What Is a Moratorium Period in an Education Loan?
A moratorium period (also called a "repayment holiday" or "grace period") is the time during which you are not required to pay EMIs on your education loan. It typically covers the entire duration of your course plus a buffer period after graduation.
The idea is simple: you cannot repay a loan while you're still a student with no income. The moratorium gives you time to complete your education, find a job, and start earning before repayment begins.
How Long Is the Moratorium Period?
| Course | Duration | Moratorium Period | EMIs Start After |
|---|---|---|---|
| B.Tech / BE | 4 years | 4 years + 1 year | ~5 years from disbursement |
| MBA (2-year) | 2 years | 2 years + 1 year | ~3 years from disbursement |
| MBBS | 5.5 years | 5.5 years + 1 year | ~6.5 years from disbursement |
| MS (USA/UK/Canada) | 1.5–2 years | 1.5–2 years + 1 year | ~2.5–3 years from disbursement |
| MBA (ISB – 1 year) | 1 year | 1 year + 1 year | ~2 years from disbursement |
What Happens to Interest During the Moratorium?
This is the most important — and most misunderstood — aspect of the moratorium period. Interest continues to accrue on your loan even during the moratorium. You're not paying EMIs, but the interest keeps adding up.
Banks handle this in two ways:
- Simple Interest During Moratorium: Interest is charged on the disbursed amount only, without compounding. This is the standard approach under the IBA Model Loan Scheme.
- Interest Added to Principal (Capitalisation): Some banks add the accrued interest to the principal at the end of the moratorium. Your EMIs are then calculated on this higher amount.
Worked Example — Moratorium Period Impact
📊 Scenario: ₹20 Lakh Loan at 10% p.a. — 2-Year MS Course (USA)
| Parameter | Value |
|---|---|
| Loan Amount | ₹20,00,000 |
| Interest Rate | 10% p.a. |
| Course Duration | 2 years |
| Moratorium Period | 2 years + 1 year = 3 years |
| Interest Accrued (3 years, simple) | ₹6,00,000 |
| Outstanding at Repayment Start | ₹26,00,000 |
| Repayment Tenure | 10 years |
| Monthly EMI (approx.) | ₹34,400 |
By paying simple interest during the moratorium (even partial payments), you can keep the outstanding amount lower and reduce your EMI burden significantly.
Should You Pay Interest During the Moratorium?
You are not required to pay anything during the moratorium. But you can — and it makes a big financial difference.
- Pay simple interest monthly during moratorium → Keeps principal unchanged → Lower EMIs after graduation
- Pay nothing during moratorium → Interest capitalises → Higher EMIs → More total interest paid
- Middle ground: Many students working part-time abroad pay partial interest during studies to reduce the final burden
Moratorium Period Across Major Banks
| Bank | Moratorium Period | Interest During Moratorium |
|---|---|---|
| SBI | Course + 1 year | Simple interest; optional payment |
| Bank of Baroda | Course + 1 year | Simple interest; optional payment |
| HDFC Credila | Course + 6 months to 1 year | Accrues; added to principal if unpaid |
| Axis Bank | Course + 6 months | Accrues; EMI calculated on total outstanding |
| ICICI Bank | Course + 1 year | Simple interest; optional payment |
Frequently Asked Questions
You can approach your bank to request a moratorium extension in genuine hardship cases. Most banks consider this on a case-by-case basis. Government banks are generally more flexible. It's important to communicate proactively with the bank rather than defaulting on EMIs.
No. The moratorium is a pre-agreed feature of education loans — you are not defaulting by not paying EMIs during this period. Your CIBIL score is unaffected during the moratorium. However, once EMIs begin, any missed payments will impact your credit score.
Yes, absolutely. You can make partial or full prepayments at any time during the moratorium without penalty in most bank education loans (check your specific loan agreement). Early repayment significantly reduces your total interest outgo.
Section 80E deduction applies to interest paid — not accrued. If you pay interest during the moratorium, that amount is deductible under 80E in the year of payment. Once regular repayment begins, the interest portion of each EMI qualifies for 80E deduction for up to 8 years.