Most students assume their education loan interest rate is a fixed number set by the bank. It is not. Your rate is the result of two separate calculations: a benchmark rate set by market and RBI conditions, and a spread set by the bank based on your specific profile.
Understanding how both work helps you understand why you might get a different rate from the same bank compared to your friend – and what you can do to get the lower one.
The Two Components of Your Education Loan Rate
| Component | What it is | Who controls it | Current 2026 value |
| Benchmark rate (MCLR or RBLR) | Minimum rate below which banks cannot lend. Changes with RBI repo rate. | RBI sets repo rate; banks set their own MCLR/RBLR above it. | RBI Repo Rate: 6.25%. 1-year MCLR (SBI): ~8.55%. RBLR (BOI): varies. |
| Spread | The additional percentage the bank charges above the benchmark for profit, operating costs, and risk. | Bank sets this. Can vary by profile, university, collateral. | Typically 1-3% above benchmark for education loans. |
| Your final rate | Benchmark + Spread | – | Example: MCLR 8.55% + Spread 1.70% = ~10.25% p.a. |
Your final interest rate = Benchmark rate + Spread. The benchmark changes with RBI policy. The spread is what the bank charges you specifically – and this is where your profile matters.
What is MCLR and How Has It Changed?
MCLR (Marginal Cost of Funds-Based Lending Rate) was introduced by RBI in 2016 as a transparent benchmark for bank lending rates. It replaced the Base Rate system. Most public sector bank education loans are still priced on MCLR.
| MCLR Component | What it includes |
| Marginal cost of funds | Average rate at which the bank raised deposits recently. Linked to RBI repo rate. |
| Operating costs | Bank’s cost of running operations (staff, branches, technology). |
| Tenor premium | Additional cost for longer lending periods. |
| Negative carry on CRR | Cost of maintaining Cash Reserve Ratio without earning interest on it. |
Banks recalculate MCLR monthly. Your rate resets at the reset period defined in your loan (typically 1 year for education loans). SBI’s reset period is 1 year; Axis Bank’s is 6 months. If MCLR drops between resets, your rate stays until the next reset date.
RBLR – The Newer, More Transparent Benchmark
Some banks (like Bank of India) use RBLR (Repo-Based Lending Rate) instead of MCLR. RBLR is directly linked to the RBI repo rate and changes immediately when RBI changes the repo rate – making it more transparent. MCLR adjusts with a lag.
In 2026, with the RBI cutting rates, students on RBLR-linked loans have seen faster rate reductions than those on MCLR-linked loans.
Also Read: Compare Education Loan Interest Rates – All Lenders 2026
7 Profile Factors That Determine YOUR Spread
The benchmark rate is the same for all borrowers at a given bank. What differs is the spread – and that is determined by your specific profile.
| Profile Factor | Lower rate signal | Higher rate signal |
| University ranking | QS top 100-200 globally | Unranked or low-ranked institution |
| Course/field of study | STEM, MBA, Medicine – high employability | Arts, Humanities at non-premier institutions |
| Collateral provided | Property or FD pledged as security | No collateral (unsecured loan) |
| Co-applicant CIBIL | 750+ – strong repayment history | Below 700 – poor credit history |
| Co-applicant income | High, stable, documented | Low, irregular, undocumented |
| Academic track record | Consistent marks 10th, 12th, graduation | Significant dips, backlogs, gaps |
| Loan amount relative to expected salary | EMI < 25% of expected starting salary | EMI > 40% of expected starting salary |
NBFCs vs Banks: Who Controls the Rate Benchmark?
| Lender Type | Benchmark used | RBI control | Rate stability |
| Public sector banks | MCLR or RBLR – RBI regulated | Strong – rate changes pass through | Predictable reset cycle (1 year for most) |
| Private banks | MCLR or internal benchmark | Moderate – still regulated | Less predictable than PSBs |
| NBFCs (Avanse, InCred, HDFC Credila) | Internal benchmark – NOT RBI regulated | None – NBFC sets benchmark freely | Can increase benchmark without RBI policy change |
This is a critical difference: NBFC interest rates are not tied to RBI policy. A public bank’s rate falls when RBI cuts repo rate. An NBFC can keep its rate high regardless of RBI cuts. This is a risk borrowers should understand when choosing between banks and NBFCs.
How to Use This Knowledge to Get a Lower Rate
- Improve co-applicant CIBIL to 750+: this single factor has the largest impact on your spread at most lenders.
- Provide collateral if possible: secured loans consistently get 1.5-3% lower rates than unsecured loans.
- Apply to a ranked university in a high-employability field: STEM or MBA at top-500 QS signals lower default risk.
- Compare lenders: spread varies by lender. GradRight shows competing offers from 18+ lenders simultaneously.
- Tell each lender you are comparing: lenders have discretion within their spread band. Competition uses that discretion in your favor.
- Check if your university has an MoU with a bank: partner universities often get preferential rates.
See what rate you qualify for across 18+ lenders based on your specific profile. Compare Education Loans on GradRight
Related Education Loan Guides
Compare Education Loan Interest Rates – All Lenders
Collateral vs No Collateral Education Loan
IBA Model Education Loan Scheme Guide
Education Loan Moratorium Period Guide
Education Loan Repayment Tips
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