Overview

What is the Moratorium Period?

The moratorium period is a specified duration during which a student who has availed of an education loan is not required to make any principal repayments. This period is designed to provide financial relief to the borrower, allowing them to focus on their studies without the immediate burden of repaying the loan.

In India, the moratorium period plays a pivotal role in the education loan landscape — it ensures that students who cannot repay immediately after completing their course are not treated as defaulters.

Student benefiting from moratorium period in education loan

During the moratorium period, simple interest is calculated on the loan amount in most public sector banks. You are not a defaulter — the bank simply defers your repayment obligation.

Why is the Moratorium Period Important in India?

With an increasing number of Indian students pursuing higher education abroad and relying on education loans, the moratorium period has become essential. It allows students the time to:

  • Focus on their studies without financial distraction
  • Search for employment after graduation
  • Plan for loan repayment without an immediate burden
  • Allow co-borrowing parents a period of relief as well

Understanding the Moratorium Period with an Example

Let's walk through a practical example to see exactly how the moratorium period works and its impact on total interest paid.

Loan Details – "XYZ"'s Study Abroad Case

  • Loan Amount ₹10,00,000
  • Course Duration 2 Years
  • Moratorium Period 2 Years + 6 Months = 2.5 Years
  • Interest Rate 8% per annum
  • Repayment Tenure 5 Years
  • Monthly EMI (post moratorium) ~₹24,332

Interest Accrued During Moratorium

During the 2.5-year moratorium period, interest continues to build — either simply or compoundly, depending on your lender.

Simple Interest

  • Year 1 ₹80,000
  • Year 2 ₹80,000
  • 6 Months (Year 3) ₹40,000
  • Total Accrued ₹2,00,000

Compound Interest

  • Year 1 ₹80,000
  • Year 2 ₹86,400
  • 6 Months (Year 3) ₹46,656
  • Total Accrued ₹2,13,056

Tip: If you can pay the simple interest during the moratorium period, you avoid compounding and save significantly on total interest. EduLoanHub advisors can help you plan this.

Repayment Phase: Upon securing a job, XYZ begins repaying the loan. The total outstanding at end of moratorium (with simple interest) is ₹10,00,000 + ₹2,00,000 = ₹12,00,000. At 8% over 5 years, the monthly EMI works out to approximately ₹24,332.

Moratorium Period vs Grace Period

These two terms are often confused. Here's how they differ:

Moratorium Period

  1. Borrowers not obligated to repay during a specified period.
  2. Begins after completing studies or a specific event.
  3. No mandatory repayments required.
  4. Interest may accrue (simple or compound).
  5. Provides financial relief, especially for students.

Grace Period

  1. A set duration after a loan repayment due date.
  2. Starts immediately after the payment due date.
  3. Payments within this period considered timely.
  4. Interest may continue to accrue.
  5. Offers flexibility for borrowers facing temporary difficulty.

Pros and Cons of the Moratorium Period

Advantages

  • Financial Relief: Reduces the burden during the study period so students can focus fully.
  • Better Planning: Allows students to plan repayments after securing employment.
  • Credit Score Safety: Credit score remains unaffected if loan terms are followed.
  • Parental Relief: Co-borrowing parents are also not obligated to repay during this period.
  • Possible Extension: Some banks offer extensions in exceptional circumstances.

Disadvantages

  • Interest Accumulation: Interest accrues throughout the moratorium, adding to the total cost.
  • Compound Interest Risk: Some institutions compound interest, significantly increasing the amount owed.

Moratorium Period Policies by Lender Type

The moratorium terms vary depending on whether your loan is from a public bank, private bank, or NBFC.

Public Banks

SBI, BOB, Union Bank…

Moratorium = course duration + 6 months. No repayments required. Simple interest accrues and is typically added to principal.

Private Banks

HDFC, ICICI, Axis…

Moratorium = course duration + 12 months. Borrowers may need to pay simple interest during this period; EMIs start after.

NBFCs

Avanse, Auxilo, HDFC Credila…

Moratorium = course duration + 12 months. May require simple or partial interest payment. Terms vary by NBFC.

Frequently Asked Questions

A moratorium period is a specified timeframe during which borrowers, especially students, are not required to make repayments on their education loans.

No, borrowers are not obligated to make repayments during the moratorium period. However, interest may accrue during this time.

Interest can be calculated on a simple or compound basis depending on the loan agreement. It accrues on the outstanding loan amount throughout the moratorium.

Yes, borrowers have the option to start repaying the loan voluntarily during the moratorium period, which can significantly reduce the overall interest burden.

It is typically the course duration plus an additional 6 months (public banks) or 12 months (private banks and NBFCs).

Depending on the borrower's situation and the lender's policies, the moratorium period may be extended in exceptional cases such as delayed graduation or unemployment.

Not necessarily. While borrowers are not required to make repayments, interest accrues during the moratorium period and contributes to the overall loan cost.

It provides financial relief to borrowers — especially students — allowing them time to secure employment and stabilise financially before beginning loan repayment.