How an education loan is calculated
An education loan has two phases:
- Study period (moratorium): the course plus a grace period. You don't pay EMIs, but interest is charged on the amount paid out so far. Either you pay that interest every month, or it is added to the loan. Most banks use simple interest here: amount paid out × rate × time.
- Repayment: EMIs start on the amount owed at that point (what you borrowed plus any interest added), using the standard reducing-balance method.
If the loan is paid out year by year as fees fall due, interest is charged only on what has been paid out, so the interest added during the study period is lower.
Worked example
₹10 lakh at 10%, a 2-year course plus a 6-month grace period, then 10 years of EMIs:
| Interest added while studying (simple) | ₹2,50,000 |
| Loan when EMIs start | ₹12,50,000 |
| EMI (interest added to loan) | ₹16,519 |
| EMI (interest paid while studying) | ₹13,215 |
| Monthly interest if paid while studying | ₹8,333 |
| Total repaid (interest added to loan) | ₹19,82,247 |
| Total repaid (interest paid while studying) | ₹18,35,815 |
Paying about ₹8,333 a month while studying saves about ₹1,46,432 overall, because that interest never becomes part of the loan that EMIs are charged on.
Section 80E tax benefit
The interest you pay on an education loan can be deducted from your taxable income under Section 80E, with no upper limit, for up to 8 years from the year you start paying interest. Principal repayments don't qualify, and the deduction is available only under the old tax regime.
Pick your tax slab under "Disbursement, rate concession & tax" in the calculator to see an estimate. We count the interest you pay in the first 96 months from your first interest payment and add 4% cess. Actual savings depend on your income each year and on financial-year boundaries. These rules are as set out under the Income-tax Act, 1961; the Income-tax Act, 2025, in force from 1 April 2026, renumbers sections, so confirm the current position with a tax adviser.
Assumptions
- The interest rate stays the same throughout. Most education loans are floating-rate, so EMIs can change.
- With yearly disbursement, the loan is paid out in equal amounts at the start of each course year.
- Interest added during the study period is added to the loan once, when EMIs start (simple interest), unless you choose monthly compounding.
- No processing fees, insurance or penal charges. Compare full offers with the loan offer comparison, and see the effect of paying early with the part-payment calculator.
Frequently asked questions
What is the moratorium period on an education loan?
It is the time when you don't have to pay EMIs: usually the course duration plus a grace period, often 6 to 12 months after the course ends, so you have time to find a job. Interest is still charged during this period. The exact grace period depends on your bank and scheme, so check your sanction letter.
Is interest charged during the moratorium?
Yes. Most banks charge simple interest on the amount paid out during the study period and add it to the loan when EMIs start. Some lenders compound it monthly, which costs more. You can usually choose to pay this interest every month instead, which keeps the loan from growing.
Should I pay interest while studying?
If you or your family can afford it, yes. Paying the interest during the study period stops it from being added to the loan, so your EMI and total interest are lower. Some banks also give a small rate concession, up to about 1%, if interest is paid during the study period. Even paying part of the interest helps.
How does the Section 80E tax deduction work?
Under Section 80E you can deduct the full interest paid on an education loan from your taxable income, with no upper limit. It applies only to interest (not principal), for up to 8 years starting from the year you begin paying interest, on loans from a bank or approved institution for higher education of yourself, your spouse, your children or a student you are the legal guardian of. It is available only under the old tax regime.
Can I prepay or close my education loan early?
Yes. On floating-rate loans to individuals, RBI does not allow banks to charge prepayment or foreclosure penalties. Prepaying early, especially in the first years of repayment, saves the most interest. Use the part-payment calculator to see the effect.
Why is my EMI higher than the loan amount suggests?
Because interest from the study period has been added to the loan. For example, on ₹10 lakh at 10%, 30 months of simple interest adds about ₹2.5 lakh, so EMIs are calculated on about ₹12.5 lakh, not ₹10 lakh.