you claim it?
Under Section 129 of the Income-tax Act, 2025, the deduction is available for the initial tax year in which the individual starts paying interest and the seven immediately succeeding tax years, or until the interest is fully paid, whichever is earlier.
This means the deduction can be claimed for a maximum period of eight tax years, subject to the applicable conditions.
There is no monetary cap specified on the eligible interest deduction under this provision.
Does transferring a loan affect the tax benefit?
A balance transfer may affect your eligibility for the education loan interest deduction. Under Section 129 of the Income-tax Act, 2025, the deduction is available only when the loan meets the prescribed conditions, including being taken from an eligible financial institution or approved charitable institution.
If you are considering transferring your education loan, check the following:
- Whether the new lender falls within the eligible categories under Section 129.
- How the new loan is documented and classified.
- Whether the transferred loan meets the applicable conditions for the deduction.
- How much of the original eight-year deduction period remains.
Ask the new lender for an interest certificate and confirm the tax treatment with a qualified tax professional before relying on the deduction. A balance transfer does not automatically entitle you to a fresh eight-year deduction period.
What about a personal loan used to repay an education loan?
A personal loan does not qualify for the education loan interest deduction under Section 80E.
The fact that you use personal loan funds to close an education loan does not, by itself, make the personal loan an eligible higher education loan. Therefore, interest paid on a separate personal loan used to repay an education loan would not qualify under Section 80E merely because of how the funds were used.
You may still account for eligible interest paid on the original education loan before it was closed, subject to the applicable tax rules and deduction period.
The tax regime matters
The Section 80E education loan interest deduction is not available under the new tax regime introduced in recent years. Borrowers opting for the new simplified tax regime cannot claim deductions under Chapter VIA (which includes Section 80E).
For taxpayers wanting to claim the Section 80E deduction, opting for the old tax regime is necessary. Compare both tax regimes before making a decision. A qualified tax professional can help you assess whether the deduction changes the overall cost of your loan.
Eligibility and Documents: What Do You Need for Each Option?
The eligibility requirements for an education loan balance transfer and a personal loan are different. They also vary between lenders, so the following points should be treated as general guidelines rather than fixed rules.
Education loan balance transfer eligibility
A lender may consider the following:
● Existing education loan: You must have an education loan that the new lender is willing to take over.
● Outstanding loan amount: The amount must fall within the lender's minimum and maximum limits.
● Repayment history: A record of timely EMI payments may improve your chances of approval.
● Credit profile: The lender may review your credit score and repayment history. ● Income and employment: Your current income and employment stability may be assessed to determine repayment capacity.
● Co-applicant and collateral: Some lenders may require a co-applicant or collateral, depending on the loan scheme and outstanding amount.
For example, SBI's published education loan takeover scheme specifies a minimum loan amount (such as ₹10 lakh) and requires repayment to have started, with EMIs regular in the existing lender's records. Its listed takeover conditions also include collateral requirements. These conditions are specific to individual lender schemes.
Personal loan eligibility
Personal loan lenders commonly assess:
● Age: Applicants must meet the lender's minimum and maximum age requirements.
● Minimum income: The required income varies by lender, location and employment profile.
● Employment status: Salaried and self-employed applicants may be considered under different criteria.
● Credit score: A stronger credit history may improve the chances of approval and competitive pricing.
● Existing debt obligations: Current EMIs and other financial commitments affect repayment capacity.
● Repayment capacity: The lender assesses whether your income can support the proposed EMI along with your existing expenses and obligations.
There is no universal minimum credit score, salary or debt-to-income ratio applicable to every personal loan.
What about a personal loan used to repay an education loan?
A personal loan does not qualify for the education loan interest deduction under Section 129 of the Income-tax Act, 2025.
Using personal loan funds to close an existing education loan does not automatically make the personal loan eligible for the higher education interest deduction. Therefore, interest paid on a separate personal loan used to repay an education loan does not qualify under Section 129 merely because the funds were used for this purpose.
You may still claim a deduction for eligible interest paid on the original education loan before it was closed, subject to the applicable tax rules and deduction period.
The tax regime matters
The deduction under Section 129 is not available under the default new tax regime specified under Section 202 of the Income-tax Act, 2025.
Taxpayers who wish to claim this education loan interest deduction must opt out of the default new tax regime and choose the old tax regime, subject to the applicable conditions.
Compare your tax liability under both tax regimes before making a decision. A qualified tax professional can help you assess whether claiming the deduction reduces your overall tax burden.
Eligibility and Documents: What Do You Need for Each Option?
The eligibility requirements for an education loan balance transfer and a personal loan are different. They also vary between lenders, so the following points should be treated as general guidelines rather than fixed rules.
Education loan balance transfer eligibility
A lender may consider the following:
● Existing education loan: You must have an education loan that the new lender is willing to take over.
● Outstanding loan amount: The amount must fall within the lender's minimum and maximum limits.
● Repayment history: A record of timely EMI payments may improve your chances of approval.
● Credit profile: The lender may review your credit score and repayment history.
● Income and employment: Your current income and employment stability may be assessed to determine repayment capacity.
● Co-applicant and collateral: Some lenders may require a co-applicant or collateral, depending on the loan scheme and outstanding amount.
For example, SBI's published education loan takeover scheme specifies a minimum loan amount (such as ₹10 lakh) and requires repayment to have started, with EMIs regular in the existing lender's records. Its listed takeover conditions also include collateral requirements. These conditions are specific to individual lender schemes.
Personal loan eligibility
Personal loan lenders commonly assess:
● Age: Applicants must meet the lender's minimum and maximum age requirements. ● Minimum income: The required income varies by lender, location and employment profile.
● Employment status: Salaried and self-employed applicants may be considered under different criteria.
● Credit score: A stronger credit history may improve the chances of approval and competitive pricing.
● Existing debt obligations: Current EMIs and other financial commitments affect repayment capacity.
● Repayment capacity: The lender assesses whether your income can support the proposed EMI along with your existing expenses and obligations.
There is no universal minimum credit score, salary or debt-to-income ratio applicable to every personal loan.
Documents required
Before applying, confirm the latest document checklist with the lender. You may also need additional documents depending on whether the original education loan was secured or unsecured.
When Should You Choose an Education Loan Balance Transfer?
An education loan balance transfer may be worth considering if:
● Your current interest rate is high: You have found a genuine difference between your existing rate and the new lender's offer.
● Another lender offers better education loan terms: The new lender provides a lower rate, a suitable tenure or more convenient repayment conditions.
● You want to reduce your monthly EMI: The revised rate or tenure may make repayments easier to manage.
● You want to reduce your overall interest cost: There is enough time remaining on the loan for the interest savings to outweigh the transfer costs.
● You want to explore the applicable tax treatment: You have checked whether the new loan meets the conditions for the Section 80E education loan interest deduction under the old tax regime.
● Your repayment profile has improved: You now have a stable income and a satisfactory repayment history, which may help with the takeover assessment.
Before switching, calculate the total interest payable on your existing loan and compare it with the proposed loan. Include processing charges, any applicable closure costs and the effect of changing the tenure.
When Should You Consider a Personal Loan Instead?
A personal loan may be worth considering if:
● You prefer unsecured borrowing: You do not want to pledge property or other assets as collateral.
● Your existing loan cannot be transferred: The outstanding amount or loan conditions do not meet the takeover requirements of other lenders.
● You receive a competitive personal loan offer: The interest rate and fees are reasonable compared with your existing education loan.
● You can comfortably manage the shorter tenure: The EMI fits your monthly budget without affecting essential expenses or savings.
● The overall cost is lower: After comparing interest, fees, repayment tenure and tax implications, the personal loan offers a clear financial advantage.
A personal loan may not be suitable if:
● It increases your monthly financial pressure and leaves you with little money for essential expenses.
● Its interest rate is considerably higher than your existing education loan rate.
● You lose a tax deduction (Section 80E) that you are eligible to claim and currently benefit from.
● Processing charges and other fees reduce or eliminate the expected savings.
● The shorter repayment tenure makes the EMI difficult to manage.
A personal loan should not be chosen simply because it is unsecured or easier to apply for. Compare the complete repayment cost before closing your education loan.
Looking for a Smarter Way to Manage Your Education Loan?
Struggling with high EMIs or wondering whether transferring your education loan could help you save on interest? Choosing between a balance transfer and a personal loan can be confusing, especially when you have to consider repayment costs, eligibility and tax benefits.
Before making a decision, speak to someone who understands the study abroad journey. Connect with Inforens for guidance, get your questions answered and explore options that suit your financial situation.
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