What is a Moratorium Period in Education Loan? Full Guide!

About Moratorium Period for Education Loan

It's just not the tuition fees that have skyrocketed in the last few years. The expenses associated with education have increased significantly, as well. These expenses multiply when students decide to pursue education overseas, which matters as it has witnessed a year-on-year hike of 35%. 

In these situations, parents and students alike turn to education loans to pay for their studies. However, it comes with complexities, and the most prominent one is the education loan moratorium period.

Let's delve into your complexities and check out key information related to the moratorium period in education loans, its importance, and how it is vital to student education loans.

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What is the Moratorium Period for Education Loan?

Before we dive into the intricacies of the moratorium period, you must know what is the moratorium period in an education loan?

A Moratorium period refers to the repayment duration of the education loan where students are not obligated to repay their loan. The moratorium tenure ranges till your course duration and an extra tenure of 6-12 months.

Moratorium period is a kind of payment holiday and allows breathing time to the student to get placed and start earning before they start their loan repayment. Being an essential feature of an education loan, it is important that a borrower is aware of moratorium period meaning and all other details. 

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Is Interest Charged During Moratorium Period in Education Loan

As with other loans, the education loan also accrues interest from the day the loan is shelled out. However, the catch is that there is no obligation for students to pay EMIs on the loan until the moratorium period is enforced. 

In this period, the interest amount is only deferred and not completely waived off. This amount gets added to the outstanding balance. So, you are supposed to pay a higher amount of EMIs when you get a job after your studies. Most lenders also provide the option of paying only the interest amount during the moratorium period so that it doesn't get accrued.

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Education Loan Moratorium Period Interest Calculator

To calculate the education loan EMI, simply input the loan amount (Principal), interest rate, and loan tenure (number of months) into the student loan calculator. The calculator will use the following formula to compute the EMI:

𝐸𝑀𝐼=𝑃×𝑅×(1+𝑅)𝑛(1+𝑅)𝑛−1EMI=(1+R)n−1P×R×(1+R)n​

where:

• P is the Principal,
• R is the Rate of Interest, and
• n is the Tenure (duration in number of months).

The same online calculator can also function as an education loan interest calculator to determine the interest payouts. By experimenting with different variable combinations, you can find a repayment amount that suits your budget, effectively using it as a student loan repayment calculator.

While the interest rates offered by various banks and financial institutions are generally similar, even a small difference in the interest rate can result in significant savings over the long term.

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‍Education Loan Eligibility

The eligibility for education loan mostly includes the following criterias: 

1. The applicant must be an Indian citizen above 16 years of age. 
2. Family must have a stable income source. 
3. Co- Applicant is mandatory for most education loans.
4. The co applicant must have a stable and regular source of income. 
5. The applicant must have secured an admission in a recognised university, in India or abroad, the proof of admission is mandatory. 
6. A strong academic record helps in speedy approval of the loan. 

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Documents Required for Education Loan with Moratorium

The most important documents required for education loan with moratorium are: 

1. A completed loan application form, filled correctly 
2. Proof of admission to the educational institution
3. Mark sheets of the last qualifying examination
4. Schedule of expenses for the course
5. Passport size photographs
6. Identity proof (such as Aadhar card, passport, driving license, etc.)
7. Address proof (such as Aadhar card, utility bills, etc.)
8. Income proof of parents or guardians
9. PAN card of the student and parents or guardians
10. Bank statements of the applicant and co-applicant for the last six months
11. Collateral documents (if applicable)
12. Any other documents as required by the lending institution
    

Which Banks Offer Moratorium Period in India?

Most banks and financial institutions in India offer moratorium periods for education loans, for a period of up to 1 year. However, availability and terms may vary. Some prominent banks and financial institutions that typically offer moratorium periods for education loans include:

1. State Bank of India (SBI)
2. Punjab National Bank (PNB)
3. HDFC Bank
4. ICICI Bank
5. Axis Bank
6. Bank of Baroda
7. Canara Bank
8. Union Bank of India
9. Indian Bank
10. IDBI Bank

Apart from these, NBFCs like Propelld also offer hassle free education loans with easy repayment terms and moratorium period. 

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What is the Locking Period for Education Loan?

Locking Period or tenure of education loan is up to 15 years usually, including the moratorium period. 

Moratorium shall mean:

• Course Period + 1 year or 6 months after getting a job, whichever is earlier;
• As stipulated by the Bank (as mentioned in the Schedule Cum Key Fact Sheet).

There are two types of payment holidays in the moratorium period: 

• Principal Moratorium:  A moratorium granted only for the repayment of the principal amount of the loan.
• Interest Moratorium: A Moratorium granted for repayment of the principal amount of the Loan as well as payment of the interest payable on the Loan.

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What is the Difference Between the Moratorium Period and the Grace Period?

Students and parents often get confused between the grace period and the moratorium period. The grace period is the time interval when you are allowed to pay EMIs after the payment is past due. It is usually a period during which you can pay EMI without inviting a penalty for yourself. On the other hand, the moratorium period meaning is quite different. It is a time interval when banks freeze on paying EMI on the education loan.  

Government banks don't make it a mandatory move for students to pay EMI during the moratorium period. However, private banks and financial institutions require students to pay either partial interest plus principal amount or full interest plus principal amount during the moratorium period.

Moratorium Period Example

The lender is aware that the borrowers are students and would not be able to pay back the loan right away. As a result, the students are granted a moratorium period during which they can look for employment and begin making their loan installments. Understanding the moratorium period with an example helps you understand how it benefits you. 

Assume that you take an education loan of ₹100,000 from an ABC bank in January 2024 for further studies. At the time of application, you have agreed to repay the loan in 12 installments. If ABC Bank provides a moratorium period of 12 months, your monthly installments will start from January 2025. As a result, you don't have to pay any EMIs till December 2024.

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RBI Guidelines on Education Loan Moratorium Period in India

The Reserve Bank of India has made it mandatory for all scheduled commercial banks to offer a moratorium period on education loans. According to RBI guidelines, banks must provide a moratorium period that covers the course duration and extends for up to one year post completion of the course. This ensures that students are not burdened with repayment obligations while they are still in the process of completing their education or looking for a job.

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What are the Benefits of the Moratorium Period?

The education loan moratorium period comes with multiple advantages. If you plan to finance your studies through an education loan, it becomes crucial for you to know its primary component, the moratorium period.

Higher relaxation on monthly EMIs

When you take an education loan, you are free not to pay monthly EMIs for at least the course duration. Since the moratorium period generally covers your course duration, including 6 months, which can be extended up to 1 year, you are relaxed in repaying the loan.

No Adverse Consequences on the Credit Score

Another advantage of the moratorium period is its effect on credit scores. Though you will not be paying EMIs immediately after the loan gets disbursed, this will not affect your credit score. This is a great value addition to your education journey because you can build up your CIBIL score after the moratorium period ends by making timely loan repayments. 

No Penalty on Non-payment of EMI

You will be charged zero penalty if you don’t pay EMI during the moratorium period. This will help you focus on your education and improve your skills to find a good job for timely repayment of the loan when the moratorium period ends. Another advantage is that if you are unable to find decent employment after the course ends, you can seek permission from the bank to extend the moratorium period up to 12 months.

Stress Free Education

Students can concentrate on their studies without the burden of making payments on their education loans. This alleviates financial stress and allows students to better plan their finances. Additionally, if you are unable to find decent employment after the course ends, you can seek permission from the bank to extend the moratorium period up to 12 months.

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Tenure of Moratorium Period in Banks

Here’s a brief outline of how Public sector banks, Private banks, and Non-banking financial institutions handle education loan repayment.

• Public Sector Banks: A moratorium period changes with the type of lender you have acquired an education loan from. The course duration plus six months is the moratorium period in government banks. During this time, there are no payments that students need to make.
• Private Sector Banks: The moratorium period of private sector banks differs a little from government banks. Unlike government banks, these private lenders do not keep the moratorium period payment-free. Installments, including some part of the principal amount, will start after the moratorium period. These private lenders also accept partial payments of interest during the education loan moratorium period. This is the biggest differentiator between government and private banks.
• NBFCs: The moratorium period in NBFC education loans is a +12 months. However, the student has to pay a simple interest amount or some partial interest during this moratorium period. Installments start after the moratorium period.

Partial payment involves students being able to pay the interest they owe during the moratorium period. For example, if the loan interest charges are ₹10,000 per month during the moratorium period, you will not have to pay the full rate of this charge to either a private bank or NBFC. Instead, as per the policies of both institutions, these private lenders will let you pay as low as ₹4000 to ₹5000.

The deposit profile would, therefore, be checked by private banks as well as NBFCs, where interests may also be required for the whole moratorium period. The candidate is not sure about the rules of education loan repayment, which will be entirely up to their organization.

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What are the Types of Education Loans in India?

When an education loan is processed for students planning to study abroad, two types of education loans are offered. These two categories are based on collateral securities. So, it is vital to have complete knowledge about these types of foreign education loans.

Secured Education Loan

Secured loans are primarily lent by all the major government banks in India. These loans mandate you to offer collateral securities. It will act as a guarantee against the education loan. One of the greatest advantages of secured education loans that are borrowed from government banks is the fact about the moratorium period. These education loans give a moratorium period to all students before the repayment period starts.

Unsecured Education Loan

Unsecured loans are primarily lent by all private banks and NBFCs (Non-Banking Finance Companies). These loans do not mandate you to offer any form of collateral securities. One of the major pieces of information that you must know about non-collateral loans is that government banks lend such loans only up to the amount of Rs.7.5 Lakhs. Unlike government banks, private banks and financial institutions do not offer the advantages of an interest-free moratorium period to students.

The education loan moratorium period is bliss for students who want to pursue higher education abroad. Not only does the moratorium period ease the EMI burden during student life, but it also refrains you from paying penalties during study.

If you want to pursue higher studies and look for an education loan, Propelld offers tailored financing solutions with a moratorium period. These solutions allow you to provide smaller EMIs during your course. We have a series of partner institutes that provide super-easy education loans. You can determine the amount you need to pay monthly after taking an education loan with the help of the education loan calculator with a moratorium period.

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Benefits of Propelld Education Loan

FAQs About Education Loan Moratorium Period

How can the moratorium period be helpful in my education loan?

The moratorium period offers a set and specific period for the repayment of education loans to students. During this time, you don't have to repay the installments, which helps you stabilize their financial condition post-disbursement of the loan.

Can a borrower apply for an extension for an education loan if he had defaulted on his previous loans In India?

Yes, a student who had previously defaulted but subsequently repaid a standard education loan installment can apply for its extension. Nevertheless, lenders will consider their history of repayments plus CIBIL score before granting an extension.

What is the maximum duration of the moratorium?

Moratorium periods differ according to the terms and conditions of different lenders as well as policies governing those lending institutions. Generally, deferment periods are known to range from a few months to even several years, depending on the type of credit advanced.

Is it possible to extend my moratorium period on an education loan? How?

Yes, you can extend the 6-month moratorium period in Government banks to 12 months, but not private banks and NBFCs. To do so, you need to send a letter to the bank stating that you want to extend your moratorium time period.

What is the 12 month moratorium period?

The DRO period is the twelve months from the date when the debt relief order is made by the Official Receiver. During this time you can't make payments towards most types of debt listed in the DRO and you're subject to certain other restrictions. This period may also be called the moratorium.

Do I have to pay interest during the moratorium period?

Yes, typically you have to pay interest during the moratorium period, unless, in rare cases if you have an interest moratorium. Although you may not be required to make repayments in such cases, interest accrues on the outstanding loan amount during this time.

What are the disadvantages of moratorium?

Disadvantages of moratorium include increased overall interest payment due to the accrual of interest during the moratorium period, potential extension of the loan tenure, and the possibility of higher total repayment amount.

How to calculate EMI with moratorium?

To calculate EMI with moratorium, use the loan amount, applicable interest rate, and loan tenure. Compute interest accrued during the moratorium period and add it to the loan amount. Then, calculate EMI using standard loan EMI formulas or online EMI calculators.