Education Loan Moratorium Period

When students apply for an education loan for the first time, they can sometimes confuse the repayment policy. They might think it’s like a regular loan, where payments start immediately after the loan is disbursed. But education loans have a different repayment structure. The government understands that students can only repay the loan after they start earning, so a moratorium period is given. This period includes the course duration and up to one year after that, during which students don’t need to pay any EMIs. In other words, their EMIs will start after the said period.

The length of this moratorium varies from course to course. For example, the moratorium period of a student pursuing a BSc in Physics will be four years, out of which three years is for the course period and one year extra to find a job. Similarly, a student pursuing BTech will get a moratorium period of five years – four years for the course duration and one year to get a job.

Although students do not need to pay EMIs during the moratorium period, interest continues to accumulate and is added to the principal amount, which must be repaid later. Intrigued? Read this detailed article on the education loan moratorium period for a comprehensive understanding.

Understanding Education Loan Moratorium Period

In student loans, there is the concept of a moratorium period. Students are given a holiday from paying off their loans for a duration called the moratorium period. It is compulsory for all banks and NBFCs to provide this break period from paying the EMI if they opt for an education loan. Interestingly, if you do not pay back your debts during this period, your CIBIL score is not affected. In addition, if you believe that you require an extension of the moratorium period, then you can ask your bank for it. However, you need to provide a valid reason for it. Some of the reasons why you can get an extension of the moratorium period are:

Delay in joining a job after getting an offer letter.
Delay from the university/college’s end for exams or release of results.
It is taking more time to find a job.
Unforeseen situation which affected your studies.

Simple Interest Calculation for Education Loan Moratorium Period

The simple interest charged by the banks during the moratorium period will increase your loan amount once the EMI starts. To counter this, it is advisable to pay the simple interest during the moratorium period. However, it can be challenging for students to start repaying the loan during this time.

Therefore, it is essential to make a wise decision about whether to pay the simple interest during the moratorium period or not. To make this decision, you need to know how much your simple interest will be during this period. We have explained the simple calculation for this below.

Imagine a student who has an education loan moratorium period of 1 year, and his loan amount is ₹20 lakhs. If the interest rate is 12% per annum, then the simple interest per month calculation will look like this:

Interest for one year = Loan Amount × Annual Interest Rate = ₹20,00,000 × 12% = ₹20,00,000 × 0.12 = ₹2,40,000 per year. Therefore, the monthly interest would be Annual Interest ÷ 12 = ₹2,40,000 ÷ 12 = ₹20,000 per month.

Also Read: Education Loan Interest Rate – A Detailed Analysis for Popular Banks

Education Loan Moratorium Period Interest Calculator

If you need to calculate the simple interest for the moratorium period of different loan amounts quickly, then we recommend using an education loan moratorium period interest calculator.

To use this tool, you can calculate the EMI that you need to pay on your education loan. To do that, all you need to input is the total loan amount, the interest rate on your study loan, and the loan duration. After entering them, the tool will automatically calculate the principal amount, interest amount, and the EMI that you need to pay monthly!

Also Read: Education Loan EMI Calculator – An Important Tool in Your Academic Journey

Pros & Cons of Education Loan Moratorium Period

Before you apply for an education loan with a moratorium period you need to know about both the pros and cons of it. That is why we have compiled its advantages and disadvantages below.

Pros of Education Loan Moratorium Period

Only the education loans in India have the moratorium period and it comes with its own benefits. These advantages are listed below:

An education loan moratorium period significantly reduces the burden of loan repayment during the course plus one year period.
Students get sufficient time to find a stable job after completion of their course before the moratorium period ends.
A delay in loan repayment can cause the CIBIL score of the applicant to drop significantly. Thus, opting for a study loan with a moratorium period can help you prevent that for the time of your course plus one year.

Cons of Education Loan Moratorium Period

Even though the moratorium period sounds very advantageous for students, there are a few cons that you need to be aware of before applying for an education loan. Below, we have listed these cons for you:

The simple interest accrued during the moratorium period is added to the principal amount which in return increases the loan amount and your EMI.
Since it increases the principal amount, the loan repayment duration also increases due to unpaid interest during the education loan moratorium period.

Ways to Reduce the Simple Interest During Education Loan Moratorium Period

The best way to reduce or completely remove the burden of simple interest building up during the moratorium period is by opting for various schemes offered by the government. It is important to keep in mind that there are certain eligibility criteria that you need to meet to get these benefits. The government of India runs schemes like the Dr Ambedkar Scheme for Socially and Economically Backward Students and the Central Sector Interest Subsidy Scheme (CSIS), which can help you pay the interest you accumulate during the moratorium period. We have discussed these schemes in detail below.

Dr Ambedkar Scheme for Socially and Economically Backward Students

“This scheme, provided by the Ministry of Social Justice & Empowerment, Government of India (GOI), is available to meritorious students from Other Backward Classes (OBCs) and Economically Backward Classes (EBCs) who aim to pursue higher education abroad. Students with an annual income of up to ₹8 lakh are eligible. Detailed information about the Dr Ambedkar Scheme for Socially and Economically Backward Students is provided below.

Important Information:

The applicant must be a student with a valid admission letter of an approved educational institution.
The student should have secured admission for an approved course abroad at the Masters, M.Phil, or PhD level.
The applicant must have availed of an education loan from a scheduled bank under the Education Loan Scheme of the Indian Banks Association (IBA).
The total income of the applicant (from all sources) must not exceed ₹8 lakhs per annum.
The scheme is only applicable for study abroad students.
Only meritorious students from Other Backward Classes (OBCs) and Economically Backward Classes (EBCs) can apply for the subsidy on interest for the moratorium period.
The subsidy will be provided for loans up to ₹20 lakhs only.

Central Sector Interest Subsidy Scheme (CSIS)

Launched by the Department of Higher Education, Ministry of Education in 2009, the CSIS scheme aims to provide a subsidy on the interest accrued by the students during their education loan moratorium period. The subsidy is offered to EWS candidates only and for education loans up to ₹10 lakhs. Details regarding the Central Sector Interest Subsidy Scheme (CSIS) are provided below.

Important Information:

The education loan should be obtained from Scheduled Banks that follow the Model Education Loan Scheme set forth by the Indian Banks Association (IBA).
The subsidy is offered for educational loans of up to ₹10 lakhs.
It is applicable to students from economically weaker sections (EWS) category.
Annual parental income must be up to ₹4.5 lakhs from all sources.
The subsidy is available only for pursuing higher education in professional/technical courses.
Students must choose a course offered by a college accredited by NAAC, or a professional/technical program accredited by NBA, or at Institutions of National Importance or Centrally Funded Technical Institutions (CFTIs).
Canara Bank is the Nodal Bank responsible for implementing the scheme.
The interest subsidy is credited directly to the student’s loan account through the DBT (Direct Benefit Transfer) mode using the PFMS gateway.

Also Read: Education Loan by Government of India

Moratorium Period vs Grace Period

Students often mix up the grace and moratorium periods on education loans. The grace period is a short, interest-free window right after the due date of an education loan EMI, during which you can make a payment without penalties. This period is often a few days, during which the bank will remind you to pay the EMI as soon as possible. In contrast, the moratorium period covers the entire duration of your course plus an additional 6 to 12 months after completion. During this period no repayments are required, although simple interest is still accrued.

Conclusion

The moratorium period of education loans offers much-needed breathing space for students. With its help, students do not have to pay a penny towards the EMI for the duration of the course plus one year. However, those who start paying the simple interest accrued during the education loan moratorium period before the EMI starts can expect to have a lower EMI compared to other students who have opted for the same loan.

Also Read: Education Loan with No Interest

FAQs

What is the 12-month moratorium period?

The 12-month moratorium period in education loan after your course ends is a period during which you do not have to pay the EMI of your loan like it was during the course duration.

Can I repay an education loan in the moratorium period?

You can repay your loan during the moratorium period. To pay off the loan completely, some banks may charge you foreclosure fees.

Can I extend my moratorium period?

Yes, the education loan applicant can apply for a moratorium period extension in case they face some financial difficulties, such as not finding a job, an earning member of the family has expired, etc.

Is the moratorium period good or bad?

The education loan moratorium period is a good thing because students get a generous amount of time to get settled after completing their course before they start paying the loan amount with compound interest.

Does the moratorium affect the CIBIL score?

No, the non-repayment of an education loan during the moratorium period does not affect the CIBIL score.