Education Loan Moratorium Explained: How Interest Adds Up Before Your First EMI

What the moratorium is

An education loan usually has a repayment holiday called the moratorium. It covers the length of the course and a grace period afterwards, commonly 6 to 12 months or until you get a job, whichever comes first, as set by the lender. You are not required to pay EMIs in this period.

It sounds free, but the loan keeps charging interest. Unless you pay it, that interest is added to what you owe.

How much interest builds up

Assume a ₹10 lakh loan at 10%, a 4-year course and a 1-year grace period, so 5 years of moratorium. For simplicity, assume the full amount is disbursed at the start. In practice banks disburse in instalments, so the actual figure is usually lower.

• Simple interest accrued: 10,00,000 × 10% × 5 = ₹5,00,000.
• Principal at the start of repayment, if it is added on: ₹15,00,000.

If the lender capitalises interest more often, for example each year, the total is higher. At yearly compounding it would reach about ₹16.1 lakh.

What it does to your EMI

Repayment over 10 years at 10%:

Not paying the interest raises your EMI by ₹6,608 a month and adds about ₹3 lakh of interest during repayment, on top of the ₹5 lakh that already built up.

Pay the interest while you study

If you can, pay the monthly interest during the course. On ₹10 lakh at 10% that is about ₹8,333 a month. Even paying part of it, from a parent's income or a part-time job, keeps the principal from growing.

Many lenders offer a simple interest during study option for this. It often comes at no extra cost. Ask for it at the time of sanction.

Other points to check

• Interest rate and type: public sector banks often price education loans lower than private lenders and NBFCs. Check whether the rate is floating.
• Collateral: loans up to a threshold are usually available without collateral at some banks, with conditions.
• What the loan covers: tuition, hostel, exam fees, books, laptop and travel are often included. Confirm the list.
• Co-borrower: most lenders need a parent or guardian as co-borrower.
• Tax benefit: interest on an education loan may qualify for a deduction under the old tax regime for a limited number of years. Check current rules.
• Prepayment: most education loans allow prepayment without a penalty. Confirm in your sanction letter.

How to plan repayment

1. Add the interest that will accrue during the moratorium to the loan amount, and test the EMI.
2. Choose the repayment tenure so the EMI is no more than about 30 to 40% of your expected starting salary.
3. Use the prepayment calculator to see how bonus or salary growth shortens the loan.

FAQ

Do I have to pay EMI during the course?

Usually no. The moratorium covers the course plus a grace period. You can choose to pay interest during that time.

Does interest accrue during the moratorium?

Yes. Unless you pay it, it is added to the loan balance.

What is the typical grace period?

Commonly 6 to 12 months after the course ends, or until you get a job, as per the lender's terms.

What is the EMI on a ₹10 lakh education loan?

At 10% for 10 years it is ₹13,215, before counting any interest added during the moratorium.