Education loan moratorium: should you pay interest while studying?
By the LoanReveal team · Updated 13 October 2026 · 5 min read
Short answer: if your family can afford it, pay the interest while you study. During the moratorium (course plus grace period) you don't pay EMIs, but interest is still charged. If it is added to the loan, your EMIs are calculated on a bigger amount.
On a ₹15 lakh loan at 10.5% for a 2-year course, paying about ₹13,125 a month while studying saves about ₹2,43,824 overall and cuts the EMI from ₹25,553 to ₹20,240.
What happens during the moratorium
The moratorium is usually the course period plus a grace period, often 6 to 12 months after the course ends. No EMIs are due, but interest is charged on the amount paid out so far. You have two choices:
- Let it add up. Most banks charge simple interest during this period and add it to the loan when EMIs start. Some lenders compound it monthly, which costs more.
- Pay it monthly. The loan doesn't grow, so EMIs are lower later. Some banks also give a small rate concession, up to about 1%, for this.
The difference, with real numbers
₹15 lakh at 10.5%, paid out in two yearly instalments for a 2-year course, 12-month grace period, then 10 years of EMIs:
| Interest added during study (simple) | ₹3,93,750 |
| Loan when EMIs start | ₹18,93,750 |
| EMI if interest is added | ₹25,553 |
| EMI if interest is paid while studying | ₹20,240 |
| Monthly interest while studying (final year) | ₹13,125 |
| Total repaid: interest added | ₹30,66,426 |
| Total repaid: interest paid while studying | ₹28,22,603 |
| Total repaid: interest compounded monthly | ₹31,58,595 |
Paying while studying saves about ₹2,43,824, because that interest never becomes part of the loan that EMIs are charged on. Compounding is the most expensive option, so check your sanction letter for how your lender adds interest.
Can't pay all of it? Pay what you can
Even part of the interest helps: whatever you pay during the moratorium is not added to the loan. If parents can cover some of it, or you earn from an internship, it lowers your future EMI. Ask your bank how to make interest payments during the study period.
The Section 80E tax benefit
Interest paid on an education loan can be deducted from taxable income under Section 80E, with no upper limit, for up to 8 years from the year you start paying interest. It covers interest only (not principal), applies to loans from banks and approved institutions for higher education of yourself, your spouse, your children or a student you are the legal guardian of, and is available only under the old tax regime. 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.
Work out your own loan
The education loan calculator shows your EMI, the interest added during the moratorium, what paying it early saves, and the Section 80E saving for your tax slab. After EMIs start, see how prepaying helps with the part-payment calculator.
Frequently asked questions
Is interest charged during the education loan moratorium?
Yes. Interest is charged on the amount paid out during the course and grace period. Most banks charge simple interest and add it to the loan when repayment starts, unless you pay it as you go.
How long is the moratorium on an education loan?
Usually the course duration plus a grace period, often 6 to 12 months, so you have time to find a job. It varies by bank and scheme, so check your sanction letter.
Can I prepay an education loan?
Yes. On floating-rate loans to individuals, RBI doesn't allow prepayment penalties. Prepaying early in the repayment period saves the most interest.