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Education Loan
What Is the Moratorium Period of an Education Loan?
2 mins Read | 2 Months Ago
Planning for higher education often involves significant financial decisions. Many students and parents rely on an Education Loan (also known as Student Loan) to achieve this goal. However, managing repayments while studying can be challenging. That’s where the moratorium period of an Education Loan comes in. It provides financial flexibility and breathing space during your academic journey.
In this blog post, we’ll explain the meaning of the moratorium period, its role in an Education Loan, how it works and how to calculate EMIs once the moratorium ends using tools like an Education Loan EMI calculator.
Meaning of Moratorium
In simple terms, a moratorium is a temporary relaxation period during which borrowers are not required to make loan repayments.
For an Education Loan, the moratorium period allows students to focus on their studies without worrying about immediate financial obligations. ICICI Bank offers a principal moratorium, which means borrowers don’t need to repay the principal component of the loan during the moratorium period. However, the interest on the loan amount continues to accrue. During the moratorium, borrowers have to make repayments only towards the interest component of the loan. There is an option to make a partial interest payment. However, this option is offered to borrowers based on the course, study destination and institute category. If the interest is partially paid, then the remaining accrued interest is added to the principal at the start of the repayment period, forming a revised principal amount. This applies to both kinds of Education Loans- with and without collateral.
The moratorium period for an Education Loan includes:
- The entire duration of your course
- An additional grace period (6 months) after course completion.
This feature makes Education Loans a supportive financial tool for students pursuing higher education in India or abroad.
Moratorium Period in Education Loans: How It Works
When you take an Education Loan, repayment doesn’t start immediately. Instead, the bank provides a moratorium that consists of the course duration and an additional buffer period to help you settle into your career.
Let’s understand this with an example:
Suppose you take an Education Loan of ₹ 20 lakh for a two-year master’s program.
- Course Duration: 2 years
- Additional Moratorium (Grace) Period: 6 months
In this case, you don’t need to start making EMI payments (towards repayment of the principal component of the loan) for three years (two years of study + 6 months grace period). However, during the moratorium, simple interest continues to accrue on the disbursed loan amount. As per policy, borrowers are required to pay the interest or at least part of the interest during the moratorium period. The availability of the part-payment option depends on factors such as the course, study destination, institute category and the co-applicant’s profile.
Benefits of Moratorium Period in Education Loans
The moratorium period in Education Loans offers multiple advantages for students managing academic and financial responsibilities, as listed below:
It gives students time to complete their education and secure employment before starting repayment.
Students can focus on academics rather than worrying about EMIs during the course.
The additional grace period helps graduates become financially stable before beginning repayments.
4. Option to Pay Simple Interest
You have the option of paying interest during the moratorium period. This helps reduce the total loan burden after repayment begins.
Timely repayment after the moratorium builds a strong credit score, which is beneficial for future financial needs.
How to Calculate EMIs After Moratorium
Once the moratorium ends, your EMI amount depends on the total outstanding loan amount (principal + any accrued interest). You can use an Education Loan EMI Calculator to estimate monthly payments.
Example:
- Loan Amount: ₹ 20 lakh
- Interest Rate: 10% per annum
- Loan Tenure: 10 years
- Moratorium Period: 2.6 years (2 years of the course + 6 months grace period )
If you choose not to pay interest during the moratorium, the accrued simple interest is added to your principal. Accordingly, at the end of the moratorium:
- Outstanding Loan = ₹ 20 lakh + ₹ 13.5 lakh (approximate accrued interest) = ₹ 33.5 lakh
- EMI (for 10 years at 10%) ~₹ 26,430 per month
However, if you pay simple interest during the moratorium, your principal remains ₹ 20 lakh and EMI amount is ~₹ 26,400 per month.
Interest During Moratorium: How It Works and What to Expect
During the moratorium period, interest continues to accumulate on the loan amount that has been disbursed. In most cases, borrowers are expected to pay interest or at least a portion of it during the moratorium period. The availability and structure of the part-payment option depend on the basis of eligibility, as mentioned earlier. Here is the impact of paying interest and deferring the interest payment:
Paying Interest During Moratorium
- Prevents interest capitalisation
- Keeps repayment amount lower
For long-term savings, it’s advisable to pay at least simple interest during the moratorium, especially if you have financial support from parents or in the form of scholarships.
How to Manage Repayment After Moratorium
When your moratorium period ends and EMIs begin, effective financial planning becomes essential. Here are some practical steps:
1. Plan Ahead
Use the moratorium period to assess your future income potential, career path and expenses.
2. Monitor Interest Rate Changes
If your loan has a floating interest rate, keep track of RBI’s repo rate announcements, as they influence your Education Loan interest rate.
3. Make Pre-payments When Possible
Use any additional income or bonuses for partial pre-payments to reduce the principal and total interest.
4. Stay Informed
Regularly review your loan account on the iMobile app or Net Banking to track outstanding balance and EMIs.
Conclusion
Understanding what the moratorium is and how it applies to your Education Loan can make a significant difference in managing finances during and after your studies. The moratorium period in Education Loans gives students the time they need to complete their course without stress, find suitable employment and start repayment comfortably.
An Education Loan is more than financial support- it’s an investment in your future. With responsible planning and awareness about the moratorium, you can make your academic journey smoother and stress-free.