What an education loan moratorium really costs

A moratorium pauses your EMI. It does not pause your interest. Interest keeps accruing the whole time you are studying, and at the end it is capitalised — added to your principal. You then start repaying a loan that is bigger than the one you took, and every EMI for the next ten years is calculated on the larger figure.

Nobody hides this. It is just rarely said in the same sentence as the word “pause”.

What capitalisation does to a ₹10 lakh loan

At 10.5%, repaid over 10 years once the moratorium ends:

Three years of study turns a ₹10 lakh loan into a ₹13,15,000 loan before you have paid a rupee — and adds ₹4,251 a month to every EMI for a decade. Over the full term that is ₹1,95,120 more than the same loan would have cost.

The part you are usually not told: you can pay just the interest

Most lenders allow you to service the interest during the moratorium. Do that and nothing capitalises — you begin repayment on the original ₹10,00,000, at the original EMI.

Being honest about what that saving is

Servicing is not free money and this page will not pretend otherwise. You pay ₹3,15,000 during your studies that you would otherwise not have paid at all. What you get back is ₹5,10,120 less in EMIs later — a net ₹1,95,120 in your favour, in nominal rupees.

Two caveats worth stating plainly. These are undiscounted figures: money paid while you are studying is worth more than money paid in year eight, so the true advantage is smaller than ₹1,95,120. And a student with no income genuinely may not be able to do this. If a parent or sibling can cover the interest, that is usually where the money should go — but the plan only works if someone actually has it.

A longer tenure makes capitalisation worse, not better

The instinct when the EMI looks too big is to stretch the term. That reduces the monthly figure and increases what capitalisation costs you, because the capitalised interest is itself charged interest for every extra year.

• ₹10 lakh, 5-year moratorium, 15-year repayment: you start repaying ₹15,25,000 — 1.53 times what you borrowed — and servicing the interest instead would have saved ₹5,19,540.
• ₹20 lakh, 3-year moratorium, 10-year repayment: you start repaying ₹26,00,000, the EMI is ₹7,929 a month higher, and servicing would have saved ₹3,51,480.

What to ask before you sign

• “Is interest simple or compounded during the moratorium?” Simple is the usual education-loan convention and is what the figures above assume. Monthly compounding costs more.
• “Can I service the interest, and is there a concession for doing so?”Several lenders reduce the rate slightly for borrowers who do.
• “When exactly does the moratorium end?” Usually course duration plus six months to a year — but it is the sanction letter that governs, not the brochure.
• “Is there a prepayment charge?” For a floating-rate education loan to an individual, the RBI’s 2025 Directions bar one on loans sanctioned or renewed from 1 January 2026 — see the 2026 rules.

What this page does not cover

• Interest subsidy schemes. Some borrowers qualify for central government subsidy on the moratorium interest, which changes these figures materially. Check eligibility before assuming you must pay it yourself.
• Section 80E. Interest paid on an education loan is deductible without a cap under the old regime, for up to eight years. That improves the case for servicing if you have taxable income — and does nothing if you are a student who does not.
• Your lender’s exact method. Accrual convention, the capitalisation date and the rate basis all vary. The sanction letter governs.

Related: EMI and amortisation schedule · Which debt to clear first

Educational content only — not financial advice. Figures are computed for the stated assumptions; your loan will differ. Check your sanction letter and confirm terms with your lender.