Planning Your Education Loan Repayment
Education loans are a vital tool for funding higher studies in India or abroad. Unlike other loans, repayment doesn't start immediately. There is a "Moratorium Period" (usually the course duration + 6 to 12 months) during which you don't have to pay EMIs. However, interest still accumulates during this time.
Understanding the Moratorium Period
Many students believe the loan is "frozen" while they study. This is a myth. In most Indian education loans, Simple Interest is charged during the moratorium.
- Example: You take a loan of ₹10 Lakhs at 10%.
- Study Period: 2 Years.
- Accrued Interest: ₹1 Lakh per year x 2 = ₹2 Lakhs.
- Repayment Start: Your EMI will be calculated on ₹12 Lakhs (Principal + Accrued Interest), not ₹10 Lakhs. This is called capitalization of interest.
Pro Tip: If your parents can afford it, ask them to pay the simple interest during the course. This prevents the principal from ballooning.
Tax Benefits (Section 80E)
You can claim a tax deduction on the interest component of your education loan under Section 80E of the Income Tax Act.
- Limit: No upper limit on the amount.
- Duration: Available for up to 8 years or until interest is fully paid.
- Eligibility: Only available to the individual (student) or parent who took the loan for higher education.
Factors Affecting EMI
Most banks offer a repayment tenure of up to 15 years. While a longer tenure reduces the monthly burden for a fresh graduate, it significantly increases the cost of the loan. Since education loans often have floating interest rates, any hike in the Repo Rate will increase your burden.
About This Calculator
This calculator specifically accounts for the capitalization of interest during the moratorium period, giving you a realistic picture of your post-study EMI. Standard EMI calculators often miss this crucial step.
FAQs
- Is collateral required?
- Usually, loans up to ₹4 Lakhs need no collateral. Loans between ₹4L-₹7.5L need a third-party guarantee. Loans above ₹7.5L require tangible collateral (property, FD, etc.).
- Can I repay early?
- Yes, education loans typically have no prepayment penalty. It is wise to pay off debt quickly once you secure a job.