Partial Interest in Education Loan 2025 is becoming an important option for students who don’t want their loan burden to pile up while they study. With education costs rising every year, more students in India are turning to loans. In fact, according to the data from the RBI, the total outstanding education loan in the country touched ₹1.31 lakh crore in 2024.
Education loan interest rates generally range from 8% to 15%, making repayment tough for families. This is where partial interest comes in. This article explains the Partial Interest in Education Loan 2025, its meaning, benefits, and how it makes repayment easier.
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What is Interest on Education Loan?
When you take an education loan, the interest is essentially the fee the lender charges for letting you borrow money, on top of the principal amount you receive. It’s that added cost that makes the total amount you repay higher than just what you borrowed.
But education loans are slightly different from regular loans because of the moratorium period. This is a grace period that usually covers your course duration plus 6–12 months after completing your studies.
Key Points to Know:
1. Range of Interest Rates
Most education loans in India charge between 8% and 15% annually, depending on the lender and loan type.
2. Moratorium Impact
While you don’t have to pay EMIs during your moratorium, the interest accrued in this period can significantly increase your total repayment. For example, a ₹10 lakh loan at 10% interest will accrue nearly ₹2 lakh in interest during a 2-year study period if left unpaid.
3. EMI Repayment
Once the moratorium ends, repayment starts in the form of EMIs. Your EMI includes both the principal + interest. Choosing to pay even partial interest during the moratorium can reduce the size of your EMIs later.
4. Public vs. Private Banks
Public banks like SBI usually offer lower rates (around 7%–10%) with government-linked concessions, while private banks and NBFCs may charge higher rates.
5. Government Support
Schemes like the Interest Subsidy Scheme for Economically Weaker Sections ensure the government pays the interest during the moratorium, reducing the burden on students.
If you’re also exploring government-backed options for students from economically weaker sections, check out the CSIS Education Loan Scheme for detailed insights.
What is Partial Interest in Education Loans?
When students borrow money for higher studies, they usually get a moratorium period. During this time, they don’t have to pay EMIs. But interest keeps adding up in the background, and if left unpaid, it gets added (capitalised) to the loan. This often makes the repayment amount much higher than the original loan.
Partial interest means that instead of waiting until the moratorium ends, the student pays only a part of the interest during the study period. This simple step can reduce the overall loan burden, lower future EMIs, and help families manage costs more effectively.
Lenders often view students who pay even a small portion of interest during their moratorium as more responsible borrowers. This can improve your chances of getting better loan terms in the future, whether for higher studies, a car loan, or even a home loan.
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Moratorium Period in Education Loans
When you take an education loan, repayment doesn’t usually start immediately. Lenders provide a buffer period, often called a moratorium period, during which students are not required to pay the principal amount. In India, most banks follow the Indian Banks’ Association (IBA) guideline of granting a moratorium that includes the course duration plus 6 to 12 months after completion of studies.
Repayment Options in Education Loans
Repaying an education loan can feel daunting, especially once the moratorium ends. To make repayments easier, banks offer multiple options suited to different financial situations.
1. Simple Interest Repayment
The student pays only the interest during the study and moratorium period. By clearing the simple interest regularly, it does not get added to the principal. This ensures that once the EMI cycle starts, repayments are calculated only on the principal amount with compound interest.
2. Partial Simple Interest Repayment
Here, students pay a part of the simple interest during their study years, while the remaining unpaid portion gets added to the principal. This option works well for borrowers who cannot manage full interest payments but want to prevent their debt from ballooning excessively.
3. EMI Post-Moratorium
In this structure, the student pays nothing until the moratorium ends. After this, the repayment begins in the form of EMIs, which include both principal and compound interest. However, since the entire simple interest accrued during the study years is added to the principal, this becomes the costliest repayment method.
You should also be aware of the Education Loan Repayment Rules in India to plan your finances better and avoid surprises later.
How Does Partial Interest Work in Education Loans?
To make education loans more manageable, banks and NBFCs give students the option of paying partial interest during the moratorium. Normally, when a borrower does not pay anything during the study period, the accumulated interest is added to the principal amount. Partial interest prevents the EMI build-up by allowing students to pay a small portion of the interest while studying, which reduces the total outstanding loan amount in the long run.
Example: Suppose a student borrows ₹10 lakh at an interest rate of 10% for a 2-year master’s program. If they do not pay anything during the moratorium, the simple interest alone could add up to ₹2 lakh. This amount would then be added to the loan, making the repayment start at ₹12 lakh instead of the original ₹10 lakh.
However, if the student pays partial interest, say ₹4,000 per month (around 40% of the monthly interest), they would pay about ₹96,000 over two years. This keeps the outstanding amount closer to ₹11 lakh, saving nearly ₹1 lakh in extra repayment later.
Why Paying Partial Interest on Education Loans is a Smart Choice?
Many students and parents think about education loans only in terms of the principal and EMIs after graduation. By paying even a fraction of the interest while studying, students can give themselves a smoother repayment journey later.
Below are some of the key benefits of opting for partial interest payments:
1. Lower EMIs in the Future
Since the unpaid interest doesn’t keep adding up, the final loan amount is smaller, leading to more affordable monthly instalments.
2. Reduced Total Repayment Burden
A small contribution now can save lakhs in the long run.
3. Improves Credit Profile
Banks see partial payments as a sign of financial discipline, making it easier to secure future loans or get better terms.
4. Family-friendly Approach
Parents or guardians can pitch in with small amounts during the study period, which reduces stress after the moratorium.
5. Gives You Peace of Mind
Once you’re repaying EMIs, not dealing with a towering loan amount feels mentally easier, especially when balancing job hunting, relocation, or starting your career after graduation.
Partial interest payments during your moratorium can provide big savings, smoother EMIs, and a smarter debt journey that keeps your future finances lighter and more manageable.
If you’re unsure how credit ratings come into play, check out this guide on How Can a Good or Bad Credit Score Affect You to understand their impact on your education loan approval and repayment journey.
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Possible Drawbacks of Partial Interest in Education Loans
While paying partial interest during your study period can be a smart move, it comes with its share of trade-offs, especially when lenders and loan terms come into play. Understanding these potential downsides can help you make more informed decisions and avoid surprises later.
Here are some possible pitfalls of opting for partial interest:
1. Fees or Restrictions May Apply to Partial Payments
Just as banks might charge for part-prepayments, similar charges might apply to partial interest payments, especially from private lenders. Such fees can eat into your savings.
2. Potential for Compounding on Remaining Interest
In many cases, especially with private banks and NBFCs, only the portion of interest you pay gets cleared. The rest continues to accumulate or "compound" over time, increasing your effective loan amount even if you've made partial payments.
3. Adds Complexity to Financial Planning
Managing small interest payments during college requires discipline, and not all students or their families can stick to this consistently. Missed or irregular partial payments may end up adding more stress than help later on.
Partial interest payments can be beneficial, but they’re not risk-free. Make sure your lender fully supports and clearly outlines the terms of such payments.
Confused Between Bank Loans and NBFC? Here’s What to Consider
Many students struggle to choose between traditional banks and NBFCs when both present offers with slightly different terms. Interest rates, insurance costs, and repayment conditions can make the decision tricky.
A Reddit user in r/Indians_StudyAbroad shared:
"I got two education loan offers, Yes Bank at 11.5% ROI with simple interest and HDFC Credila with partial interest. The processing fees are similar, but insurance is 18k with Yes Bank and 42k with Credila. Credila’s only advantage is partial interest. Which one should I pick?"
Insight: Traditional banks often come with lower interest rates and simpler terms, but NBFCs attract students with features like partial interest repayment that ease cash flow during studies. The hidden costs (like higher insurance premiums) can tilt the overall affordability.
What do we infer from the above case?
Choosing between banks and NBFCs isn’t only about ROI. You should weigh:
- Insurance charges and hidden costs
- Repayment structure (simple vs partial interest)
- Flexibility in repayment during study years
Tip: Always request a provisional sanction letter or loan agreement draft before paying the processing fee. Most lenders share this on request, helping you review terms without financial risk.
Partial interest in education loans is a practical tool for reducing long-term debt pressure. By taking small, manageable steps during the moratorium, students can keep their EMIs lighter and overall repayment more affordable. In 2025, with education costs continuing to rise, this approach gives borrowers more control over their finances while pursuing higher studies.
Why let high EMIs hold you back when smart repayment options exist? With Propelld, you can choose repayment plans that ease your financial burden right from day one. Enjoy loans up to ₹50 lakhs without collateral, flexible tenures, instant digital approvals, and tailored solutions designed to match your education goals.
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