Education Loan Moratorium Explained: EMI, Interest & Repayment Examples

In India, it is common for students to use an education loan to help pay for their education. Students are familiar with their monthly payment amount (EMI) and the interest rate to be charged. There is one more key factor that must be kept in mind: What is moratorium period in education loan, and how does it affect repayments?

In this article, we will explain the definition of an education loan moratorium period, how interest accrues during the moratorium period, and the expectations for borrowers when they make regular EMI payments after education. 

What is a Moratorium Period in an Education Loan?

What is moratorium period in education loan? It is a grace period, often referred to as the holiday period, when students are free from repayment. 

Let us break the moratorium period into two parts.

• A study period is the duration of an educational course for a student.
• The grace period is usually 6 to 12 months after course completion.

During this combined period, borrowers are not required to pay EMIs. This entire phase is called the moratorium period. The purpose of the moratorium period is to give students time to complete their education, secure employment, and stabilise their income before repayments.

The purpose of the moratorium period is to give students time to complete their education, secure employment, and stabilise their income before repayments.

Understanding the Education Loan Moratorium Period Structure

The structure is the first step to understand what is moratorium period in education loan. The education loan moratorium period is structured to align with academic and career timelines. Most lenders design this period to ensure that students are not burdened with repayments before they start earning.

For example:

• Most undergraduate programs are four years long, so they generally provide a longer moratorium.
• Most Post-Graduate Programs are generally one year long, so they provide a shorter moratorium.

Understanding the moratorium structure and timelines will give borrowers information on when the repayment of the education loan actually begins.

Is Interest Charged During the Moratorium Period?

One of the most common misunderstandings about the topic of what is moratorium period in education loan is the assumption that no interest will be charged during this phase.

The truth is:

• Interest continues to be charged throughout the moratorium period.
• Any interest that is not paid during the moratorium period is added to the principal balance.
• The principal of your loan will increase because of the additional interest being added to it at the end of the moratorium period.

Therefore, it is important to understand the interest behaviour during the moratorium for planning repayment.

Can Students Pay Interest During the Moratorium?

Yes, Students can choose to pay the interest during the moratorium period. Many lenders allow borrowers to pay either the full simple interest or partial interest amounts.

Doing this reduces the overall loan burden and results in lower EMIs later. Students who understand what is moratorium period in education loan early can use these options to manage long-term costs effectively.

Different Course-Based Moratorium Examples

Here is how the moratorium works for different course

1. Engineering degrees in India

• Duration: 4 Years
• Grace Period: 12 Months
• Total Moratorium: 5 Years
• So, loan repayment will begin only after the end of this period.

2. MBA Programme

• Duration: 2 Years
• Grace Period: 6 - 12 Months
• Total Moratorium: up to 3 Years.
• A shorter moratorium means payment of EMIs will start earlier than a typical Engineering degree.

3. Overseas Education Course 

• Duration: 1 - 2 Years.
• Grace Period: 6 Months
• Total Moratorium: approximately 2 - 2.5 Years.

These courses typically have larger loan amounts, so repayment scheduling should be considered significantly more seriously, as the individual may not be working in the country in which they received their education.

When Does EMI Repayment Start?

EMI repayment begins once the grace period has passed and the study period has ended. At this point, interest that has not been paid during the moratorium will be added to the principal, and the EMI repayment period will officially start. Understanding the moratorium period education loan timelines will help prevent confusion when receiving notices for loan repayment.

EMI Impact: With and Without Moratorium Planning

Using an education loan EMI calculator with moratorium allows students to compare these outcomes clearly and set up an efficient repayment structure.

Why EMI Calculators Are Important for Students

An education loan calculator with moratorium period​ helps borrowers in many ways.

• It helps to estimate future EMIs realistically.
• It helps us to understand the total repayment amount, and
• It helps in planning finances before the beginning of employment.

Does the Moratorium Period Affect CIBIL Score?

The education loan moratorium does not adversely affect a borrower’s CIBIL score as long as:

• The loan officially retains its moratorium status
• Properly scheduled EMI payments begin at the end of the moratorium period

However, any delays or defaults after the moratorium period can have a detrimental effect on the borrower's credit history.

Repayment Planning Tips for Students and Parents

Effective planning helps reduce stress and enhances financial stability for the future. To manage the repayment of an education loan more smoothly, one must:

• Understand what is moratorium period in education loan
• Read and understand the information in the education loan agreement on the moratorium period before signing any agreement.
• Create a budget that includes expected EMIs, based on the expected entry-level salary.
• Do not add unnecessary or luxurious expenses during your first years of working.
• Use an EMI calculator to consider repayment amounts based on several factors and scenarios that can occur in your daily life.

Common Myths About Education Loan Moratorium

There are many misconceptions among Indian borrowers regarding the education loan moratorium. 

• Many believe that a moratorium means interest-free repayment. This is false. Interest continues to accumulate during the moratorium.
• Many assume EMIs begin immediately after final exams, which is not always the case. EMIs do not always begin immediately after exams. Typically, education loans include a grace period after course completion before repayment begins.
• Another misbelief is that a moratorium damages credit scores. An education loan moratorium does not harm the credit score when followed correctly. The loan remains in deferment, and no repayment is required during this period.

Conclusion

Understanding what is moratorium period in education loan is essential for students and parents using education loans to fund higher studies. While a moratorium on EMIs provides a temporary financial relief to a few borrowers, in its essence, limited payment periods and accumulating interest determine the overall costs of a loan.

Borrowers can take charge of managing their education loans responsibly, avoiding unnecessary stress, and understanding the different types of repayment structures available.

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