Pursuing higher education is a major financial commitment, and education loans often serve as a crucial tool to fund your studies. One key aspect of these loans that borrowers, particularly students, should be aware of is the “moratorium period.” This period provides essential relief by allowing you to delay loan repayments for a specified time. In this blog, we will break down everything you need to know about the moratorium period, how it functions, and its impact on your education loan repayment.
Table of contents
What is the Moratorium Period in Education Loan?
A moratorium period is a temporary relaxation on repaying the principal amount of your education loan. During this period, you are not required to make regular loan repayments, though interest may still accrue. This period typically lasts until you complete your course or secure a job, depending on the terms of your loan agreement.
The moratorium period offers students time to focus on their studies without the financial burden of repaying the loan immediately. It also allows students to transition smoothly into the workforce without immediate repayment stress.
Also Read: Find out how much education loan you can get for pursuing higher education in India and abroad. Explore factors like family income and creditworthiness.
How Does the Moratorium Period Work for Education Loans?
When you take an education loan, most financial institutions offer a moratorium period that typically lasts during the course duration, plus an additional grace period (usually 6 months to 1 year). During this time, you are not required to repay the loan, but interest may still accumulate.
After the completion of the moratorium period, you will need to begin repaying your loan during your education loan repayment time. The bank may offer flexible repayment options, such as:
- Equated Monthly Installments (EMIs): Fixed monthly payments to cover both the principal and interest.
- Simple Interest: You only pay interest on the loan during the moratorium, and the principal repayment begins after the grace period.
- Partial Simple Interest: A combination of interest-only payments and partial principal repayment during the moratorium.
How Does the Moratorium Period Help Education Loan Borrowers?
The moratorium period is designed to ease the financial pressure on students during and after their studies. Let’s explore some of the key advantages:
No Repayment During Studies
During the moratorium period, students are not required to pay the principal amount. This allows them to focus entirely on their education.
Time to Secure Employment
The grace period gives graduates time to find a job and start earning before beginning loan repayment. This flexibility is particularly helpful for those entering the job market.
No Impact on Credit Score
One of the major benefits of a loan moratorium is that it doesn’t negatively impact your credit score. You won’t face penalties or a reduction in your credit score during this period, as long as you comply with the terms.
Financial Relief During Transition
The moratorium period helps ease the financial burden, allowing you to adjust to life after education without immediately worrying about loan repayments. This is particularly helpful when you need time to plan your finances.
Key Factors That Affect the Moratorium Period
The moratorium period for an education loan is not one-size-fits-all; its duration and terms can be influenced by various factors. Understanding these factors is essential for planning your loan repayment effectively and ensuring you make the most of this temporary relief period.
Loan Type and Lender Policies
Different banks and lenders offer varying terms. Some banks may offer a standard moratorium period of 12 months post-graduation, while others might offer a longer grace period.
Course Duration
The length of the moratorium period typically depends on the duration of the course. For example, if your course lasts three years, the moratorium may also last until three months after you graduate.
Loan Amount
For larger loans, especially those requiring collateral, the lender might extend the moratorium period or offer additional repayment flexibility.
Employment Status
Some banks offer more flexibility if you are unable to secure employment immediately after your course completion. The moratorium period may be extended in special circumstances.
Also Read: Planning to study abroad? Learn how to get an education loan to study abroad and cover tuition fees and living expenses.
How to Minimize the Interest Burden During the Moratorium Period?
Although the moratorium period offers temporary relief, it’s essential to be mindful of the interest that accumulates. Here are a few strategies to manage your loan effectively:
Pay Interest During the Moratorium
If possible, make partial interest payments during the moratorium period. This will reduce the total amount of interest accumulated and lower your overall repayment burden.
Look for Subsidies or Interest Waivers
Some government schemes or banks offer interest subsidies for specific categories of students (e.g., female students or those from economically weaker sections). Make sure to explore these options.
Prepay Whenever Possible
If you can afford to, making early partial repayments during your studies or after the moratorium period can help reduce the total principal and interest.
This was all about the moratorium period in an education loan. To learn more about education loans, the best bank accounts for students, forex, banking experience for global students, or international money transfers, reach out to our experts at 18005
FAQs
A moratorium period is the time during which you do not have to repay the principal of your education loan. Interest may still accrue during this period.
The moratorium period typically lasts until you complete your course or up to 6 months after course completion, but it varies by lender and loan type.
Yes, interest generally accrues during the moratorium period. Some lenders may allow you to pay only simple interest during this time.
Extensions to the moratorium period depend on the lender’s policies. You can request an extension in case of financial hardship or if you haven’t secured employment yet.
Most education loans come with a moratorium period, but the terms can vary depending on the lender and the type of loan.
No, the moratorium period doesn’t impact your credit score as long as you adhere to the terms and do not miss payments on interest or principal after the moratorium ends.
Repayment usually starts immediately after the moratorium period ends, which could be after course completion or the specified grace period.
Yes, some banks allow students to pay simple interest during the moratorium period, which can reduce the overall burden when the loan repayment begins.
Yes, the moratorium period can give you time to find employment, save money, and improve your financial situation before repaying the loan.
The moratorium period is usually the course duration + one year, or six months after securing a job. However, different banks and financial institutions may have different moratorium periods and policies. It’s essential to check with your lender for specific terms.
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