Moratorium Period in Overseas Education Loan: Complete Guide for Indian Students

Introduction

Studying abroad is a dream for many Indian students, but with high tuition fees and living expenses, the path to that dream often involves taking an education loan. While applying for a loan, you’ll come across terms like simple interest, disbursement, EMI, collateral, and moratorium period.

Most students nod along when bankers explain these terms, but later realise they didn’t fully grasp them. Among all these terms, the moratorium period is one of the most misunderstood.

So, what exactly is the moratorium period in an overseas education loan? Why is it important? And how can you make the most of it? Let’s decode this step by step.

What is the Moratorium Period in an Overseas Education Loan?

In the simplest words, the moratorium period is the “no EMI” period given to students by banks and financial institutions. During this time, you are not required to pay the principal amount of your loan. 

Many students assume a moratorium means no cost at all, but that’s not the case; simple interest keeps adding up. If you’ve borrowed from a nationalised bank, you can usually choose whether to pay it during your studies. 

However, if your loan is from a private bank or an NBFC, chances are you’ll need to pay some or all of that interest even before your EMIs begin. In some cases, even interest payments are optional (depending on lender type).

This period is often nicknamed an “EMI holiday” because repayment doesn’t start immediately after the loan is sanctioned.

In education loans for abroad studies, the moratorium usually covers:

• The entire course duration, plus 6–12 months extra (known as the job search period).
• This ensures students can focus on studying and finding employment before they start paying EMIs.

Why Do Banks Offer a Moratorium Period?

Unlike home loans or personal loans, students typically don’t have a steady income when they borrow for education. Without a moratorium, repayment would be impossible while studying abroad.

Banks offer this period to:

• Support students until they become financially independent.
• Increase repayment success (after you start working).
• Make education loans more attractive compared to private funding.
• It’s not just generosity; it’s practical banking combined with student support.
• Duration of Moratorium Period in international student loans
• The exact duration depends on the lender.

Here’s a general overview:

 Example: If you take a 2-year loan for a Master’s degree and your bank allows a 12-month job search period, your moratorium = 3 years. Your EMIs begin after that.

How Interest Works During the Moratorium Period

This is the trickiest part. Many students think a moratorium means no payments, no interest. That’s not true.

If you pay nothing, the unpaid interest gets added to the principal. This is called interest capitalization.

₹20 lakhs borrowed at 10% → After 2 years study + 1 year moratorium → Loan grows to around ₹26 lakhs.

If you pay simple interest, your principal remains ₹20 lakhs, and EMIs stay lower later.

Same loan → Pay ₹16,500/month interest during moratorium → You save ₹5–6 lakhs overall.

 Smart Move: Pay at least the simple interest during your moratorium, even if not mandatory.

Moratorium Period vs Grace Period: What’s the Difference?

These terms are often confused. Let’s clarify:

Moratorium Period: A long EMI holiday (course duration + 6–12 months). Interest may still apply.

Grace Period: A short window after EMI is due where you won’t be penalized for late payment (usually 3-6 months).

 Remember: Grace period = late fee waiver. Moratorium = structured EMI holiday.

Advantages of the Moratorium Period in Education Loans

No EMI Burden During Studies

Students can concentrate on academics instead of worrying about repayments.

No Negative Impact on Credit Score

Not paying during the moratorium doesn’t harm your CIBIL score.

Job Hunt Cushion

Extra months to secure employment before repayments start.

Financial Planning Time

Use this break to budget for EMIs, savings, and lifestyle expenses.

Disadvantages You Must Be Aware Of

• Loan Amount Swells if you skip all payments.
• Higher EMIs later due to interest capitalization.
• Private Banks May Not Offer Full EMI Holiday (they may demand partial interest payments).
• Always compare lenders before finalizing.

How to Make the Most of Your Moratorium Period

Here are some student-tested strategies:

• Pay Simple Interest Monthly – Even a small amount saves lakhs later.
• Use Scholarships/Stipends – If you get a teaching/research assistantship, use part of it for interest payments.
• Follow the 50/30/20 Rule – 50% needs, 30% wants, 20% savings/loan.
• Avoid Lifestyle Inflation – Don’t splurge on gadgets, cars, or expensive travel.
• Cook at Home – Saves big compared to eating out daily.
• Track Every Expense – Apps like Walnut, Wally, or Excel sheets help.

• Plan Repayment Before Graduation – Estimate your EMI using a loan calculator.

Real-Life Example: Sneha vs Rohan

Sneha and Rohan were classmates who both went to Canada for their master’s. Like many students, they needed financial support, and each borrowed ₹18 lakhs through an education loan. Both had similar family backgrounds and living expenses, but their choices during the moratorium period turned their financial journeys into two very different stories.

Sneha’s Strategy – Small Steps, Big Impact Sneha spoke with her loan advisor and learned that paying the simple interest during the moratorium would stop the loan from snowballing. She agreed to pay ₹15,000 per month (the interest amount) while studying. Of course, it wasn’t easy—she managed by doing part-time work on weekends and budgeting tightly.

By the end of her 3-year program, her loan balance was still ₹18 lakhs, exactly the amount she had borrowed. No extra burden was added because she had kept the interest in check.

When her EMIs kicked in after graduation, she was paying around ₹21,000 per month for the next 10 years. The repayment felt heavy, but manageable.

Rohan’s Strategy – Delayed Burden Rohan, on the other hand, thought, “Why stress now? The moratorium means I don’t need to pay anything. I’ll worry about EMIs once I get a job.” For three years, he didn’t make any payments.

But while he enjoyed the temporary freedom, the simple interest kept piling up in the background. At the end of his program, his loan balance had grown from ₹18 lakhs to ₹22 lakhs.

Now when repayment began, his EMI shot up to about ₹26,000 per month—a whole ₹5,000 more every month compared to Sneha. Over the full repayment period, this difference added up to nearly ₹6 lakhs extra out of his pocket.

The Long-Term Ripple Effect

• Sneha cleared her loan faster because her EMIs were smaller and more predictable. She could also start saving and investing earlier.
• Rohan struggled in the first few years of his career because his higher EMI ate into his salary. This delayed his plans to buy a car, rent a bigger apartment, or start investing in mutual funds.

Lesson Learned: The moratorium isn’t a “free pass”—it’s an opportunity to make smart financial choices. Even small, regular interest payments during this period can save you from a massive burden later.

FAQs 

Q1: Is the moratorium period compulsory in all education loans?

Yes, most education loans include it, but the exact terms vary across lenders.

Q2: Can I start repaying before the moratorium ends?

Absolutely. Prepayments reduce your loan burden significantly.

Q3: Does an interest-free moratorium exist?

No. Interest is always charged; only repayment is postponed.

Q4: Does not paying during the moratorium affect the CIBIL score?

No. It doesn’t impact your credit score.

Q5: What’s better, Nationalized banks or NBFCs for moratorium flexibility?

Nationalized banks usually offer more relaxed moratorium terms compared to NBFCs.

Conclusion

The moratorium period in overseas education loans is not just a pause button—it’s a financial tool. It buys you time to finish your studies and find employment. But interest keeps ticking, and if you don’t plan, your debt can snowball.

Here’s the takeaway:

• Treat moratorium as a graceful head start, not a free holiday.
• Pay at least the simple interest, if not full EMIs.
• Budget smartly and avoid lifestyle traps.

If managed wisely, the moratorium period can help you transition smoothly from a student to a professional, without drowning in debt.