Pursuing higher education often requires financial support, and education loans are the most common way to fund it. But many students and parents worry about repaying the loan immediately while studies are ongoing. This is where the moratorium period comes into play.
An education loan with moratorium period allows students to focus on their studies without the pressure of paying EMIs during the course and a few months after completion. In this blog, we will explain what the moratorium period is, its benefits, repayment strategies, and real examples with calculations.
What is a Moratorium Period in Education Loan?
The moratorium period is a “repayment holiday” offered by banks and financial institutions.
- It includes the study period (course duration) plus 6 to 12 months after completion.
- During this time, no EMI payments are required.
- However, interest continues to accrue on the loan amount.
This feature ensures that students can complete their education, find a job, and then start repaying the loan.
Why is the Moratorium Period Important?
- Financial Relief for Students & Parents – No pressure of EMIs during studies.
- Time to Find a Job – Students get 6–12 months after studies to secure employment.
- Better Career Focus – Without repayment stress, students can concentrate fully on learning.
- CIBIL Score Protection – No defaults are recorded since EMI starts after the moratorium.
- Option of Subsidy – Some government schemes provide interest subsidy during the moratorium.
RBI Guidelines on Education Loan Moratorium
According to the Reserve Bank of India (RBI) guidelines:
- The moratorium is course duration + 1 year.
- Lenders can charge simple interest during the moratorium.
- Students can choose to pay partial or full interest during this period to reduce overall cost.
Example & Calculation of Moratorium Impact
Let’s understand with a real example.
- Loan Amount: ₹10,00,000
- Interest Rate: 10% p.a.
- Course Duration: 2 years
- Moratorium Period: 2 years (course) + 1 year (job search) = 3 years
Case 1: No payment during moratorium
Interest accrues for 3 years:
₹10,00,000 × 10% × 3 = ₹3,00,000
So, when repayment starts:
Loan Balance = ₹10,00,000 + ₹3,00,000 = ₹13,00,000
Case 2: Paying simple interest during moratorium
Student pays only interest every month:
Monthly interest = (₹10,00,000 × 10%) ÷ 12 = ₹8,333
For 36 months = ₹3,00,000 paid
When EMI starts, principal remains only ₹10,00,000, which reduces future EMI burden.
Repayment Options After Moratorium
Banks and NBFCs allow multiple repayment structures:
- Deferred EMI – Start full EMI after moratorium.
- Partial Interest Payment – Pay only simple interest during moratorium.
- Step-up EMI – Lower EMIs initially, then increase as income rises.
Differences Between Banks
| Lender Type | Moratorium Duration | Repayment Expectation |
| Government Banks | Course + 6 months | Usually no payment until EMI starts |
| Private Banks | Course + 12 months | Often ask for simple interest payments |
| NBFCs | Flexible, case-by-case basis | May allow full/partial interest |
Tips to Manage Education Loan with Moratorium Period
- Start paying interest early – Even small payments reduce future EMI load.
- Use subsidies – Apply under government schemes like the Central Sector Interest Subsidy Scheme (CSIS).
- Budget smartly – Save internship stipends or part-time job earnings to pay interest.
- Request extensions if needed – Banks sometimes extend moratorium if you don’t get a job.
- Avoid defaults – Begin repayment as soon as possible to maintain credit health.
Quick Example of EMI Reduction
- Loan Amount: ₹10,00,000
- Interest Rate: 10%
- Tenure: 10 years
Without paying interest in moratorium
Loan grows to ₹13,00,000.
EMI ≈ ₹17,200 per month.
By paying interest during moratorium
Loan remains ₹10,00,000.
EMI ≈ ₹13,200 per month.
👉 Paying interest early reduces EMI by ₹4,000 per month.
Conclusion
An education loan with moratorium period is a financial lifeline for students. It provides breathing space to focus on studies and job hunting before repayments begin. However, students should remember that interest keeps accumulating. By making smart choices like paying partial interest, using subsidy schemes, and starting repayment early, the overall loan burden can be reduced.
If you are planning to take an education loan, always compare different banks, check the moratorium terms, and calculate how much interest will accrue. This planning can save you lakhs in the long run.